The Decision Problem

The XYZ Company is considering adding to its production capacity to anticipate additional customer demand. XYZ$\text{'}$s decision alternatives are to :

Construct a New Plant for $$2\mathrm{.}5$ million. This alternative would provide the most capacity to meet additional customer demand.

Expand the Existing Plant for $$1\mathrm{.}5$ million. This alternative would provide some capacity to meet additional customer demand.

Do Nothing, which has no cost$.$ This alternative has limited capacity to meet additional customer demand.

After the decision, customer demand could increase, stabilize, or decrease. The probabilities of these outcomes are $25\%,35\%,$ and $40\%.$ The XYZ$$s payoffs for the various combinations of decisions and outcomes appear in t Download this file Download his file. Screenshot provided.

Use this information to identify the decision that maximizes EMV and the risk profile associated with that decision. Your recommendation should be the optimal decision, noting the risk associated it$.$

Perform a sensitivity analysis on the optimal decision by varying the cost of each decision by plus or minus $10\%,$ one value at a time. Use the sensitivity analysis to identify and communicate which input affects the optimal decision most.

Your Tasks :

$1-$ Create a decision tree using DADM Tools to identify which decision maximizes expected monetary value $($EMV$).$

$2-$ Create a risk profile for the decision that maximizes EMV. The risk profile should be stated in EMV.

$3-$ Create a sensitivity analysis by varying the decision cost $(+10\%).$ Include each of the three decisions, with the original costs, in the summary of the table. Record the sensitivity analysis in your worksheet as follows:

$4-$ Summarize the decision in a $1-$page memo.

Two Deliverables :

Submit two files to fulfill this assignment.

$1.$ Your Decision Analysis $-$ Excel Workbook

Construct a decision tree using DADM Tools to determine an optimal decision. Develop a risk profile associated with that decision. Additionally, consider how sensitive the decision is to changes in the cost $(+10\%)$ of each decision.

Use DADM Tools to create your decision tree. Your results should appear in one worksheet in your workbook. Hide or delete any superfluous information. Your worksheet should be appropriately labeled and legible for business executives.

$\backslash$table$[[$Payoffs$,],[,],[,],[,],[,],[,$Demand$],[,],[,],[,],[,],[$Increase$,$Stabilize$],[$Decrease$,],[,],[,],[,],[$Construct a new plant,$$2],[900,000],[$$$2,400],[000,$$$2],[300,000],[$Expand the existing plant,$$1],[850,000],[$$$1,450],[000,$$$1],[250,000],[$Do nothing,$$50],[000,$$$0],[-$$$30,000],[,],[,]]$