Terrific Project Management Partners company (TPMP)

TPMP is helping Mountain Communications (MC), a well-established telecommunications

company, create risk management processes. One of your first assignments is to create a risk
management process for a project that is replacing two old systems with newer systems to reflect
modern technological advances. The company must make a decision regarding the risks of either
buying or making a gateway program that will convert the data from the old systems to the new
systems. You are helping the program manager, Tasha Smith, create quantitative analysis
processes for making decisions. The project team, with the help of market research and company
financial analysts, has come up with the following information:
• If the company buys the gateway product, it has a 70 percent chance of success with a
potential impact of $250,000. The impact of failure is ($20,000).
• If the company makes the gateway project in-house, it has a 50 percent chance of success
with a potential impact of $500,000. The impact of failure is ($150,000).
The project team feels that building the gateway product in-house can be a great opportunity for
the company, since it is expecting to upgrade several other systems within the next 10 years. The
team members feel they may be able to reuse the product for these efforts and perhaps even sell it
to other telecommunications companies if it proves efficient and accurate.
1. Create the expected value table for the exercise above using the following tables.
For Buy Decision:
Probability Amount at Stake Expected Value

For Make Decision:

Probability Amount at Stake Expected Value
2. Create the decision tree for the exercise above.
3. What is the best decision for making or buying the gateway system based on this analysis and
why?
4. What are the quantitative tools and techniques?

Answer
1. For Buy Decision:
Probability Amount at Stake Expected Value
.7 $250,000 $175,000
.3 ($20,000) ($6,000)
Total= 1 $169,000

For Make Decision:

Probability Amount at Stake Expected Value
.5 $500,000 $250,000
.5 ($150,000) ($75,000)
Total= 1 $175,000

2. The decision tree.

3. The best decision is to make the gateway system because the expected value is higher for
the “make” decision.
4. Quantitative tools and techniques are sensitivity analysis and decision tree analysis.