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Development of Version 2.0 of a particular accounting software product is being considered by Jose Noguera’s technology firm in Baton Rouge. The activities necessary for the completion of this project are listed in the following table:

a) What is the project completion date?

b) What is the total cost required for completing this project on normal time?

c) If you wish to reduce the time required to complete this project by 1 week, which activity should be crashed, and how much will this increase the total cost?

d) What is the maximum time that can be crashed? How much would costs increase?

 
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CEO John Goodale, at Southern Illinois Power and Light, has been collecting data on demand for electric power in its western subregion for only the past 2 years. Those data are shown in the table below.

To plan for expansion and to arrange to borrow power from neighboring utilities during peak periods, Goodale needs to be able to forecast demand for each month next year. However, the standard forecasting models discussed in this chapter will not fit the data observed for the 2 years.

a) What are the weaknesses of the standard forecasting techniques as applied to this set of data?

b) Because known models are not appropriate here, propose your own approach to forecasting. Although there is no perfect solution to tackling data such as these (in other words, there are no 100% right or wrong answers), justify your model.

c) Forecast demand for each month next year using the model you propose.

 
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Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a = .4 and a forecast for year 1 of 6. Plot your new forecast on a graph with the actual data and the naive forecast. Based on a visual inspection, which forecast is better?

Problem 4.2

a) Plot the above data on a graph. Do you observe any trend, cycles, or random variations?

b) Starting in year 4 and going to year 12, forecast demand using a 3-year moving average. Plot your forecast on the same graph as the original data.

c) Starting in year 4 and going to year 12, forecast demand using a 3-year moving average with weights of .1, .3, and .6, using .6 for the most recent year. Plot this forecast on the same graph.

d) As you compare forecasts with the original data, which seems to give the better results?

 
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Lenovo uses the ZX-81 chip in some of its laptop computers. The prices for the chip during the past 12 months were as follows:

a) Use a 2-month moving average on all the data and plot the averages and the prices.

b) Use a 3-month moving average and add the 3-month plot to the graph created in part (a).

c) Which is better (using the mean absolute deviation): the2-month average or the 3-month average?

d) Compute the forecasts for each month using exponential smoothing, with an initial forecast for January of $1.80. Use  = .1, then  = .3, and finally  = .5. Using MAD, which a is the best?

 
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