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Automotive Builders, Inc.: The Stanhope Project.

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Project Management: A Managerial Approach by Wiley (6th Edition) Chapter 7


1. How did ABI handle forecast risk?
2. Were ABI's Stanhope site costs in Table 2 derived by a top-down or bottom-up process? Why?
3. What are the answers to Steve White's questions?
4. What other factors are relevant to this issue?
5. How do the changes in assumptions mentioned by the other managers affect the proposal?
6. What position should Jim take? Why?

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The response addresses the queries posted in 1084 words with references.

//The paperwork is concerned with the identification of the forecasting issues and the ways that were employed to cope up with financial risks at ABI. The detailed study of the case explains about the concerned queries that are discussed below//

Answer 1)

The forecasting risk was identified in terms of competition that was imposed by Japanese technology. This was not taken in consideration when the forecast was done and for this purpose, the treatment of the risk so imposed was very necessary. The risk was realized in the form of many factors such as price, quality and dependability of the products. There are several techniques that are employed for dealing with this risk. ABI handled its forecasting risk by ensuring that its every effort is directed to minimize the exposure on investment and maximize the flexibility. Also, in calculating the production during the 1000-unit ramp-up period of implementation, a learning curve was used. This helped in preventing the company from becoming over-optimistic.

Answer 2)

The Stanhope Site Capital Costs have been derived by using the bottom-up process. In fact, all the variations on the investment assumptions are tested and the major costs are determined by taking into consideration their sub-costs such as land and landscaping costs for land & site preparation, air conditioning & power costs for the building costs, etc. There was a specific reason for following the bottom up approach in case of the Stanhope Site and that reason was the individual nature of the projects that were required to be carried out for ...

Solution Summary

The response addresses the queries posted in 1084 words with references.