Decision Making Supplement A

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Presentation transcript:

Decision Making Supplement A To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Patients (Q) Dollars (in thousands) 400 – 300 – 200 – 100 – 0 – | | | | 500 1000 1500 2000 Example A.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Quantity Total Annual Total Annual (patients) Cost ($) Revenue ($) (Q) (100,000 + 100Q) (200Q) 0 100,000 0 2000 300,000 400,000 400 – 300 – 200 – 100 – 0 – Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Example A.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Quantity Total Annual Total Annual (patients) Cost ($) Revenue ($) (Q) (100,000 + 100Q) (200Q) 0 100,000 0 2000 300,000 400,000 400 – 300 – 200 – 100 – 0 – Total annual revenues Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 (2000, 400) Example A.1 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) 400 – 300 – 200 – 100 – 0 – | | | | 500 1000 1500 2000 Fixed costs (2000, 400) (2000, 300) Example A.1 Quantity Total Annual Total Annual (patients) Cost ($) Revenue ($) (Q) (100,000 + 100Q) (200Q) 0 100,000 0 2000 300,000 400,000 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Break-even quantity Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) 400 – 300 – 200 – 100 – 0 – | | | | 500 1000 1500 2000 Fixed costs Break-even quantity (2000, 400) (2000, 300) Profits Loss Example A.1 Quantity Total Annual Total Annual (patients) Cost ($) Revenue ($) (Q) (100,000 + 100Q) (200Q) 0 100,000 0 2000 300,000 400,000 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Break-Even Analysis Break-even quantity 400 – 300 – 200 – 100 – 0 – Figure A.1 Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Fixed costs Break-even quantity (2000, 400) (2000, 300) Profits Loss To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Sensitivity Analysis 400 – 300 – 200 – 100 – 0 – Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Fixed costs Profits Loss Example A.2 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Sensitivity Analysis Forecast = 1,500 400 – 300 – 200 – 100 – 0 – Example A.2 Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Fixed costs Profits Loss Forecast = 1,500 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Sensitivity Analysis Forecast = 1,500 pQ – (F + cQ) 400 – 300 – 200 – 100 – 0 – Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Fixed costs Profits Loss Example A.2 Forecast = 1,500 pQ – (F + cQ) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Sensitivity Analysis Forecast = 1,500 pQ – (F + cQ) 400 – 300 – 200 – 100 – 0 – Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) | | | | 500 1000 1500 2000 Fixed costs Profits Loss Example A.2 Forecast = 1,500 pQ – (F + cQ) 200(1500) – [100,000 + 100(1500)] $50,000 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Make-or-Buy Decisions To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Make-or-Buy Decisions Figure A.2 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Make-or-Buy Decisions Q = Fm – Fb cb – cm 12,000 – 2,400 2.0 – 1.5 Example A.3 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Make-or-Buy Decisions Q = Fm – Fb cb – cm Q = 19,200 salads Example A.3 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement Project risk Threshold score = 800 Example A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 Unit profit margin 20 Operations compatibility 20 Competitive advantage 15 Investment requirement 10 Project risk 5 Threshold score = 800 Example A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 8 Unit profit margin 20 10 Operations compatibility 20 6 Competitive advantage 15 10 Investment requirement 10 2 Project risk 5 4 Threshold score = 800 Example A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 8 240 Unit profit margin 20 10 200 Operations compatibility 20 6 120 Competitive advantage 15 10 150 Investment requirement 10 2 20 Project risk 5 4 20 Threshold score = 800 Example A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 8 240 Unit profit margin 20 10 200 Operations compatibility 20 6 120 Competitive advantage 15 10 150 Investment requirement 10 2 20 Project risk 5 4 20 Weighted score = 750 Threshold score = 800 Example A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix < 800 Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 8 240 Unit profit margin 20 10 200 Operations compatibility 20 6 120 Competitive advantage 15 10 150 Investment requirement 10 2 20 Project risk 5 4 20 Weighted score = 750 Threshold score = 800 Example A.4 < 800 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Not At This Time Preference Matrix Threshold score = 800 Performance Weight Score Weighted Score Criterion (A) (B) (A x B) Market potential 30 8 240 Unit profit margin 20 10 200 Operations compatibility 20 6 120 Competitive advantage 15 10 150 Investment requirement 10 2 20 Project risk 5 4 20 Weighted score = 750 Threshold score = 800 Example A.4 Not At This Time To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Preference Matrix Figure A.3 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Certainty To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Certainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Example A.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Certainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand If future demand will be low – Example A.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Certainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand If future demand will be low – Choose the small facility. Example A.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Certainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand If future demand will be low – Choose the small facility. Example A.