The process of developing a decision tree

 

 

● 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:
a. 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.
b. 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.
c. 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. Use the Saudi Digital Library to find your resources.
● Use APA style guidelines.
● Write an abstract paragraph + an introduction paragraph in the title page.
Use the book as a reference / Stevenson, W. (2018). Operations management (13th ed.). New York, NY: McGraw-Hill Irwin. ISBN-13: 9781259667473/

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