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

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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 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 – |||| Example A.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Break-Even Analysis 400 – 300 – 200 – 100 – 0 – Patients (Q) Dollars (in thousands) |||| Example A.1 QuantityTotal AnnualTotal Annual (patients)Cost ($)Revenue ($) (Q)(100, Q)(200Q) 0100, ,000400,000

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Break-Even Analysis 400 – 300 – 200 – 100 – 0 – Total annual revenues Patients (Q) Dollars (in thousands) |||| (2000, 400) Example A.1 QuantityTotal AnnualTotal Annual (patients)Cost ($)Revenue ($) (Q)(100, Q)(200Q) 0100, ,000400,000

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 – |||| Fixed costs (2000, 400) (2000, 300) Example A.1 QuantityTotal AnnualTotal Annual (patients)Cost ($)Revenue ($) (Q)(100, Q)(200Q) 0100, ,000400,000

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 – |||| Fixed costs Break-even quantity (2000, 400) (2000, 300) Profits Loss Example A.1 QuantityTotal AnnualTotal Annual (patients)Cost ($)Revenue ($) (Q)(100, Q)(200Q) 0100, ,000400,000

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Break-Even Analysis 400 – 300 – 200 – 100 – 0 – Figure A.1 Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) |||| 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) |||| 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 400 – 300 – 200 – 100 – 0 – Example A.2 Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) |||| 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 400 – 300 – 200 – 100 – 0 – Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) |||| 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 400 – 300 – 200 – 100 – 0 – Total annual revenues Total annual costs Patients (Q) Dollars (in thousands) |||| Fixed costs Profits Loss Example A.2 Forecast = 1,500 pQ – ( F + cQ ) 200(1500) – [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 = F m – F b c b – c m Q = 12,000 – 2, – 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 Example A.3 Q = F m – F b c b – c m Q = 19,200 salads

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 PerformanceWeightScoreWeighted 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 PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential30 Unit profit margin20 Operations compatibility20 Competitive advantage15 Investment requirement10 Project risk5 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 PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential308 Unit profit margin2010 Operations compatibility206 Competitive advantage1510 Investment requirement102 Project risk54 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 PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement10220 Project risk5420 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 PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement10220 Project risk5420 Weighted score =750 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 PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement10220 Project risk5420 Weighted score =750 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. Preference Matrix PerformanceWeightScoreWeighted Score Criterion(A)(B)(A x B) Market potential Unit profit margin Operations compatibility Competitive advantage Investment requirement10220 Project risk5420 Weighted score =750 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 Example A.5 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand If future demand will be low –

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Certainty Example A.5 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand If future demand will be low – Choose the small facility.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Certainty Example A.5 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand If future demand will be low – Choose the small facility.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Uncertainty AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Maximin – Small Maximax – Large Laplace – Best weighted payoff Small facility0.5(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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Maximin – Small Maximax – Large Laplace – Best weighted payoff Small facility0.5(200) + 0.5(270) = 235 Large facility0.5(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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Maximin – Small Maximax – Large Laplace – Large Best weighted payoff Small facility0.5(200) + 0.5(270) = 235 Large facility0.5(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 AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Best worst regret Regret Regret Low DemandHigh Demand Small facility200 – 200 = 0800 – 270 = 530

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Uncertainty AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Best worst regret Regret Regret Low DemandHigh Demand Small facility200 – 200 = 0800 – 270 = 530 Large facility200 – 160 = – 800 = 0

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Uncertainty AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand Example A.6 Maximin – Small Maximax – Large Laplace – Large Minimax Regret – Large Best worst regret Regret Regret Low DemandHigh Demand Small facility200 – 200 = 0800 – 270 = 530 Large facility200 – 160 = – 800 = 0

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Under Uncertainty AlternativeLowHigh Small facility Large facility Do nothing00 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.7 AlternativeExpected Value AlternativeExpected Value Small facility0.4(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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.7 AlternativeExpected Value AlternativeExpected Value Small facility0.4(200) + 0.6(270) = 242 Large facility0.4(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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.7 AlternativeExpected Value AlternativeExpected Value Small facility0.4(200) + 0.6(270) = 242 Large facility0.4(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 Figure A.4

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Perfect Information AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.8 EventBest Payoff EventBest Payoff Low demand200 High demand800

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Perfect Information EventBest Payoff EventBest Payoff Low demand200EV perfect = 200(0.4) + 800(0.6) = 560 High demand800 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.8 EventBest Payoff EventBest Payoff Low demand200EV perfect = 200(0.4) + 800(0.6) = 560 High demand800EV imperfect = 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.8 EventBest Payoff EventBest Payoff Low demand200EV perfect = 200(0.4) + 800(0.6) = 560 High demand800EV imperfect = 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 AlternativeLowHigh Small facility Large facility Do nothing00 Possible Future Demand P small = 0.4 P large = 0.6 Example A.8 EventBest Payoff EventBest Payoff Low demand200EV perfect = 200(0.4) + 800(0.6) = 560 High demand800EV imperfect = 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 = Event node = Decision node E i = Event i P(E i ) = Probability of event i 1stdecision Possible 2nd decision Payoff 1 Payoff 2 Payoff 3 Alternative 3 Alternative 4 Alternative 5 Payoff 1 Payoff 2 Payoff 3 E 1 [P(E 1 )] E 2 [P(E 2 )] E 3 [P(E 3 )] E 2 [P(E 2 )] E 3 [P(E 3 )] E 1 [P(E 1 )] Alternative 1 Alternative 2 Payoff 1 Payoff 2 12 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 Small facility Large facility 1 Example A.9

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

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

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Decision Trees 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] ) 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 $160 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] (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 $160 Low demand [0.4] $160 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] $270 Example A.9

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Decision Trees ($160) Low demand [0.4] $270 $160 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] Example A.9

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Decision Trees ($160) Low demand [0.4] $270 $160 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] (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 ($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$270$40$800 Modest response [0.3] Sizable response [0.7] $20$220 High demand [0.6] 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 $160 Low demand [0.4] $270 $160 Small facility Large facility $544 $242 $544 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] Example A.9

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Decision Trees $160 Low demand [0.4] $270 $160 Small facility Large facility $544 $242 $544 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] Figure A.6

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Solved Problem – 200 – 150 – 100 – 50 – 0 – Figure A.7 Total revenues Total costs Units (in thousands) Dollars (in thousands) |||||||||||||||| |||||||||||||||| Break-evenquantity 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 Figure A.8 Bad times [0.3] Normal times [0.5] Good times [0.2] One lift Two lifts Bad times [0.3] Normal times [0.5] Good times [0.2] $256.0 $225.3 $256.0 $191 $240 $240 $151 $245 $441

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