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Assignment 2

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Pharoah Chimparira
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20 views5 pages

Assignment 2

Uploaded by

Pharoah Chimparira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chinhoyi University of Technology

Name : Pharoah Chimparira


RegNumber : C19137185C
Course :Operation Research
Code : Cuit 202
Program : BSIT2

Assignment 2 Solution
Solution: Decision tree

Step 1

 For MS1 if successful, Node 5

Revenue =$130 000

Total cost = $50000 +$18 000= 68 000

Profit= Revenue-Total cost =$62 000

If not successful

Revenue =$0

Total cost = $50 000


Profit= Revenue - Total cost =-$50 000

For MS1 if successful, Node 6

Revenue =$115 000

Total cost = $50000 +$18 000= 68 000

Profit= Revenue - Total cost =$47000

If not successful

Revenue =$0

Total cost = $50 000

Profit= Revenue - Total cost =-$50 000

For MS2 if successful, Node 7

Revenue =$70 000

Total cost = $14 000+ $12000

Profit= Revenue-Total cost =$44 000

If not successful

Revenue =$0

Total cost = $14 000

Profit= Revenue-Total cost = -$14 000

For MS2 if successful, Node 8

Revenue =$65 000

Total cost = $14 000+ $12000

Profit= Revenue-Total cost =$39 000


If not successful

Revenue =$0

Total cost = $14000

Profit= Revenue-Total cost =-$14 000

For MS2 if successful, Node 9

Revenue =$60 000

Total cost = $14 000+ $12000

Profit= Revenue-Total cost =$34 000

If not successful

Revenue =$0

Total cost = $14000

Profit= Revenue-Total cost =-$14 000

For MS21 and MS2 if successful, Node 10

Revenue =$190 000

Total cost = $55 000+ $24 000

Profit= Revenue-Total cost =$111 000

If not successful

Revenue =$0

Total cost = $55 000

Profit= Revenue-Total cost =-$55 000

For MS21 and MS2 if successful, Node 11

Revenue =$140 000

Total cost = $55 000+ $24 000


Profit= Revenue-Total cost =$61 000

If not successful

Revenue =$0

Total cost = $55 000

Profit= Revenue-Total cost =-$55 000

Step 2: Find EMV

 For chance node 5 the EMV is 0.2(62) + 0.8(-50) = -27.6


 For chance node 6 the EMV is 0.85(47) + 0.15(-50) = 32.45

Hence the best decision at decision node 2 is to tender at a price of 115 (EMV=32.45).

 For chance node 7 the EMV is 0.15(44) + 0.85(-14) = -5.3


 For chance node 8 the EMV is 0.80(39) + 0.20(-14) = 28.4
 For chance node 9 the EMV is 0.95(34) + 0.05(-14) = 31.6

Hence the best decision at decision node 3 is to tender at a price of 60 (EMV=31.6).

 For chance node 10 the EMV is 0.05(111) + 0.95(-55) = -46.7


 For chance node 11 the EMV is 0.65(61) + 0.35(-55) = 20.4

Hence the best decision at decision node 4 is to tender at a price of 140 (EMV=20.4).

Hence at decision node 1 have three alternatives:

 tender for MS1 only EMV=32.45


 tender for MS2 only EMV=31.6
 tender for both MS1 and MS2 EMV = 20.4

a) Discuss your suggestions to the company on what they should do. [20]

From the above calculations, the best decision for company is to tender for MS1 only (at
a price of 115) as it has the highest expected monetary value of 32.45 (£'000).

b) Explain the downside and the upside of your suggested course of action. [5]
The downside is a loss of 50 and the upside is a profit of 47.
Tender for MS1 only at a price of 115: EMV 32.45, downside -50 (probability 0.15),
upside 47 (probability 0.85)

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