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15. The Lake Placid Town Council decided to build a new community center to be used for conventions, concerts, and other public events, but considerable controversy surrounds the appropriate size. Many influential citizens want a large center that would be a showcase for the area. But the mayor feels that if demand does not support such a center, the community will lose a large amount of money. To provide structure for the decision process, the coun- cil narrowed the building alternatives to three sizes: small, medium, and large. Everybody agreed that the critical factor in choosing the best size is the number of people who will want to use the new facility. A regional planning consultant provided demand estimates under three scenarios: worst case, base case, and best case. The worst-case scenario corresponds to a situation in which tourism drops substantially; the base-case scenario corresponds to a situation in which Lake Placid continues to attract visitors at current levels; and the best- case scenario corresponds to a substantial increase in tourism. The consultant has provided probability assessments of 0.10, 0.60, and 0.30 for the worst-case, base-case, and best-case scenarios, respectively.

15. The Lake Placid Town Council decided to build a new community center to be used for conventions, concerts, and other public events, but considerable controversy surrounds the appropriate size. Many influential citizens want a large center that would be a showcase for the area. But the mayor feels that if demand does not support such a center, the community will lose a large amount of money. To provide structure for the decision process, the coun- cil narrowed the building alternatives to three sizes: small, medium, and large. Everybody agreed that the critical factor in choosing the best size is the number of people who will want to use the new facility. A regional planning consultant provided demand estimates under three scenarios: worst case, base case, and best case. The worst-case scenario corresponds to a situation in which tourism drops substantially; the base-case scenario corresponds to a situation in which Lake Placid continues to attract visitors at current levels; and the best- case scenario corresponds to a substantial increase in tourism. The consultant has provided probability assessments of 0.10, 0.60, and 0.30 for the worst-case, base-case, and best-case scenarios, respectively.

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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### Community Center Size Decision for Lake Placid **Case Study Overview:** The Lake Placid Town Council is in the process of deciding the size of a new community center. This center is intended for conventions, concerts, and other public events. There’s a debate about the most appropriate size for the center due to its potential impact on the community and the risk of financial loss if demand does not meet expectations. **Decision Making:** To streamline the decision-making process, the council has narrowed down the building alternatives to three sizes: small, medium, and large. The critical factor in deciding the best size is based on the number of people who will use the facility. A regional planning consultant has provided demand estimates under three scenarios: - **Worst Case:** Significant drop in tourism - **Base Case:** Continual current level of tourism - **Best Case:** Substantial increase in tourism Each scenario comes with a probability assessment: - Worst-case: 0.10 - Base-case: 0.60 - Best-case: 0.30 **Financial Projections:** The town council uses net cash flow over a 5-year planning horizon to decide the best size. The net cash flow projections (in thousands of dollars) include all costs, including the consultant’s fee. **Net Cash Flow Projections Table:** | Center Size | Worst Case | Base Case | Best Case | |-------------|-------------|------------|------------| | Small | 400 | 500 | 660 | | Medium | -250 | 650 | 800 | | Large | -400 | 580 | 990 | **Key Questions for Decision Making:** 1. **Expected Value Approach**: - Evaluate the expected net cash flow for each center size using the probability assessments and financial projections. 2. **Risk Profiles**: - Assess the risk profiles for medium and large alternatives. Consider potential financial losses and the impact on the community. #### Expected Value Calculation: * For Small Center: $$ EV(Small) = (0.10 \times 400) + (0.60 \times 500) + (0.30 \times 660) $$ $$ EV(Small) = 40 + 300 + 198 $$ $$ EV(Small) = 538 $$ * For Medium Center: $$ EV(Medium) = (0.10 \times -250) + (0.60 \times
