compute the benefit-cost ratios associated with adopting System A and System B.

MGT 251. Planning and Control

Assignment 4

1) Benefit-cost Analysis
Park Crest Hospital is looking into the possibility of upgrading its patient tracking information system. The current system is a management information system (MIS) that maintains records on the active status of patients residing in the hospital at a given moment. It ties into patient medical treatment files and financial history files. Thus it is possible to determine the current disposition of patients residing in the hospital (e.g., room number, telephone number, attending physicians, attending nurses, etc.); to access facts about the patient’s prior medical history; and to access financial data on current and past charges made to the patient.
The current MIS is more than seven years old. In view of changes in information storage and retrieval technology that have recently occurred, as well as the current system’s inability to deal with changes that have been made to handle the patient medical treatment files, Park Crest management has decided to upgrade its patient tracking information system. Dr. Ralph Kopecky is made head of a task force to identify possible systems that can replace the existing one.
A one-month search unearths two products that are good candidates. Each is an off-the-shelf product that will be modified by the vendor to fit into a client’s existing environment. After lengthy discussions with the vendors, Dr. Kopecky developed the cost and benefit data that appear in the accompanying exhibit. He will employ these data to educate members of the Executive Management Committee about costs and benefits associated with the alternative solutions.

Item System A System B
Purchase price 2,300,000 1,600,000
5-year savings compared to using current system 4,100,000 2,700,000
Cost of conversion from old to new system 325,000 300,000
Annual maintenance cost (includes salaries of full-time support personnel) 275,000 200,000

Questions:
a) Using the data contained in the exhibit, compute the benefit-cost ratios associated with adopting System A and System B.
b) Given the data contained in the exhibit, does it make sense from a financial perspective to abandon the current MIS and to adopt a new one? Explain your reasoning.
c) Using the data contained in the exhibit, which solution – System A or System B – is more attractive from a purely financial point of view? Write up your views in a one-page, single-spaced report that will be submitted to the Executive Management Committee.
d) What are the limitations of taking a purely financial approach to selecting a product that will enable Park Crest Hospital to meet its business needs? What other factors should be taken into account?

2) Schedule-Cost-Resource
The table below contains cost, resource, and schedule data for a hypothetical project.

Questions:
a. Create a network diagram for the tasks listed in the table above.
b. Calculate earliest start, latest start, and float for each task.

Task Earliest start (ES) Latest start (LS) Float
A
B
C
D
E
F

c. Given the information captured in the network diagram, create a Gantt chart for the project. In the Gantt chart, picture weekends. (Assume the project begins on a Tuesday and that a week of effort is five working days long.)
d. Calculate level of effort, labor costs, and total costs per task and put the values in the appropriate cells in the first table above.
e. Assume the company being examined here has only two testers. How will this show up on a resource histogram? How should the work for Tasks D and E be leveled? What, if any, impact will the resource leveling have on the project duration?

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