You are the Project Manager of new Product development in your company. Project is going to take 5 years to complete. Entire project has been contracted out (outsourced). You have a Cost
Reimbursable contract with the seller. Target cost has been determined at $5,000,000. And, you have agreed with the seller 30% of target cost as a target fee. In your Contract, seller did not
acepet the fire risk. Therefore. you purchased the insurance to protect yourself from fire losses for $10,000 per year.
During project planning meeting with team members you find out that, there is a 40% probability of a delay in the receipt of parts, with a cost to the project of $900.000. In the meeting. team members also state that there is also 30% likelihood that the parts will cost $400,000 less than expected. While interview your engineers for the product design, they state that, there is a 20%
probability that two parts will not fit together when installed, costing an extra $150,000. During discussion with them. engineers also find out that there is a 40% chances that the manufacture may be simpler than expected, which will save you $130,000. During this heated discussion, they also come to consensus that, there are may be a design defect. which will cause $90,000 of rework. Probability of this rework hapenning is 15%.