Great Southern Consultants Group\'s computer system has been down several times

Question

Great Southern Consultants Group's computer system has been down several times over the past few months, as shown below. Number of breakdowns 0 1 2 3 4 Monthly frequency 10 1 4 4 1 Each time the system is down, the firm loses an average of $500 in time and service expenses. They are considering signing a contract for preventive maintenance. With preventive maintenance, the system would be down on average only 0.5 per month. The monthly cost of preventive maintenance would be $300 a month. Which is cheaper, breakdown or preventive maintenance?

Explanation / Answer

Number of breakdowns

0

1

2

3

4

Monthly frequency

10

1

4

4

1

Monthly probability

10*0.05=0.5

1*0.05=0.05

4*0.05=0.2

4*0.05=0.2

1*0.05=0.05

Expected number of breakdowns per month = 0*0.5 +1*0.05 + 2*0.2 + 3*0.2+4*0.05 =1.25

Expected cost of breakdown per month =1.25*$500 =$625

Preventive maintenance cost per month -0.5*$500+$300 =$550

Thus from above, it is clear that Preventive maintenance is cost-effective.

I REQUEST YOU TO KINDLY RATE THE ANSWER AS THUMBS UP. THANKS A LOT.

Number of breakdowns

0

1

2

3

4

Monthly frequency

10

1

4

4

1

Monthly probability

10*0.05=0.5

1*0.05=0.05

4*0.05=0.2

4*0.05=0.2

1*0.05=0.05

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