28 Apr Decision Making With Probabilities
Decisions are made every day by organizations around the globe. Decision trees are often used to make these decisions. Decision trees allow us to determine the possible outcomes of decisions based on known information. In turn, decision trees allow us to incorporate the potential risks involved for any one particular decision.
Refer to Chapter 13, page 656 in your text. Answer problem #3, questions A through D which are displayed below. It is permissible for you to download TreePlan and follow the example in Appendix 13.2 on page 683 to answer these questions. You may also use Word, Powerpoint or Excel to answer these questions.
Southland Corporation’s decided to produce a new line of recreational products. As a result, Southland needed to build a new plant to manufacture these products. The question was how large a plant does Southland need to build? Plant size depends on how the marketplace reacts to the new product line. To conduct such an analysis, the marketing managers decided to examine the possible long-run demand as low, medium or high. The following payoff table shows the projected profit in millions of dollars:
What is the decision to be made, and what is the chance event for Southland’s problem?
Construct an influence diagram.
Construct a decision tree.
Recommend a decision based on the use of an optimistic, conservative and minimax regret approach.
In a brief narrative, explain the importance of using a decision tree to make sound decisions in business.
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