OPERATIONS MANAGEMENT

(a) Using decision trees, determine the best strategy if the economic experts predictions suggest that the outcome of the market research will be favourable or will be unfavourable.

(b) What is the expected value of sample information (EVSI)?

(c) What is expected value of perfect information (EVPI)?

(d) Based on your analysis, provide a corresponding risk profile for the optimal decision strategy

MJ Logistics has decided to build a new warehouse to support its supply chain activities. They have the option of building either a large warehouse or a small one. Construction costs for the large facility are R8 million versus R5 million for the small facility. The profit (excluding construction cost) depends on the volume of work the company expects to contract for in the future. This is summarized in the table below (in millions of rand): High Volume Low Volume Large Warehouse R35 R20 Small Warehouse R15 R9 The company believes that there is a 60% chance that the volume of demand will be high./ Suppose that the company engages some economic experts to provide their opinion about the future economic conditions. Historically, their upside predictions have been 75% accurate, while their downside predictions have been 90% accurate