In the context of software development projects, a program manager was faced wit
ID: 452470 • Letter: I
Question
In the context of software development projects, a program manager was faced with the following choice last year:He had to option of going with a vendor who proposed a bid which was partly based on future integration costs that were beyond their control. Analysis suggested that total final cost for the program would come somewhere between 70K and 200K, based on the program managers’ past-experiences. He commissioned an internal study to determine whether an in-house development effort (which would not be subject to any uncertainty due to integration) would cost more than 165K, thinking that he would take his chances with the vendor if the in-house work would cost more than 165K.
Determine the manager’s risk tolerance based on the above information.
Explanation / Answer
Well, based on the above mentioned information, the manager has clearly defined that he can take a chance on it's in-house development effort to an extent of 165K. And beyond that, he has to go for the option of the offer proposed by the outside vendor with integration.
So, here, manager can go for a risk of 165K internally and more than 165K for outside vendor proposal. Hence, the risk tolerance for the manager will be moderate to high, in this case, that is, from 0.2 to 0.4.
Regards.