Cost Estimations for Proposed Solutions


Every company’s core objective is to maximize profits. This is usually achieved through improved productivity. Productivity in any workplace largely depends on the productivity of individual workers of the organization. Therefore it is vital to ensure that all the workers are in good conditions so as to harness the best out of them. One major problem that can arise from the workers and hamper productivity is the abuse of drugs, especially alcohol. There are various solutions that can be applied to by an organization to reduce the impact of alcoholism on the workers performance. However, these solutions also come with additional costs. These are the costs of implementing the solutions.

The AACE International published a number of key solutions to the methods of controlling problems that arise in the workplace (Hollmann, 2007). The following spreadsheet table summarizes everything about these methods: (see the attached spreadsheet)

However, all this methods might not be effective in every specific problem. Solving certain problems will require the application of a specific method. This depends on the suitability of the method to the problem. Each specific problem’s solution comes along with an additional cost. It is wise to choose a method that is cost effective since the main objective of companies is profit maximization.To ensure that the correct method is used, it is important to analyze all the possible advantages and disadvantages of the different methods so as to make a good decision. The following is a preview of all the methods of estimating the costs of solutions suggested by the AACE International:

  1. Range estimation

This is a very good problem-solving method especially when it comes to profitability and cost analysis. This method ranks critical risks by combining the Monte Carlo techniques together with heuristics. This is then followed by the introduction of self-inflicted risks to cater for the narrow range of the Monte Carlo simulations.

Since range estimation is used to determine the probability and distribution of costs, it can therefore be used to determine the probability of the distribution of alcoholic employees in a company. Range estimation is highly applicable here bearing in mind that the privacy of employees is highly regarded. However, the problem associated with this method is that it does not give directions of how the critical items are estimated. It is also difficult to get the extreme items so as to calculate the range while applying this method.

  1. Parametric estimation

Parametric estimation is used to estimate costs based on the available risk parameters. The method uses most tools available in Excel. It involves the analysis of the correlation existing between the growth of the costs and the systematic risk drivers. Parametric estimation is good especially when working to estimate the costs associated with risks at their early stages. However, it becomes difficult to make clear rating of a problem before presenting it in a parametric model (Hallmann& CEP, 2009). Sometimes it may require the judgment of people outside the organization who can give an impartial rate from the given heuristics.Therefore, the big problem associated with this method is that it is difficult to estimate the costs associated with its use.

  1. The expected value/standard risk model of estimation

This method is highly recommended to managers because it helps in coming up with good managerial decisions. It works by estimating the total costs that every risk parameter comes with. Basically, this is summed up by the following expression:

Expected value = Probability of the occurrence of the risk * Impact of occurring.

Therefore, in this case, it will greatly help in analyzing the profits achieved by a company when workers are alcohol-free and the losses that the company experiences when the number of alcoholic workers increases. It helps in assessing the correlation that exists between the risk of alcoholism and the costs that the company incurs. The problem with this method is that it is only suitable when specific risks are identified.

  1. The hybrid method

The hybrid method is a mix of the parametric method and the expected values method. This method uses the outcome of the parametric method as the first risk in the expected value method. The projected specific values are then added into the value gotten from the expected value model. However, since this method entails a mix of the parametric and the expected value methods, errors are usually prone especially as a result of double counting.

After a clear analysis of all the above methods of solving cost associated with solving corporate risks, the standard risk model appears to be the most appropriate method of solving the problem of workers alcoholism. For this case, it is clear that the problem that we are dealing with is alcoholism and drug abuse. Therefore, the specific risk is known making the expected value model to be the most suitable solution.

Unlike the range estimation model which only presents a list of critical values and the range, the expected value model ranks the causes of risks according to their strength. This method links the root cause of the risk directly with its final outcome. Estimations are done using the work breakdown structure (WBS) and then their ranks are established.

Since every worker is entitled to their privacy rights, it is difficult to determine the number of alcoholic workers in an organization. Therefore, the best way is to observe the behavioral changes of employees in the workplace. Early symptoms of alcoholism include desertion of duties, coming to work late, absenteeism and the general reduction of performance. Analysis of employees whose performance has significantly dropped after showing all these symptoms will then be taken to calculate their respective probabilities and impact of alcoholism on their performance in work.

Once the number of workers who are alcoholics is established, the Monte Carlo simulations are run to give the estimates of the costs associated with the solutions available. This should be done in a very honest manner. Much care should be taken to ensure that the link between specific risks being investigated is correctly determined.

The application of this method to estimate the cost of solutions to alcoholism can be divided into direct and indirect costs. Direct costs include:

Loss of workers

Workers will be ashamed of their actions and others might decide to quit their jobs. It is imperative to have this in mind when choosing ways of identifying alcoholic workers. Some might be using drugs because of some very pressing personal issues. Therefore, human resource managers are subjected to a dilemma dealing with alcoholic workers (Korman, 1994)

Further decrease in productivity

Workers might endure psychological trauma once they realize that the management is aware of their habits. They will be working under uncertainty and surety of their job security. This may affect their concentration and productivity.

Indirect effects are the effects that individual employees incur. These indirect effects do not usually impact greatly on the performance of the organization. A typical example is the loss of self-esteem by the workers once they feel guilty of their employer’s awareness of this bad behavior.


Works Cited

Hollmann, J. K. (2007). The Monte-Carlo challenge: A better approach. Proceedings of 2007 AACE International Transactions, 03-01.

Hollmann, J., & СЕР, Р. (2009). Recommended Practices for Risk Analysis and Cost Contingency Estimating. Association for the Advancement of Cost Engineering (AACE), Working Maual.

Korman, A. K. (1994). Human dilemmas in work organizations: Strategies for resolution. New York: Guilford.



"Are you looking for this answer? We can Help click Order Now"