You have been asked to use the expected value model to assess the risk in developing a new product.  Each strategy requires a different sum of money to be invested and produces a different profit payoff as shown below.  Assume the probabilities for each state are 30%, 50%, and 20% respectively.  

a. Using the concept of expected value, what risk (i.e. strategy) should be taken?

b. If the project manager adopts a go-for-broke attitude, what strategy should be selected?

c. If the project manager is a pessimist and does not have the option of strategy S5, what risk would be taken?

d. Would your answer to part c change if strategy S5 were an option?

Strategy	Complete Failure	Partial Success	Total Success
S1	<50K>	<30k>	70k
S2	<80k>	20k	40k
S3	<70k>	0	50k
S4	<200k>	<50k>	150k
S5	0	0	0

Answer rating: 100% (QA)

aExpected values are 1 50 3 305 702 16 2 80 3 205 402 6 3 703 502 11 4 2003 5... View the full answer