Project 2:  Due October 25

Previously, we have used schooling and personal interviews to select our workers.  We have recently allowed ABC Testing to come in to administer a dexterity test to our current workers.  They have a test score for each worker, the worker's average output per hour, the worker's race (Black or White with Black=1) and the worker's gender (Male=1 for males) in the 2006project2.xls database.  They claim that we will be able to substantially improve our profits by using the dexterity test to hire workers.  We wonder if the test is worth the $500/worker charge that they request and if the test might lead to adverse impact against black or female workers.

All of our workers are paid the same wage and benefits.  This comes to $33,000 per year per worker.  Excluding labor costs, we make $1/unit of output that the workers makes during the year.  Workers work 1920 hours per year.  Therefore, if they average 20 units per hour, we would enjoy a profit of $5,400 per worker.  We made about $528,000 last year with our 684 workers.

To give us full information on which to make this decision, we would like you to find the following information:

1. What cutoff score on the dexterity test will maximize our profits?

2.  What percentage of our current workers would pass at this cutoff score?  How confident are you in this prediction?

3.  If we started a new plant and needed 684 workers, how many workers would be have to interview to assure that we would get 684 who pass make the cutoff score?  What is a reasonable upper limit for this prediction?

4.  What is the average profit per worker for worker who meet the cutoff score?  How much profit would be expect if all workers met the cutoff score?  Be sure to include the cost of testing in your computation of expected profits.  What is the difference between the average profits/worker for workers who pass versus those who fail the exam.  How confident are you in this estimate?

5.  What percentage of bad hires do we currently have among our workers?  If we administer the exam, how will this percentage change?  If we administer the exam, what percentage of good workers will fail the exam?

6.  If we administer the exam, what cutoff scores will yield violations of the 4/5ths hiring rule? (Be sure to test all possible cutoff scores for each protected group)

7.  Based on your total analysis, should we use the exam?  If we do use the exam, what cutoff score would you suggest?