Assignment 01 Solution_Decision Support Systems for Managers PBA4804_August 2024: Distinction guaranteed

Assignment 01 Solutions: Due date- August 2024
Compiled by Ranga :
Phone number: Zero six one eight four four one three eight seven
Decision Support Systems for Managers (PBA4808)
a) Decision tree diagram for MJ Logistics.




Expected Payoffs:
Expected payoff without expert predictions:
Large Warehouse:
 EMVLarge=0.6×(35−8)+0.4×(20−8)=0.6×27+0.4×12=16.2+4.8=21 million
Small Warehouse:
 EMVSmall=0.6×(15−5)+0.4×(9−5)=0.6×10+0.4×4=6+1.6=7.6 million

, Incorporate expert predictions:
If experts predict favorable (high demand):
Adjusted probabilities: P(H∣F)=0.75, P(L∣F)=0.25
Expected payoff for each option:
Large Warehouse:
 EMVLarge|F=0.75×27+0.25×12=20.25+3=23.25 million
Small Warehouse:
 EMVSmall|F=0.75×10+0.25×4=7.5+1=8.5 million
If experts predict unfavorable (low demand):
Adjusted probabilities: P(H∣U)=0.10, P(L∣U)=0.90
Expected payoff for each option:
Large Warehouse:
 EMVLarge|U=0.10×27+0.90×12=2.7+10.8=13.5 million
Small Warehouse:
 EMVSmall|U=0.10×10+0.90×4=1+3.6=4.6 million


Conclusion:
If the experts' prediction is favorable (high demand): The large warehouse is the better
choice with an EMV of R23.25 million.
If the experts' prediction is unfavorable (low demand): The large warehouse is still the
better choice, with an EMV of R13.5 million.


b) Expected value of sample information, steps adapted from (Brealey, Myers and Marcus 2023)
Calculate the Expected Monetary Value (EMV) without Sample Information:
For the large warehouse:
High demand: 35−8=2735−8=27 million
Low demand: 20−8=1220−8=12 million