A company $is$ considering three vendors for purchasing a $CRM$ system: Delphi Inc., $CRM$ International, and Murray Analytics. The costs $of$ the system are

expected $to$ depend $on$ the length $of$ time required $to$ implement the system, which depends $on$ such factors $as$ the amount $of$ customization required,

integration with legacy systems, resistance $to$ change, and $soon.$ Each vendor has different expertise $in$ handling these things, which affect the cost. The costs

$(in$ millions $of$ $$)$ are shown below for short, medium, and long implementation durations. Use the Excel template Decision Analysis $to$ identify what vendor $to$

select.

answers $to$ the nearest cent.

Calculate the amounts foregone $by$ not adopting the optimal course $of$ action for each possible implementation duration. Determine the maximum opportunity

$cost$ for each alternative. Fill $in$ the table below. $If$ your answer $is$ zero, enter $"0".$ Round your answers $to$ the nearest cent.

Opportunity Loss Matrix

Future events Suzy's Temporary Employee $(STE)$ business, located $in$ a big city, can $doan$ online criminal background check $in-$house for $$1\mathrm{.}64$ per search with a fixed cost

$of$ $$23,000.$ A third$-$party online security firm offered $todo$ a similar security search for $$9\mathrm{.}00$ per person with $an$ annual service contract with STE. $If$ STE's

forecast $is2,800$ searches next year, should STE continue $todo$ the search $in-$house $or$ accept the third$-$party offer? Use the Excel template Break$-$Even $to$

determine the best decision. Round your answer for the breakeven quantity $to$ the nearest whole number and round your answer for the amount $of$ savin$\frac{g}{l}$oss

$to$ the nearest dollar.

Breakeven quantity:

searches

Since the demand forecast $of2,800$ searches $is$

than the breakeven quantity, STE

outsource the work. STE

$

$by$ outsourcing. Southland Corporation's decision $to$ produce a new line $of$ recreational products has resulted $in$ the need $to$ choose one $of$ two automated manufacturing

systems based $on$ proposals from two vendors, A and $B.$ The economics $of$ this decision depends $on$ the market reaction $to$ the new product line. The possible

long$-$run demand has been defined $as$ low, medium, $or$ high. Based $on$ detailed financial analyses $of$ system costs $as$ a function $of$ volume and sales under each

demand scenario, the following payoff table gives the projected profits $in$ millions $of$ dollars.

Long$-$Run Demand

$a.$ Determine the best decisions using the maximax, maximin, and opportunity loss decision criteria.

Using the maximax criterion, choose

Using the maximin criterion, choose

$To$ minimize the maximum opportunity loss, choose

$b.$ Assume that the best estimate $of$ the probability $of$ low long$-$run demand $is0\mathrm{.}15,of$ medium long$-$run demand $is0\mathrm{.}20,$ and $of$ high long$-$run demand $is$

$0\mathrm{.}65.$ What $is$ the best decision using the expected value criterion? Round your answers $to$ two decimal places.

The expected payoff for Vendor $Ais$ $

million.

The expected payoff for Vendor The $se$ Edwards Machine Tools needs $to$ purchase a new machine. The basic model $is$ slower but costs less, whereas the advanced model $is$ faster but costs more.

Profitability will depend $on$ future demand. The following table presents $an$ estimate $of$ profits over the next three years.

Demand Volume

Fill $in$ the table below for maximum and minimum profit payoffs under each model. Round your answers $to$ the nearest dollar.

Decision alternative

Maximum

Basic model

Advanced model

Calculate the amounts foregone $by$ not adopting the optimal course $of$ action for each possible demand level. Determine the maximum opportunity cost for

each model. Fill $in$ the table below. $If$ your answer $is$ zero, enter $"0".$ Round your answers $to$ the nearest dollar.

Opportunity Loss Matrix

Future events

Decision alternative

Low

Medium

High

Maximum

Basic model

Advanced model

$

$

$

$

$Edwards Machine Tools needs $to$ purchase a new machine. The basic model $is$ slower but costs less, while the advanced model $is$ faster but costs more. Profitability will depend $on$ future demand. The following table presents $an$ estimate $of$ profits over the next three years.

Demand Volume

Decision Low Medium High

Basic model $$115,000$ $$130,000$ $$165,000$

Advanced model $$45,000$ $$140,000$ $$205,000$

The data has been collected $in$ the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis $to$ answer the questions below.

Open spreadsheet

Given the uncertainty associated with the demand volume, and $no$ other information $to$ work with, how would you make a decision using maximax and maximin criteria?

Maximax Decision:

Maximin Decision:

Using the minimax regret criterion, calculate the maximum opportunity loss for each alternative and make a decision.

Decision Maximum Opportunity Loss

Basic model $ fill $in$ the blank $4$

Advanced model $ fill $in$ the blank $5$The selling price per box for Cynthia's Cookies $is$ $$20\mathrm{.}00.$ Fixed costs are $$55,000$ and the variable cost per box $is$ $$9\mathrm{.}88.$