Great Southern Consultants Group's computer system has been down several times over the past few months, as shown below. Number of breakdowns 0 1 2 3 4 Monthly frequency 9 2 4 4 1 Each time the system is down, the firm loses an average of $400 in time and service expenses. They are considering signing a contract for preventive maintenance. With preventive maintenance, the system would be down on average only 0.5 per month. The monthly cost of preventive maintenance would be $200 a month. Which is cheaper, breakdown or preventive maintenance?

- Preventive Maintenance

Explanation:

Given that,

No. of breakdowns          0      1       2       3      4

Frequency                        9      2       4       4      1

So,

No. of breakdowns          Monthly probability

      0                                        0.45

       1                                         0.10

       2                                         0.20

        3                                        0.20

        4                                        0.05

 Total                                          1.00

As per the above data,

The breakdowns expected every month = (0 * 0.45) + (1 * 0.10) + (2 * 0.20) + (3 * 0.20) + (4 * 0.05)

= 1.30

∵ The cost expected for the breakdowns every month = 1.30 * $400

= $ 520

Now,

Per month cost of preventive maintenance = (0.5 * $400) + $200

= $ 400

Thus, preventive maintenance would be more economical.

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