BA 341 15th Edition Lecture 15 Outline of Last Lecture I Decisions II Decision Trees III Decision making under uncertainty IV Decision Making under Risk Outline of Current Lecture V Sequence of Decisions VI In summary VII Managing Process Variability Current Lecture Decision Trees with a sequence of decisions Let s assume that our company has two decisions to make with the second dependent on the outcome of the first Let s assume that before deciding about the plant there is the option of a marketing study at a cost of 10 000 This study might reveal more accurate information about the market How does this new decision affect our analysis These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute In summary What is the optimal decision here o First conduct market survey o Next build large plant if survey results are favorable otherwise build small plant How do we solve a decision tree o Rolling Back or Folding Back the tree o Start at the endpoints of the branches i e far right and move left by Computing the EMV value when you encounter a chance i e round node or Choosing the branch with the highest EMV when you encounter a decision i e square node o Decision trees can be used for sequential decisions An additional example Consider the tree shown below find the best decision alternative EMV for A1 10 000 0 6 2 000 0 4 6 800 EMV for A2 6 000 0 6 4 000 0 4 5 200 EMV for A3 20 000 0 6 6 000 0 4 9 600 The decision is to go for A3 Managing Process Variability Consider a Service Call Center without any uncertainty Customer arrivals are evenly spread out e g 1 customer every 4 minutes Are there any blocked calls No Are there any customers tired of waiting No All systems need planning beforehand
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