COMP7800 Analytic Models in IT Management

Assignment 2
Due date: Dec 5, 2014, 11:55pm
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Max. 100 points
1. (Total 10 points) Mick Garcia, a certified financial planner (CFP) has been asked by a client to
invest $250,000. This money may be placed in stocks, bonds, or a mutual fund in real estate.
The expected return on investment is 13% for stocks, 8% for bonds, and 10% for real estate.
While the client would like a very high expected return, she would be satisfied with a 10%
expected return on her money. Due to risk considerations, several goals have been
established to keep the risk at an acceptable level. One goal is to put at least 30% of the
money in bonds. Another goal is that the amount of money in real estate should not exceed
50% of the money invested in stocks and bonds combined. In addition to these goals, there
is one absolute restriction. Under no circumstances should more than $150,000 be invested
in any one area.
(a) Formulate this as a goal programming problem. Assume that all of the goals are equally
important. (5 points)
(b) Use any available software to solve this problem. How much money should be put in
each of the investment options? What is the total return? Which of the goals are not
met? (5 points)

2. (Total 20 points) South Side Oil and Gas, a new venture in Texas, has developed an oil
pipeline network to transport oil from exploration fields to the refinery and other locations.
There are 10 pipelines (branches) in the network. The oil flow in hundreds of gallons and the
network of pipelines is given in the following table.
Branch
Branch 1
Branch 2
Branch 3
Branch 4
Branch 5
Branch 6
Branch 7
Branch 8
Branch 9
Branch 10

Start node
1
1
2
2
3
4
5
5
6
7

End note
2
3
4
5
5
6
6
7
8
8

Capacity
10
8
12
6
8
10
10
5
10
10

Reverse capacity
4
2
1
6
1
2
10
5
1
1

(a) What is the maximum that can flow through the network (from node 1 to node 8)? (10
points)
(b) South Side Oil and Gas needs to modify its pipeline network flow patterns. The new data
is in the following table. What impact does this have on the maximum flow through the
network? (10 points)
Branch
Branch 1
Branch 2
Branch 3
Branch 4
Branch 5
Branch 6
Branch 7
Branch 8
Branch 9
Branch 10

Start node
1
1
2
2
3
4
5
5
6
7

End note
2
3
4
5
5
6
6
7
8
8

Capacity
10
8
12
0
8
10
10
5
10
10

Reverse capacity
4
2
1
0
1
2
10
5
1
1

3. (Total 25 points) The estimated times (in weeks) and immediate predecessors for the
activities in a project are given in the following table. Assume that the activity times are
independent.
Activity
Immediate
a
m
b
predecessor
A
9
10
11
B
4
10
16
C
A
9
10
11
D
B
5
8
11
(a) Calculate the expected time and variance for each activity. (5 points)
(b) What is the expected completion time of the critical path? What is the expected
completion time of the other path in the network? (4 points)
(c) What is the variance of the critical path? What is the variance of the other path in the
network? (4 points)
(d) If the time to complete path A-C is normally distributed, what is the probability that this
path will be finished in 22 weeks or less? (4 points)
(e) If the time to complete path B-D is normally distributed, what is the probability that this
path will be finished in 22 weeks or less? (4 points)
(f) Explain why the probability that the critical path will be finished in 22 weeks or less is
not necessarily the probability that the project will be finished in 22 weeks or less. (4
points)

4. (Total 20 points) A technician monitors a group of five computers that run an automated
manufacturing facility. It takes an average of 15 minutes (exponentially distributed) to adjust
a computer that develops a problem. The computers run for an average of 85 minutes
(Poisson distributed) without requiring adjustments. What is the
(a) Average number of computers waiting for adjustment? (4 points)
(b) Average number of computers not in working order? (4 points)
(c) Probability the system is empty? (4 points)
(d) Average time in the queue? (4 points)
(e) Average time in the system? (4 points)

5. (Total 25 points) Management of the First Syracuse Bank is concerned about a loss of
customers at its main office downtown. One solution that has been proposed is to add one
or more drive-through teller stations to make it easier for customers in cars to obtain quick
service without parking. Chris Carlson, the bank president, thinks the bank should only risk
the cost of installing one drive-through. He is informed by his staff that the cost (amortized
over a 20-year period) of building a drive-through is $12,000 per year. It also cost $16,000
per year in wages and benefits to staff each new teller window.
The director of management analysis, Beth Shader, believes that the following two factors
encourage the immediate construction of two drive-through stations, however. According
to a recent article in Banking Research magazine, customers who wait in long lines for drivethrough teller service will cost banks an average of $1 per minute in loss of goodwill. Also,
adding a second drive-through will cost an additional $16,000 in staffing, but amortized
construction costs can be cut to a total of $20,000 per year if two drive-throughs are
installed together instead of one at a time. To complete her analysis, Shader collected one
months arrival and service rates at a competing downtown banks drive-through stations.
These data are shown as observation analyses 1 and 2 in the following tables.

Observation analysis 1: Inter-arrival times for 1000 observations

Time between arrivals (minutes)
Number of occurrences
1
200
2
250
3
300
4
150
5
100
Observation analysis 2: Customer service time for 1000 observations
Service time (minutes)
Number of occurrences
1
100
2
150
3
350
4
150
5
150
6
100
(a) Simulate a 1-hour time period, from 1 to 2 pm, for a single-teller drive-through. (10
points)
(b) Simulate a 1-hour time period, from 1 to 2 pm, for a two-teller system. (10 points)
(c) Conduct a cost analysis of the two options. Assume that the bank is open 7 hours per
day and 200 days per year. (5 points)