Please help - Rough order of magnitude question (ROM)

Submitted by Anonymous (not verified) on Mon, 07/02/2012 - 05:25

You are working for FALCON highway construction agency as a project cost estimator. The agency started a highway construction project which is in it's planning phase. The rough order of magnitude (ROM) cost estimate for the project is expected to be between 3 and 5 million dollars in the planning phase with a ROM of -25% to +25%. What will be the ROM estimate in the execution phase if it changes to -10% to +10%?




  1. Add a note hereBetween 3.1 and 4.1 million dollars



  2. Add a note hereBetween 3.6 and 4.4 million dollars



  3. Add a note hereBetween 3.9 and 4.1 million dollars



  4. Add a note hereBetween 3.4 and 4.4 million dollars

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aliweb

Mon, 07/02/2012 - 05:48

 Answer is B

krantikumar50

Mon, 07/02/2012 - 05:58

Hi Ali,


 


Please illustrate the process through which you got the answer.


 


Warmly, KK....

aliweb

Mon, 07/02/2012 - 06:10

To calculate range -10 to +10 we need to first find the original value between 3 and 5 due to which it was calculated. You can use any of the following formulas:

N - (N x 0.25) = 3000000

OR

N + (N x 0.25) = 5000000

Where N is the original value we need to find. Let's say we use formula one above.

N - (N x 0.25) = 3000000
0.75N = 3000000
N = 3000000/0.75
N = 4000000

If you use formula two above then it will also give you same value i.e. 4000000.

Now that we have got the value, simply find -10% and +10% of it and you will have the range.

4000000 - (4000000 x 0.1) = 3.6 million
4000000 + (4000000 x 0.1) = 4.4 million

krantikumar50

Mon, 07/02/2012 - 07:12

Hi Ali, I do not know if you are right or wrong, however, your explanation looks very informative. Well-concerted effort indeed Ali. Warmly, KK :)

ameenhaqqi

Mon, 07/02/2012 - 09:57

How about if we take an average of the given range and apply the ROM tolerances?


Range: $3M ~ $5M, so the average is $4Million


ROM: +/- 10% -------- $4M x .1 = $400,000


Now by adding and subtracting +10% and -10% to/from the average value


Lower value: $4,000,000 – $400,000 = $3,600, 000


Upper Value: $4,000,000 + $400,000 = $4,400, 000


ANSWER B: $3.6 ~ $4.4 Million


Similarly to verify,


ROM: +/- 25% -------- $4M x .25 = $1M


For lower value: $4,000,000 – $1,000,000 = $3,000,000


Upper Value: $4000000 + $1,000,000 = $5,000,000 

aliweb

Mon, 07/02/2012 - 10:18

This approach will only work if percentage is equal on both sides i.e. -25% to +25%

For e.g. let's say if percentage is 10% to 20% and value is 100, then range will become

100 - (100 x 0.1) = 90

100 + (100 X 0.2) = 120

So it becomes 90 to 120.

Now if we want to calculate that value again from 90 to 120 using your approach we get:

(90 + 120) / 2 = 105

Which is actually wrong because 105 is not equal to 100.

jcrajput (not verified)

Mon, 07/02/2012 - 13:26

B is the correct answer. Thank you.