Develop a decision tree for this problem and determine the optimal decision strategy.
Critical Path Method
The critical path is the longest succession of tasks that has to be successfully completed to conclude a project entirely. The tasks involved in the sequence are called critical activities, as any task getting delayed will result in the whole project getting delayed. To determine the time duration of a project, the critical path has to be identified. The critical path method or CPM is used by project managers to evaluate the least amount of time required to finish each task with the least amount of delay.
Cost Analysis
The entire idea of cost of production or definition of production cost is applied corresponding or we can say that it is related to investment or money cost. Money cost or investment refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factor of production or factor services.
Inventory Management
Inventory management is the process or system of handling all the goods that an organization owns. In simpler terms, inventory management deals with how a company orders, stores, and uses its goods.
Project Management
Project Management is all about management and optimum utilization of the resources in the best possible manner to develop the software as per the requirement of the client. Here the Project refers to the development of software to meet the end objective of the client by providing the required product or service within a specified Period of time and ensuring high quality. This can be done by managing all the available resources. In short, it can be defined as an application of knowledge, skills, tools, and techniques to meet the objective of the Project. It is the duty of a Project Manager to achieve the objective of the Project as per the specifications given by the client.
A chemical company is trying to decide whether to build a pilot plant now for a new chemical process or
to build the full plant now. If it builds a pilot plant now, it could expand later to a full plant or license the
plant to another company. It would cost $2 million to build the pilot plant and another $2 million later to
expand it. If the company builds the full plant now, it would cost $3.5 million to construct.
The returns the company expects to get from the full production plant depend on the market. There is a
60% chance the market will be robust, a 30% chance it will remain stable, and a 10% chance it will
become stagnate. The returns are estimated to be $5 million if it is robust, $3 million if it is stable, and $1
million if it is stagnate.
Before the company expands the pilot plant, it plans to conduct a comprehensive study. Based on past
experience, it expects the study to report a 60% chance of favorable outcome for expansion and a 40%
unfavorable chance. In either case, it will have to decide whether to expand to a full plant or license the
pilot plant. If the report is favorable and the company licenses it, the company expects to get $3 million.
However, if the report is unfavorable and the company licenses it, the company will only get $1 million.
Develop a decision tree for this problem and determine the optimal decision strategy.
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