Five thousand new smart camera systems are needed annually to expand the security surveillance of roads, buildings, airports, parks, etc. in a large metropolitan area. The system components can be obtained in one of three ways: (1) Make them in one of three plants partially owned by the government; (2) Buy them off the shelf from the one and only manufacturer; or (3) Contract to have them made to specifications by a vendor. The estimated annual cost for each alternative is dependent upon specifics of the plant, the producer, or the vendor. The information below details the alternative, a probability of occurrence, and the estimated annual cost. (a) Construct and solve a decision tree to determine the least-cost alternative to provide the components. (b) Once you have chosen the alternative on the tree, use a spreadsheet to determine the change in probability that the Buy alternative requires to make it equally attractive with the chosen alternative. Assume that the probability change will be equally distributed to the other probability estimates. Write the new probability values. Alternative Outcomes Probability Annual Cost, $/Year 1. Make Plant: A 0.3 −250,000 B 0.5 −400,000 C 0.2 −350,000 2. Buy Quantity: <5000, pay premium 0.2 −550,000 5000 available 0.7 −250,000 >5000, forced to buy 0.1 −290,000 3. Contract Delivery: Timely delivery 0.5 −175,000 Late delivery; then buy some off shelf 0.5 −450,000
Five thousand new smart camera systems are needed
annually to expand the security surveillance of
roads, buildings, airports, parks, etc. in a large metropolitan
area. The system components can be obtained
in one of three ways: (1) Make them in one of
three plants partially owned by the government;
(2) Buy them off the shelf from the one and only
manufacturer; or (3) Contract to have them made to
specifications by a vendor. The estimated annual
cost for each alternative is dependent upon specifics
of the plant, the producer, or the vendor. The information below details the alternative, a probability
of occurrence, and the estimated annual cost.
(a) Construct and solve a decision tree to determine
the least-cost alternative to provide the components.
(b) Once you have chosen the alternative on the tree,
use a spreadsheet to determine the change in probability
that the Buy alternative requires to make it
equally attractive with the chosen alternative.
Assume that the probability change will be equally
distributed to the other probability estimates. Write
the new probability values.
Alternative Outcomes Probability
Annual
Cost, $/Year
1. Make Plant:
A 0.3 −250,000
B 0.5 −400,000
C 0.2 −350,000
2. Buy Quantity:
<5000, pay premium 0.2 −550,000
5000 available 0.7 −250,000
>5000, forced to buy 0.1 −290,000
3. Contract Delivery:
Timely delivery 0.5 −175,000
Late delivery; then
buy some off shelf
0.5 −450,000
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