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Answer Decision Analysis

Ryan is considering opening a PETRONAS service station and must choose between four size options - small, medium, large, or very large. The expected annual profit depends on the size and market conditions. Under Maximax, the very large option is best with a potential profit of $300K. Under Maximin, the medium option is safest with a minimum loss of -$20K. Using an equally likely probability for each market, the very large option has the highest expected monetary value of $55K.

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54 views2 pages

Answer Decision Analysis

Ryan is considering opening a PETRONAS service station and must choose between four size options - small, medium, large, or very large. The expected annual profit depends on the size and market conditions. Under Maximax, the very large option is best with a potential profit of $300K. Under Maximin, the medium option is safest with a minimum loss of -$20K. Using an equally likely probability for each market, the very large option has the highest expected monetary value of $55K.

Uploaded by

dzuleffendi
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

Operations Management

Decision Analysis Assignment


Question

1. Ryan has been offered to open up a PETRONAS Service station.


However, the size of the establishment will be based on his decision.
The annual return and investment required will be based on both size
and market condition. To help out in the decision making, Ryan has
done the analysis and the expected profit/loss are shown in the table:
Size of the
station
Small
Medium
Large
Very Large

Good Market

Fair Market

Poor Market

50K
80K
100K
300K

20K
30K
30K
25K

-10K
-20K
-40K
-160K

Answer

a. Develop the decision table


State of nature
Favourable market
Unfavourable market
300K
-160K
100K
-40K
80K
-20K
50K
-10K

Alternatives
Very large service station
Large service station
Medium service station
Small service station

b. What is the decision for Maximax, Maximin and Equally likely?


Alternatives

Very large service


station
Large service
station
Medium service
station
Small service
station

State of nature
Favourable Unfavourab
market
le market
300K

-160K

Maxim
um in
row
300K

100K

-40K

100K

-40K

30K

80K

-20K

80K

-20K

30K

50K

-10K

50K

-10K

20K

Maxima
x

Minimu
m in
row
-160K

Row
averag
e
25K

Maximin

Equally
like

c. Develop the decision tree and evaluate the highest EMV


55K
Very large service

Good market
Fair market
Poor market

Large service

30K

Good market

Fair market
Poor market

30K
Medium service

Good market
Fair market
Poor market

20K
Medium service

Good market
Fair market
Poor market

EMV (1) = 300(1/3)-160(1/3)+25(1/3) =Best


55K
option

EMV (2) = 100(1/3)-40(1/3)+30(1/3)

= 30K

EMV (3) = 80(1/3)-20(1/3)+30(1/3)

= 30K

EMV (4) = 50(1/3)-10(1/3)+20(1/3)

=20K

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