Assessment 2: Case studies

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School of EngineeringAssessment 2: Case studiesYou need to choose one of the simulation case studies—Case study 1For investment advisors, a major consideration in planning for a client in retirement is thedetermination of a withdrawal amount that will provide the client to with the funds necessary tomaintain his or her desired standard of living throughout the client’s remaining lifetime. If a clientwithdraws too much or if investment returns fall below expectations, there is a danger of eitherrunning out of funds or reducing the desired standardof living. A sustainable retirement withdrawal is the inflation-adjusted monetary amount a client canwithdraw periodically from his or her retirement funds for an assumed planning horizon. This amountcannot be determined with complete certainty because of the random nature of investment returns.Usually, the sustainable retirement withdrawal is determined by limiting the probability of running outof funds to some specified level, such as 5%. The sustainable retirement withdrawal amount is typicallyexpressed as a percentage of the initial value of the assets in the retirement portfolio but is actually theinflation-adjusted monetary amount that the client would like each year for living expenses.Assume an investment advisor, Roy Dodson, is assisting a widowed client in determining a sustainableretirement withdrawal. The client is a 59 year-old woman who turns 60 in two months. She has$1,000,000 in a tax-deferred retirement account that will be the primary source of her retirementincome. Roy has designed a portfolio for his client with returns he expects to be normally distributedwith a mean of 8% and standard deviation of 2%. Withdrawals will be made at the beginning of eachyear on the client’s birthday.Roy assumes that the inflation rate will be 3%, based on long-term historic data. So if her withdrawal atthe beginning of the first year is $40,000, her inflation-adjusted withdrawal at the beginning of thesecond year will be $41,200, and third year’s withdrawal will be$42,436, and so on.For his initial analysis, Roy wants to assume his client will live until age 90. In consultation with hisclient, he also wants to limit the chance that she will run out of money before her death to a maximumof 5%.1. What is the maximum amount Roy should advise his client to withdraw on her 60th birthday? Ifshe lives until age 90, how much should the client expect to leave to her heirs?2. Roy is now concerned about basing his analysis on the assumption that his client will live to age90. After all, she is healthy and might live to be 110, or she could be in a car accident and die atage 62. To account for this uncertainty in the client’s age at death, Roy would like to model theclient’s remaining life expectancy as a random variable between 0 and 50 years that follows alognormal distribution with a mean of20 and standard deviation of 10 (rounded to the nearest integer). Under this assumption, what is themaximum amount Roy should advise his client to withdraw on her 60th birthday, and how muchshould the client expect to leave to her heirs? Hint: Modify your spreadsheet to accommodate ages upto 110, and use a VLOOKUP( ) function to return the client’s ending balance in her randomlydetermined year of death.).Case study 2Calls to the 24-hour customer support line for Richman Financial Services occur randomly following aPoisson distribution with the following average rates during different hours of the day:
Time Period
AvgCalls/hr
Time Period
AvgCalls/hr
Midnight – 1a.m.
2
Noon – 1 p.m.
35
1 a.m.- 2 a.m.
2
1 p.m.- 2 p.m.
20
2 a.m.- 3 a.m.
2
2 p.m.- 3 p.m.
20
3 a.m.- 4 a.m.
4
3 p.m.- 4 p.m.
20
4 a.m.- 5 a.m.
4
4 p.m.- 5 p.m.
18
5 a.m.- 6 a.m.
8
5 p.m.- 6 p.m.
18
6 a.m.- 7 a.m.
12
6 p.m.- 7 p.m.
15
7 a.m.- 8 a.m.
18
7 p.m.- 8 p.m.
10
8 a.m.- 9 a.m.
25
8 p.m.- 9 p.m.
6
9 a.m.- 10 a.m.
30
9 p.m.- 10 p.m.
5
10 a.m.- 11a.m.
25
10 p.m.- 11p.m.
4
11 a.m.- Noon
20
11 p.m.-Midnight
2
Richman’s customer service representatives spend approximately seven minutes on each call and areassigned to work eight-hour shifts that begin at the top of each hour. Richman wants to ensure that, onaverage, they can provide a 98% service level.1. Determine the customer service schedule that allows Richman to achieve their service levelobjective using the fewest number of employees.2. According to your solution, how many customer service representatives should Richmanemploy and how should they be scheduled?Case study 3Amy White is the director of marketing for the Imagination Toy Corporation (ITC). She just received aphone call from her boss indicating that the company’s board of directors gave final approval for theproduction and marketing of the Mighty Morphin’ Monkeys—a new product line of action play toys forITC. Amy worked hard in developing the concept for this product line and is thrilled that her ideas willbecome reality. But this news also means that she must get busy developing the marketing and salesforce training materials needed to launch this new product line successfully. Amy’s boss wants to knowhow soon she can have the sales staff trained and equipped to handle the new line.The development of marketing materials and training of the sales staff for the new product lineconstitute a project. Amy identifies 10 specific project tasks that need to be accomplished before shecan roll out the marketing program for this product line. First, Amy needs to collect information aboutthe details of the decisions made by the board of directors. She can start this task (task A) immediately,and she estimates that it will take 5 days to determine exactly which items and accessories will beincluded in the first offering of the product line. After she completes this task, she will requestprototypes of all items from the engineering department (task B), which she expects will take 10working days. While waiting for the prototypes, she can begin laying out the marketing program (taskC). She expects this activity to take 8 days. After the prototypes (task B) are available, Amy estimatesthat it will take 7 days to prepare instructions (task D) on the operation and use of the items in theproduct line and 9 days to design its packaging (task E). When the marketing program (task C) isfinished, it must be approved (task F) by the president of the company. Amy expects this approval totake 3 days.Amy plans to hold a 2-day training course (task G) for the sales force after the operating instructions(task D) and the packaging design (task E) are completed. When the operating instructions (task D) arefinished and the marketing plan is approved (task F), Amy will develop an information guide (task H)that the sales force can distribute to retailers. Amy expects to take 8 days to complete the informationguide. Also, as part of the marketing plan, Amy wants to hire a number of actors to portray MightyMorphin’ Monkeys (task I) at various promotional events around the country. Hiring and training theseactors is expected to take 8 days and can be done only after the marketing plan is approved (task F).Finally, after the marketing plan (task F) has been approved and the packaging for the product hasbeendesigned (task E), special pointof- sale display racks must be manufactured (task J). Amy expects thisactivity to take 12 working days.1. Create a Gantt chart.2. Develop an AON network for this problem.3. Create a spreadsheet to calculate and summarize the earliest and latest start and finishtimes, the slack for each activity, and the critical activities.4. Identify the critical path.5. If Amy starts working immediately, how long will it take her to complete this project?6. Suppose that the engineering department can create the prototypes in only eight days if theengineers work overtime on this activity. Would this help reduce the length of time requiredto complete this project?

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