MAB_CS6
Vasco da Gama Industries is deciding whether to make or outsource the new batteries that will power its new Hydro Bat-Boat. Guy Josobo is the CEO, and he runs all the production management for the project. He has determined the following costs: Respectively the amounts are $-20,000 (lose money) low, $40,000 medium, and $100,000 high demand to produce at Vasco da Gama. To outsource the project, he has determined the following costs: $10,000 low, $45,000 medium, and $70,000 high demand.
Using this information, complete the following steps:
1. Develop a decision tree or decision-tree chart to solve Guy Josobo’s dilemma.
2. At each decision node, select the best decision alternative for both the manufacture and outsource choices.
3. Determine the state of probabilities for all the demands: low demand is .30, medium demand is .45, and high demand is .25.
4. Using your decision tree and states of probabilities, calculate the cost at each outcome node, and determine the best solution.
5. Show all your work for these steps.
6. Describe and justify the steps in a decision tree analysis that Guy Josobo performed for Vasco da Gama Industries, and include any possible challenges he will face.
7. Explain what decision Guy Josobo should make, and explain your reasoning.
Your completed assignment must be at least three pages in length, and you must use at least two academic sources. Be sure to include an introduction that provides background of the topic and the purpose of the paper. Adhere to APA Style when constructing this assignment, including in-text citations and references for all sources that are used. Please note that no abstract is needed.
LDR 5301, Methods of Analysis for Business Operations 1
Upon completion of this unit, students should be able to:
5. Determine the criteria for making decisions under organizational uncertainty.
5.1 Describe the five steps in decision-tree analysis.
5.2 Justify a decision using decision-tree analysis.
6. Summarize the various methods of decision-making under risk.
6.1 Develop a decision-making tree with nodes, and states of nature.
6.2 Compute the state of probabilities for different alternatives in a scenario.
Course/Unit
Learning Outcomes
5.1
Chapter 3, pp. 77–85
Video Segment: Developing Alternatives and Considering Their
Consequences
Article: “Experimental Consideration of Preference in Decision Making Under
Certainty”
Unit VI Case Study
5.2
Unit Lesson
Chapter 3, pp 77–85
Video Segment: Developing Alternatives and Considering Their
Consequences
Article: “Experimental Consideration of Preference in Decision Making Under
Certainty”
Unit VI Case Study
6.1
Unit Lesson
Chapter 3, pp. 77–85
Video Segment: Developing Alternatives and Considering Their
Consequences
Article: “Experimental Consideration of Preference in Decision Making Under
Certainty”
Unit VI Case Study
6.2
Unit Lesson
Chapter 3, pp. 77–85
Unit VI Case Study
Chapter 3: Decision Analysis, pp. 77–85
In order to access the following resources, click the links below.
Advanced Knowledge (Producer). (1999). Developing alternatives and considering their consequences
(Segment 5 of 8) [Video]. In The Cuban Missile Crisis: A case study in decision making and its
consequences. Films on Demand.
https://libraryresources.columbiasouthern.edu/login?auth=CAS&url=https://fod.infobase.com/PortalPl
aylists.aspx?wID=273866&xtid=53321&loid=240000
UNIT VI STUDY GUIDE
Decision-Making Under
Certainty and Uncertainty
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LDR 5301, Methods of Analysis for Business Operations 2
UNIT x STUDY GUIDE
Title
The transcript for this video can be found by clicking on “Transcript” in the gray bar to the right of the video in
the Films on Demand database.
.
Corner, J. L., & Buchanan, J. T. (1995, June). Experimental consideration of preference in decision making
under certainty. Journal of Multi-Criteria Decision Analysis, 4(2), 107–121.
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=17649160&site=ehost-live&scope=site
Unit Lesson
Introduction
Leaders of all kinds—economists, Wall Street hedge fund managers, chief executive officers (CEOs) of
Fortune 500 companies, presidents, generals, NCAA coaches, major league coaches—all analyze data to
make improvements. In Pat Riley’s book, The Winner Within (1993), he discusses winning multiple
championships as the coach of the Los Angeles Lakers. Part of winning was not only having great players,
but also analyzing the data on their production on the court during the game. This means their shooting
percentages from areas of the court (Were points scored? Was the shot missed? Was the shot blocked?),
how many times they would drive to the lane and score, and their free throw percentages. This demonstrates
that data crunching is important.
Let’s put ourselves in the position of Pat Riley as he was coaching the Los Angeles Lakers. His team had a
very important and critical game—Game 7 of the Finals championship. Therefore, Riley and his assistant
coaches reviewed the hard data recorded from the previous Game 6 results and the data from Games 1
through 5. Why? They were looking for trends in each player. They were looking for correlation. They were
looking at the probability of the success of certain plays. They were looking at where the players’ points were
scored from and what offensive play was used, as well as what defensive strategy was used against them.
Coach Riley, in fact, used all these same processes as general manager of the Miami Heat NBA basketball
team. In 2008, Pat Riley stepped down as head coach of the Miami Heat to become the president of the
team. Riley selected Eric Spoelstra as the new head coach. By naming Spoelstra as head coach, Riley said
that it was important to bring in new coaches with technical skills and fresh, innovative ideas (National
Basketball Association, 2008).
