The Lincoln County Construction Company is planning to place a bid on a construc

Question

The Lincoln County Construction Company is planning to place a bid on a construction contract. After analyzing the work with a technique known as program evaluation and review technique (PERT), it has concluded that the construction project would take 200 days to complete. This estimate carries with it many uncertainties, however. When the uncertainties are taken into consideration, the company feels that the completion time is a random variable, and its distribution having a mean of 200 days and a standard deviation of 40 days. It is company policy to quote in its bid a completion time which has a 95 percent probability of being met, to avoid late-completion penalties which are a provision of the contract. What completion time should it quote in its bid for this contract?

Explanation / Answer

Here mean completion time = 200 days

standard deviation of compeltion time = 40 mins

Here 95% percent surety would be there so if that completion time is t0

Pr(t < t0) = 0.95

NORM (t < t0 ; 200 ; 40) = 0.95

Z = 1.645

(t0 - 200)/40 = 1.645

t0 = 200 + 40 * 1.645 = 265.8 days

so it should quote 265.8 days completion time.

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