Decision Analysis

2. AT&T is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operations depends on future demand, as follows:

Demand

Staffing Options	High	Medium	Low
Own staff	650	650	600
Outside vendor	900	600	300
Combination	800	650	500

The demand probabilities are 20%, 50%, and 30% respectively.

a. Which decision alternative will minimize the expected cost of the data processing operation?

b. What is the expected annual cost associated with that recommendation?