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best of the worst Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Best of the worst Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best of the worst Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Best of the worst Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best of the best Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Best of the best Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best of the best Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Best of the best Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best weighted payoff Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Best weighted payoff Small facility 0.5(200) + 0.5(270) = 235 Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best weighted payoff Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Best weighted payoff Small facility 0.5(200) + 0.5(270) = 235 Large facility 0.5(160) + 0.5(800) = 480 Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best weighted payoff Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Large Best weighted payoff Small facility 0.5(200) + 0.5(270) = 235 Large facility 0.5(160) + 0.5(800) = 480 Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best worst regret Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Best worst regret Regret Low Demand High Demand Small facility 200 – 200 = 0 800 – 270 = 530 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best worst regret Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Best worst regret Regret Low Demand High Demand Small facility 200 – 200 = 0 800 – 270 = 530 Large facility 200 – 160 = 40 800 – 800 = 0 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Best worst regret Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Large Best worst regret Regret Low Demand High Demand Small facility 200 – 200 = 0 800 – 270 = 530 Large facility 200 – 160 = 40 800 – 800 = 0 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Uncertainty Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Large Example A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Risk Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.7 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Risk Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.7 Alternative Expected Value Small facility 0.4(200) + 0.6(270) = 242 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Risk Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.7 Alternative Expected Value Small facility 0.4(200) + 0.6(270) = 242 Large facility 0.4(160) + 0.6(800) = 544 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Risk Highest Expected Value Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.7 Alternative Expected Value Small facility 0.4(200) + 0.6(270) = 242 Large facility 0.4(160) + 0.6(800) = 544 Highest Expected Value To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Under Risk Figure A.4 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 Event Best Payoff Low demand 200 High demand 800 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 Event Best Payoff Low demand 200 EVperfect = 200(0.4) + 800(0.6) = 560 High demand 800 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 Event Best Payoff Low demand 200 EVperfect = 200(0.4) + 800(0.6) = 560 High demand 800 EVimperfect = 160(0.4) + 800(0.6) = 544 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 Event Best Payoff Low demand 200 EVperfect = 200(0.4) + 800(0.6) = 560 High demand 800 EVimperfect = 160(0.4) + 800(0.6) = 544 Value of perfect information = $560,000 - $544,000 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Perfect Information Possible Future Demand Alternative Low High Small facility 200 270 Large facility 160 800 Do nothing 0 0 Possible Future Demand Psmall = 0.4 Plarge = 0.6 Example A.8 Event Best Payoff Low demand 200 EVperfect = 200(0.4) + 800(0.6) = 560 High demand 800 EVimperfect = 160(0.4) + 800(0.6) = 544 Value of perfect information = $16,000 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 1 2 Figure A.5 = Event node = Decision node Ei = Event i P(Ei) = Probability of event i 1st decision Possible 2nd decision Payoff 1 Payoff 2 Payoff 3 Alternative 3 Alternative 4 Alternative 5 E1 [P(E1)] E2 [P(E2)] E3 [P(E3)] Alternative 1 Alternative 2 1 2 Figure A.5 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 1 Example A.9 Small facility Large facility To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 2 1 Example A.9 Low demand [0.4] $200 $223 Don’t expand Small facility Large facility Low demand [0.4] Don’t expand Expand $200 $223 $270 High demand [0.6] 1 2 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 2 1 3 Example A.9 Low demand [0.4] $200 $223 Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $270 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 2 1 3 Example A.9 Low demand [0.4] $200 $223 Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $270 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 0.3(20) + 0.7(220) 2 1 3 Example A.9 Low demand [0.4] Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $270 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 0.3(20) + 0.7(220) Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 0.3(20) + 0.7(220) 2 1 3 $160 Example A.9 Low demand [0.4] Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $270 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 0.3(20) + 0.7(220) Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 2 1 3 $160 Example A.9 Low demand [0.4] $200 $223 Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $270 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 2 $270 1 3 $160 ($160) Example A.9 Low demand [0.4] Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 0.4(200) + 0.6(270) 0.4(160) + 0.6(800) 2 $270 1 3 $160 ($160) Low demand [0.4] $270 $160 Small facility Large facility Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 0.4(200) + 0.6(270) 0.4(160) + 0.6(800) Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees 0.4(200) + 0.6(270) 0.4(160) + 0.6(800) $242 2 $270 1 3 ($160) Low demand [0.4] $270 $160 Small facility Large facility $242 $544 Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 0.4(200) + 0.6(270) 0.4(160) + 0.6(800) To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees $242 2 $270 1 $544 3 $160 Example A.9 Low demand [0.4] Small facility Large facility $544 $242 Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Example A.9 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Decision Trees $242 2 $270 1 $544 3 $160 Figure A.6 Low demand [0.4] Small facility Large facility $544 $242 Low demand [0.4] Don’t expand Expand Do nothing Advertise $200 $223 $40 $800 Modest response [0.3] Sizable response [0.7] $20 $220 High demand [0.6] 1 2 3 Figure A.6 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Solved Problem 1 Break-even quantity Total revenues $77.7 Total costs 250 – 200 – 150 – 100 – 50 – 0 – Figure A.7 Total revenues Total costs Units (in thousands) Dollars (in thousands) | | | | | | | | 1 2 3 4 5 6 7 8 Break-even quantity 3.1 $77.7 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.

Solved Problem 4 Bad times [0.3] $191 Normal times [0.5] $240 One lift Figure A.8 Bad times [0.3] Normal times [0.5] Good times [0.2] One lift Two lifts $256.0 $225.3 $191 $240 $151 $245 $441 To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.