EXTRA CREDIT $-$ DECISION TREE

Draw a decision tree and state which alternative should be chosen and why.

As the project manager you have been tasked to create a decision tree based on the following information and choose the best alternative.

Mercey Hospital is looking to find ways to service the community more efficiently by either building a new facility or maintaining the current facility with an option to extend. Demand can be low, average, or high, with the estimated probabilities being $0\mathrm{.}5,0\mathrm{.}3,$ and $0\mathrm{.}2,$ respectively.

Alternative $1$

Mercy hospital could build a new facility, either large or medium.

If a large facility is built demand could be high or low with a payoff of $$25$ million if high and $$19$ million if low.

If a medium facility is built the demand could be high, average, or low. At high demand the payoff will be $$30$ million, average demand, payoff will be $$20$ million, and low demand payoff will be $$18$ million.

Alternative $2$

Mercy hospital could maintain their current facility where their demand will be high, average, and low.

At low demand they will have a payoff of $$24$ million, average demand a payoff of $$28$ million and high $$35$million. At high demand they could also choose to expand by building an extension to the current facility. If they chose to expand, they will have either an average demand of $$30$ million or a standard payoff of $$22$ million regardless of the demand.EXTRA CREDIT $-$ DECISION TREE

Draw a decision tree and state which alternative should be chosen and why.

As the project manager you have been tasked to create a decision tree based on the following information and choose the best alternative.

Mercey Hospital is looking to find ways to service the community more efficiently by either building a new facility or maintaining the current facility with an option to extend. Demand can be low, average, or high, with the estimated probabilities being $0\mathrm{.}5,0\mathrm{.}3,$ and $0\mathrm{.}2,$ respectively.

Alternative $1$

Mercy hospital could build a new facility, either large or medium.

If a large facility is built demand could be high or low with a payoff of $$25$ million if high and $$19$ million if low.

If a medium facility is built the demand could be high, average, or low. At high demand the payoff will be $$30$ million, average demand, payoff will be $$20$ million, and low demand payoff will be $$18$ million.

Alternative $2$

Mercy hospital could maintain their current facility where their demand will be high, average, and low.

At low demand they will have a payoff of $$24$ million, average demand a payoff of $$28$ million and high $$35$million. At high demand they could also choose to expand by building an extension to the current facility. If they chose to expand, they will have either an average demand of $$30$ million or a standard payoff of $$22$ million regardless of the demand.