April
1999 QUESTION 3 Total Marks: 20 Marks |
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| (a) | Explain what is meant by cost estimation.
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| (b) | Identify, and explain briefly, six
causes of poor cost estimates.
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| (c) | A computer manufacturer wishes to determine
which of two systems it should develop by estimating the cost of each using the top-down
parametric approach. For Project A, the development time is estimated to be 5 years. The start up costs are estimated to be $100,000. Salary costs are estimated to be $40,000 per year increasing at a rate of 10% a year over the lifetime of the project. For Project B, the development time is estimated to be 4 years. The start up costs are estimated to be higher at $200,000, but salary costs are estimated to be lower at $20,000 per year, increasing at a rate of 15% a year over the lifetime of the project. Express these relationships between startup and annual costs for projects A and B in the form Y = maX + b, where X is the time in years after the start of development, and Y is the cost per year of the project. Determine the constants m, a and b for each project, and use them to calculate the total cost of each project. Determine which of the projects the company should undertake. |
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