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%.

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