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Probability Analysis .Harley-Davidson

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Running head: HARLEY-DAVIDSON 1
Harley-Davidson
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HARLEY-DAVIDSON 2
In this case, a general manager of Harley Davidson wants to decide on the size of a
new facility. The general manager has narrowed the decision choices to two: either to build a
large facility or a small facility. The manager collected information on the payoffs. The
manager wants to decide the best option using the probability analysis, the decision tree
model and the expected monetary value. A manager is want to decide whether to build a
small or a large facility. The demand can be low or high with the estimated probabilities
being 0.4 and 0.6 for low demand and high demand respectively. A small facility is expected
to earn $16 if demand is low and a small facility is expected to earn $33 if the demand is
high. A large facility is expected to earn $42 if the demand is high. If the demand is low, the
large facility is expected to earn $20.
Decision analysis is used to develop an optimal strategy when a decision maker is
faced with several decisions alternatives and uncertain or risk filled pattern of future events.
Therefore, in this case, a good decision analysis includes the risks analysis that gives
probability information about the favourable as well as unfavourable consequences that may
occur. Payoff tables are the consequences resulting from a specific combination of a decision
alternative and state of nature. The decision with the largest possible payoff is chosen. If the
payoff table is in terms of costs, the decision with the lowest cost would be chosen. Expected
value approach is the one to use in this case since the probabilistic information regarding the
states of nature is available. We have calculated the expected return by summing the products
of the payoffs table under each state of nature and the probability of the respective state of
nature occurring. The decision yielding the best expected return is chosen. The expected
value of a decision alternative is the sum of weighted payoffs for the decision alternative.
Choose the decision alternative with the largest EV.
From the above information, we have been able to determine the expected value of
each alternative. First, we have determined the expected value of building a small facility to

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Running head: HARLEY-DAVIDSON 1 Harley-Davidson Student Name Institution HARLEY-DAVIDSON 2 In this case, a general manager of Harley Davidson wants to decide on the size of a new facility. The general manager has narrowed the decision choices to two: either to build a large facility or a small facility. The manager collected information on the payoffs. The manager wants to decide the best option using the probability analysis, the decision tree model and the expected monetary value. A manager is want to decide whether to build a small or a large facility. The demand can be low or high with the estimated probabilities being 0.4 and 0.6 for low demand and high demand respectively. A small facility is expected to earn $16 if demand is low and a small facility is expected to earn $33 if the demand is high. A large facility is expected to earn $42 if the demand is high. If the demand i ...
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