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Address the following requirements: Develop a decision tree for the case described.
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).
Defend your final decision based on your decision tree.
Case for consideration—An operations manager for a cereal producer is faced with a choice of: 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.
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.
Continuing the present operation without change (C) which cost nothing, but produces no pay-off.
Directions: Your essay is required to be four to
five pages in length, which does not include the title page and
reference pages, which are never a part of the content minimum
Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles. Use the Saudi Digital Library to find your resources.
Use Saudi Electronic University academic writing standards and follow APA style guidelines.
It is strongly encouraged that you
submit all assignments into Turnitin prior to submitting them to your
instructor for grading. If you are unsure how to submit an assignment
into the Originality Check tool, review the Turnitin – Student Guide for
step-by-step instructions.
Chapter 4,5,6 Kaminski, B., Jakubczyk, M., & Szufel, P. (2018). A framework for sensitivity analysis of decision trees. Central European Journal of Operations Research, 26(1), 135–159.
Nor, S. H. S., Ismail, S., & Yap, B. W. (2019). Personal bankruptcy prediction using decision tree model. Journal of Economics, Finance & Administrative Science, 24(47), 157–172.
Stevenson, W. (2018). Operations management(13th ed.). New York, NY: McGraw-Hill Irwin. ISBN-13: 9781259667473


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