Spoelstra started his career in the video coordination department. He was in charge of four people who
analyzed video from each Miami Heat game (National Basketball Association, 2008). Spoelstra and his staff
analyzed exactly what was discussed above and provided Riley and his staff not only hard data, but video
analysis replay to support the data to make decisions on plays and players for each game. Coach Spoelstra
became a master of the trade of video analysis, and he was able to integrate and comprehend the importance
of data in decision-making when he became coach.
What, then, is the outcome of all this effort? Decisions. Decisions on what players to play in Game 7 of the
final championship; what offensive plays to select that have high probability of scoring points; what defensive
alignments to take against the opposition; and what players to have on the court during each period of the
game. Even a player’s fatigue can be analyzed by their offensive and defensive play.
As you can see, there are many decisions to be made. These decisions by the head coach and staff led to
using a decision-tree model and the five-step process in the form of basketball analytics. We will delve more
into these topics in this unit.
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LDR 5301, Methods of Analysis for Business Operations 3
UNIT x STUDY GUIDE
Title
Decision Trees
Figure 1 is the basic framework of a
decision tree. Using a decision tree is an
easy way to outline the information you
have at hand. Examples of what you might
analyze include whether to manufacture or
buy parts for your product or to manufacture
or outsource parts for your product. When
these are outlined along the states of
nature, probabilities can be assigned with
profit and losses computed for each state of
nature. The decision tree is designed to
outline and frame decision problems with a
comparison between two choices or multiple
choices. The tree is composed of a decision
node (square) followed by the directive
actions that are under evaluation/consideration: Examples of these actions might be build, buy, outsource, or
do. These lead to a state of nature (the circles) that are numbered as alternatives to consider, which then
again branch off into choices like favorable or unfavorable.
According to Render et al. (2018, p. 77) the following are the steps for the decision tree.
As you can see, the decision-tree analysis steps resemble the six steps of decision-making that we have
previously covered.
Let’s look at Figure 3.2, Thompson’s Decision Tree, from page 77 of the textbook (below). It is composed of
decision nodes and state of decision nodes. The decision node is what the problem is based on your first
decision point, which is usually:
• Select Option A,
• Select Option B, or
Figure 1: Decision Tree Framework
(Render, et al., 2018)
LDR 5301, Methods of Analysis for Business Operations 4
UNIT x STUDY GUIDE
Title
• Do nothing (or choose another option if there are others).
It is from this initial point that your decision tree begins to branch out. From the figure, there are three choices:
construct large plant, construct small plant, or do nothing. These three branches lead to your state of nature
nodes, which usually assign a probability factor along with a cost to each assigned factor. Usually, these
nodes will have favorable, unfavorable with an assigned cost value, or profit revenue generated. As you can
see in Figures 3.3, 3.4, and 3.5 in the textbook, the assigned problems provide the data for you.
For Figure 3.5, walk through the example beginning on page 80 of your textbook. You will be able to correlate
the EMV from the problem to the figure. This is the final step of the process if computing the information in the
decision tree (See the computations below Figure 3.5). The EMV is found by multiplying monetary values by
their probabilities (Render et al., 2018).
Look again at Figure 3.5 in the textbook, walk through the content in the textbook, and match the decision
tree state-of-nature nodes to the numbers and data provided. The key point of this exercise is to begin to build
the math formula to solve the problem. Place the alternatives off the corresponding nodes, and compute the
probabilities and values. Finally, compute the EMV.
In this unit, we examined how valuable decision trees can be in solving complex problems. You may think you
would never use this format. However, you should never say never. Look at the content in this unit as gained
knowledge of a process to make a decision based on costs, time, and return on investment. You never know
when your boss will look at you and say he needs you to run a market survey for the company based on
public opinion about whether or not a chemical plant should be opened in Union County. He needs to know
the results and probabilities based on favorable and unfavorable decisions regarding the outcomes, costs,
and risks.
You can, hopefully, now see the power of this lesson. You are armed and ready to take on the challenge from
your boss. You know how to set up a decision-tree analysis using the five steps, and how to determine the
efficiency of the operations in question.
Thompson’s Decision Tree
(Render et al., 2018)
LDR 5301, Methods of Analysis for Business Operations 5
UNIT x STUDY GUIDE
Title
References
National Basketball Association. (2008, April 28). Riley Steps Down, Spoelstra Named Head Coach. NBA.
https://www.nba.com/heat/news/rileyspoelstra080428html
Render, B., Stair, R. M., Jr., Hanna, M. E., & Hale, T. S. (2018). Quantitative analysis for management (13th
ed.). Pearson. https://online.vitalsource.com/#/books/9780134518558
Riley, P. (1993). The winner within: A life plan for team players. Berkley Publishing Group.
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
For an overview of the chapter equations, review the Key Equations on page 92 of the textbook.
Then, review solved problems 3–1 (page 92) and Problem 3–3 (page 95) to get a better understanding of the
math presented in this unit.
-
Course Learning Outcomes for Unit VI
Learning Activity
Required Unit Resources
Unit Lesson
Introduction
Decision Trees
References
Learning Activities (Nongraded)
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Turnitin Report
Formatting
Title Page
Citation
Outline