Transcribed Image Text:### Community Center Size Decision for Lake Placid **Case Study Overview:** The Lake Placid Town Council is in the process of deciding the size of a new community center. This center is intended for conventions, concerts, and other public events. There’s a debate about the most appropriate size for the center due to its potential impact on the community and the risk of financial loss if demand does not meet expectations. **Decision Making:** To streamline the decision-making process, the council has narrowed down the building alternatives to three sizes: small, medium, and large. The critical factor in deciding the best size is based on the number of people who will use the facility. A regional planning consultant has provided demand estimates under three scenarios: - **Worst Case:** Significant drop in tourism - **Base Case:** Continual current level of tourism - **Best Case:** Substantial increase in tourism Each scenario comes with a probability assessment: - Worst-case: 0.10 - Base-case: 0.60 - Best-case: 0.30 **Financial Projections:** The town council uses net cash flow over a 5-year planning horizon to decide the best size. The net cash flow projections (in thousands of dollars) include all costs, including the consultant’s fee. **Net Cash Flow Projections Table:** | Center Size | Worst Case | Base Case | Best Case | |-------------|-------------|------------|------------| | Small | 400 | 500 | 660 | | Medium | -250 | 650 | 800 | | Large | -400 | 580 | 990 | **Key Questions for Decision Making:** 1. **Expected Value Approach**: - Evaluate the expected net cash flow for each center size using the probability assessments and financial projections. 2. **Risk Profiles**: - Assess the risk profiles for medium and large alternatives. Consider potential financial losses and the impact on the community. #### Expected Value Calculation: * For Small Center: $$ EV(Small) = (0.10 \times 400) + (0.60 \times 500) + (0.30 \times 660) $$ $$ EV(Small) = 40 + 300 + 198 $$ $$ EV(Small) = 538 $$ * For Medium Center: $$ EV(Medium) = (0.10 \times -250) + (0.60 \times
### Decision Analysis: Evaluating Scenarios and Investments This section deals with evaluating the decision-making process under different scenarios and the impact of additional information or investments on decision outcomes. **c. Expected Value of Perfect Information (EVPI)** Compute the expected value of perfect information. Do you think it would be worth trying to obtain additional information concerning which scenario is likely to occur? **d. Changes in Scenario Probabilities** Suppose the probability of the worst-case scenario increases to 0.2, the probability of the base-case scenario decreases to 0.5, and the probability of the best-case scenario remains at 0.3. What effect, if any, would these changes have on the decision recommendation? **e. Investment in Promotional Campaign** The consultant has suggested that an expenditure of $150,000 on a promotional campaign over the planning horizon will effectively reduce the probability of the worst-case scenario to zero. If the campaign can be expected to also increase the probability of the best-case scenario to 0.4, is it a good investment? ### Graphs and Diagrams There are no graphs or diagrams associated with this text. In addressing these questions, you will need to apply concepts such as Expected Value of Perfect Information (EVPI) and Scenario Analysis to evaluate if seeking additional information or making a specific investment can be beneficial for decision-making. Use probability adjustments and consider their financial impacts to derive meaningful recommendations.
Transcribed Image Text:### Decision Analysis: Evaluating Scenarios and Investments This section deals with evaluating the decision-making process under different scenarios and the impact of additional information or investments on decision outcomes. **c. Expected Value of Perfect Information (EVPI)** Compute the expected value of perfect information. Do you think it would be worth trying to obtain additional information concerning which scenario is likely to occur? **d. Changes in Scenario Probabilities** Suppose the probability of the worst-case scenario increases to 0.2, the probability of the base-case scenario decreases to 0.5, and the probability of the best-case scenario remains at 0.3. What effect, if any, would these changes have on the decision recommendation? **e. Investment in Promotional Campaign** The consultant has suggested that an expenditure of $150,000 on a promotional campaign over the planning horizon will effectively reduce the probability of the worst-case scenario to zero. If the campaign can be expected to also increase the probability of the best-case scenario to 0.4, is it a good investment? ### Graphs and Diagrams There are no graphs or diagrams associated with this text. In addressing these questions, you will need to apply concepts such as Expected Value of Perfect Information (EVPI) and Scenario Analysis to evaluate if seeking additional information or making a specific investment can be beneficial for decision-making. Use probability adjustments and consider their financial impacts to derive meaningful recommendations.
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