Operations Management
Critical Thinking: Decision Tree
The supplement to Chapter 5 (page 225) in your textbook describes and develops several decision trees.
Address the following requirements:
Q1: Develop a decision tree for the case described.
Q2: Explain the process of developing a decision tree, draw the decision tree (include the decision tree in an appendix showing chance nodes, probabilities, outcomes, expected values, and net expected value).
Q3: Defend your final decision based on your decision tree.
Case for considerationAn operations manager for a cereal producer is faced with a choice of:
A. A large-scale investment (A) to purchase a new cooker which could produce a substantial pay-off in terms of increased revenue net of costs but requires an investment of 3,750,000 Saudi Riyal. After extensive market research it is thought that there is a 40% chance that a pay-off of 9,375,000 Saudi Riyal will be realized, but there is a 60% chance that it will be only 3,000,000 Saudi Riyal.
B. A smaller-scale project (B) to refurbish an existing cooker. At 1,875,000 Saudi Riyal, this option is less costly but produces a lower pay-off. Again, extensive research data suggests a 30% chance of a gain of 3,750,000 Saudi Riyal but a 70% chance of it being only 1,875,000 Saudi Riyal.
C. Continuing the present operation without change (C) which cost nothing, but produces no pay-off.
Structure:
– Introduction + talk about decision trees
– Introduction for the Case above
– Body (to discuss and answer the above Question: Q1, Q2, and Q3)
– Conclusion to summarize the paper
– References
Directions:
– This assignment is related to Chapter #5: in the book (here is the link)
– The essay should be 4 or 5 pages in length, which does not include the title page and reference pages.
– Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles.
– Follow APA style guidelines.
– Plagiarism should be less than 25%.
