Reference no: EM132203338

Read the following supplemental reading and complete the problems as directed. Learning curves apply only when an activity is being repeated. For example, if you build one house (your first), it may cost $100,000 and take 60 days. Yet if someone else contracts with you for essentially the same house, its cost to you, time required, and your overall effort will be less. This is because you will not repeat all the mistakes that you made when building the first house; you'll have learned from your past mistakes. Perhaps the first time you selected the wrong subcontractor to do the foundation. Would you hire him for the second house? Of course not. However, the savings in cost and time will diminish, because you'll correct the major mistakes first, then address less significant ones, until eventually you'll have fine-tuned the process. Thus the savings for building a third house would be less than the savings for building the second house, and so on. Refer to the chart that is given as a resource for problems 8 through 10 (learning curve coefficients) at the end of chapter 8. For an 85 percent learning curve, the time to complete the fifth house would be 0.686 multiplied by 60 days or 41.16 days (not the original 60 days). The total time to complete 5 houses would be 60 days multiplied by 4.031, or 241.86 days; you should not calculate the time as 5 houses at 60 days per house (300 days).

1. Put yourself in the position of a project customer. Would you insist on the cost adjustments associated with learning curve effects or not? Under what circumstances would learning curve costs be appropriately budgeted into a project?

2. Consider the common problems with project cost estimation and recall a project with which you have been involved. Which of these common problems did you encounter most often? Why?

3. Would you prefer the use of bottom-up or top-down budgeting for project cost control? What are the advantages and disadvantages associated with each approach?