Midterm Exam - DSC-8240

Murugan Chellasamy

Cases

Cold Fusion Prescribed Fire GPC Strenlar

Cold Fusion

Objective Hierarchies Variables & Measures Problem Structuring

Consequence Table Influence Diagram Decision Tree

Mathematical Model - NA Solutions & Sensitivity

Cases

Cold Fusion - Objective Hierarchies

O b jec tive H ie ra rch y

M a x im ize E co n o m ica l E ffects M a x im ize P erso n a l S a tis fa ctio n

M a x im ize W ea lth /S elf S a tis fa ctio n

Cold Fusion - Variables & Measures

Decision Variables: Good for the Society Bad for the Society

Chance Variables Bill Passed Bill Rejected High Political Value Low Political Value Fusion Works Fusion Fails Economically Feasible Economically Infeasible

Consequence Actually Helps Society Does not make any difference

Cold Fusion - Consequence Table

Eco/Soc Effects Bill Political Value Fusion Feasibility

Good Passed High Works Feasible

Works Infeasible

Fails No Effect

Rejected Low No Effect No Effect

Bad Passed High Works Feasible

Works Infeasible

Fails No Effect

Rejected Low No Effect No Effect

Cold Fusion - Consequence Table

Cold Fusion - Influence Diagram

Good /BadFor

Society

High PoliticalValue

High/Low

FusionWorks/Fails

BillPassed/Rejected

High Satisfaction

Cold Fusion - Decision Tree

Cold Fusion - Solutions & Sensitivity

I believe the fate of this bill will be determined by the relative publicity it can generate to help the politicians and the scientists. It would be very hard to determine the economic and social benefits derived from Cold Fusion. It could be very beneficial to the society but if it meant that we would have to stop using the existing sources of energy, it may cause severe economic strains. On the other hand it may help the economy but may create problems to the society by making destructive technology available at a cheaper cost. Even if the bill gets passed, it may not be feasible to use this technology to reap the desired benefits.

Prescribed Fire

Objective Hierarchies Variables & Measures Problem Structuring

Consequence Table Influence Diagram Decision Tree

Mathematical Model Solutions & Sensitivity

Cases

Prescribed Fire - Objective Hierarchies

O b jec tive H ie ra rch y

A sso cia ted P ro b lem s

D ifferen t M eth o d s

C o st E ffic ien t B u rn in g

Prescribed Fire - Variables & Measures

Decision Variables: Burn Slash YUM

Chance Variables Controlled Fire Uncontrollable Fire - Escaped Fire Uncontrollable Fire - Problems

Consequence Cost Efficient Burn Escaped Fire Low Cost Burn Medium Cost Burn High Cost Burn

Prescribed Fire - Consequence Table

Method Burn Result Cost Amount

Slash Burn Controlled Minimal $85

Escaped Fire Substantial $1,000

Uncontrolled Low $125

Medium $200

High $500

YUM Controlled Minimal $185

Escaped Fire Substantial $1,000

Uncontrolled Low $225

Medium $300

High $600

Prescribed Fire - Per Acre

Prescribed Fire - Influence Diagram

Choose Method

ControlledFire

LowHigh

MediumCosts

UncontrolledFire

Cost Efficient Burn

Prescribed Fire - Decision Tree

Prescribed Fire Solutions & Sensitivity

Given the scenario’s, YUM seems to be the most cost efficient method .

GPC

Objective Hierarchies Variables & Measures Problem Structuring

Consequence Table Influence Diagram Decision Tree- NA

Mathematical Model Solutions & Sensitivity

Cases

GPC - Objective Hierarchies

O bje c tive H ie ra rc h y

S tu d y O p tio n s

C o n sid er D ifferen t S cen a rio s

E v a lu a te R isk /R etu rn

M a x im ize R etu rn s

GPC - Variables & Measures

Decision Variables: Product A Product B Product C

Chance Variables Delay in production Price Sales Market Share

Consequence Increased Market Share Lose Market Share Increased Return Reduced Margin

GPC - Consequence Table

Product Delay Price Sales Return (Millions)

A Yes High High Sales $5.00

Low Sales ($0.50)

Low High Sales $3.50

Low Sales $1.00

No High High Sales $8.00

Low Sales $0.00

Low High Sales $4.50

Low Sales $1.50

B Yes High $8.00

Medium $4.00

Low $0.00

C $1.00

GPC- Consequence Table

GPC - Influence Diagram

Choose Product

Delay Product

Sales

MaximizeReturn

GPC - Mathematical Model

Mathematical Models

EMVA delay = max (((0.3 * 5) + (0.7 * (-0.5))), ((0.5 * 3.5) + (0.5 * 1)))

EMVA no delay = max (((0.4 * 8) + (0.6 * 0)), ((0.5 * 4.5) + (0.5 * 1.5)))

EMVA = max (EMVA delay, EMVA no delay )

EMVB = (0.38 * 8) + (0.12 * 4) + (0.5 * 0)

EMVC = 1.0

EMV Optimal Decision = max( EMVA, EMVB, EMVC )

GPC - Solutions & Sensitivity

I was not able to get DPL to draw a decision tree. In any event, if we had more time and information we could have done more analysis. We could have used excel to set up a solver with constraints (upper and lower limits on probability) for products A & B to get a maximized return. We could also have set up a regression model with sales as the dependent variable with delay and price as independent variables to project profits with certain level of confidence. But, given the information we have, I would suggest we go with product B since we are a lot more certain about its out come. The decision will also be impacted by many other factors like the GPC’s financial strength and its position in the market etc.

Strenlar

Objective Hierarchies Variables & Measures Problem Structuring

Consequence Table Influence Diagram Decision Tree

Mathematical Model Solutions & Sensitivity

Cases

Strenlar - Objective Hierarchies

O b jectiv e H iera rch y

G a u ra n teed L ifes ty le S a fety

F in a n cia l/E m o tio n a lS ta b ility

O n e o f M a n y

S elf E steem P rid e

U n certa in ity

A g a in st T h e W o rld

M a x im ize S elf S a tis fa ctio n

Strenlar - Variables & Measures

Decision Variables: Accept Offer Reject Offer

Chance Variables Financial/ Physical/ Emotional State Peer & Social Pressure Future

Consequence Rich & Happy Broke & Miserable Self Esteem??

Strenlar - Consequence Table

Offer Lawsuit Process Fin State

Accept None Works Good

Fails Good

Reject Win Works Good

Fails Bad

Lose Works Bad

Fails Bad

Strenlar - Consequence Table

Strenlar - Influence Diagram

Accept/RejectOffer

Financial State

PhysicalState

EmotionalState

MaximizeSatisfaction

Strenlar - Decision Tree

Strenlar - Mathematical Model

The following diagram, done in Excel, accompanies the mathematical model used by Fred:

EMV Lawsuit = (0.6 * ((0.8 * 8,000) + (0.2 * (-200)))) + (0.4 * (-220))

EMVPI job = (0.8 * 2,443) + (0.2 * 343)

EMV lump sum = (0.8 * 1,252) + (0.2 * 500)

EMV Optimal decision = max ( EMV Lawsuit, EMVPI job, EMV lump sum )

Strenlar Solutions & Sensitivity

Fred’s position is unenviable. His decision will be influenced by how he feels about himself. I don’t think we can help him make a decision based on the financial outcomes. If Fred was a corporation, we could argue that he should reject the offer and take them to court since maximizing the value of the assets would be his only goal.