MGT 530 Saudi Electronic University Reliability and Decision Theory Discussion

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Business Finance

MGT 530

Saudi electronic university

MGT

Description

The supplement to Chapter 5 in your textbook (Stevenson, W. (2018). Operations management (13th ed.)) describes and develops several decision trees.

Address the following requirements:

  • Develop a decision tree for the case described.
  • Explain the process of developing a decision tree, draw the decision tree (include the decision tree in an appendix showing chance nodes, probabilities, outcomes, expected values, and net expected value).
  • Defend your final decision based on your decision tree.

Case for consideration—An operations manager for a cereal producer is faced with a choice of:

  1. A large-scale investment (A) to purchase a new cooker which could produce a substantial pay-off in terms of increased revenue net of costs but requires an investment of 3,750,000 Saudi Riyal. After extensive market research it is thought that there is a 40% chance that a pay-off of 9,375,000 Saudi Riyal will be realized, but there is a 60% chance that it will be only 3,000,000 Saudi Riyal.
  2. A smaller scale project (B) to refurbish an existing cooker. At 1,875,000 Saudi Riyal, this option is less costly but produces a lower pay-off. Again, extensive research data suggests a 30% chance of a gain of 3,750,000 Saudi Riyal but a 70% chance of it being only 1,875,000 Saudi Riyal.
  3. Continuing the present operation without change (C) which cost nothing, but produces no pay-off.

Directions:

  • Your essay is required to be four to five pages in length, which does not include the title page and reference pages, which are never a part of the content minimum requirements.
  • Support your submission with course material concepts, principles, and theories from the textbook and at least three scholarly, peer-reviewed journal articles.

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Explanation & Answer

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Running Head TREE DIAGRAM ANALYSIS

Tree Diagram Analysis
Name
Course
Instructor
Institutional Affiliation

1

2

TREE DIAGRAM ANALYSIS

Developing a Decision Tree
Decision trees are used for representing and deriving an issue diagrammatically with the
intention that expected solutions could be inferred. The diagram also represents every possible
action courses together with their significances (Kotsiantis, 2013). Particularly, it is beneficial
when it comes to making more than one decision, and there are numerous outcomes of the
decision making at each stage’s nodes. An organization will be allowed by the decision tree for
evaluating the different action courses’ benefits and costs for finding the best.
Tree Diagram Analysis
The tree diagram below involves several branches and nodes, including three chance
events and one decision point. On the diagram’s left, the first note indicates that there are three
choices for the manager: make a large scale project investment, make a small scale project
investment, or focus on the current operations. From this point of decision, each branch shows
the action course that t...


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