Chapter 2, Problem 9P

Summary Introduction

To determine: The suitable outsourcing provider based on cultural risk factors using factor- rating method.

Introduction:

Factor-rating method:

The factor-rating method is a quantitative approach to make a decision from various alternatives such that the decision is beneficial to the firm involved. This method is utilized to decide on new layout, new locations, best supplier, outsourcing providers etc.

Answer to Problem 9P

Ranga should select Mexico.

Explanation of Solution

Given information:

Current Selection Criterion	Weight	Mexico	Panama	Costa Rica	Peru
Trust	0.4	1	2	2	1
Society value of quality work	0.2	7	10	9	10
Religious attitudes	0.1	3	3	3	5
Individualism attitudes	0.1	5	2	4	8
Time orientation attitudes	0.1	4	6	7	3
Uncertainty avoidance attitudes	0.1	3	2	4	2

Low Risk = 1

High Risk = 10

Formula to calculate weighted risk:

$\text{Weighted Risk = Weight × Risk rating}$

Formula to calculate Total weighted risk:

$\text{Total weighted risk = }{\displaystyle \sum \text{Individual}\text{weighted}\text{risk}}$

Excel Formula:

Excel Explanation:

Calculation of weighted risk for Mexico:

The weighted risk is calculated my multiplying the weights with risk rating of each criteria.

The weighted risk is calculated as follows:

Trust:

$\begin{array}{c}\text{Trust = 0}\text{.4 }\times \text{ 1}\\ =\text{0}\text{.4}\end{array}$

The weighted risk for Trust is 0.4.

Society value of quality work:

$\begin{array}{c}\text{Society value of quality work = 0}\text{.2 }\times \text{ 7}\\ =1.4\end{array}$

The weighted risk for society value of quality work is 1.4.

Religious attitudes:

$\begin{array}{c}\text{Religious attitudes = 0}\text{.1 }\times \text{ 3}\\ =\text{0}\text{.3}\end{array}$

The weighted risk for Religious attitudes is 0.3.

Individualism attitudes:

$\begin{array}{c}\text{Individualism attitudes = 0}\text{.1 }\times \text{ 5}\\ =\text{0}\text{.5}\end{array}$

The weighted risk for Individualism attitudes is 0.5.

Time orientation attitudes:

$\begin{array}{c}\text{Time orientation attitudes = 0}\text{.1 }\times \text{ 4}\\ =\text{0}\text{.4}\end{array}$

The weighted risk for Time orientation attitudes is 0.4.

Uncertainty avoidance attitudes:

$\begin{array}{c}\text{Uncertainty avoidance attitudes = 0}\text{.1 }\times \text{ 3}\\ =\text{0}\text{.3}\end{array}$

The weighted risk for Uncertainty avoidance attitudes is 0.3.

Calculation of Total weighted risk:

The total weighted risk is calculated be summing all the weighted risk values.

$\begin{array}{c}\text{Total weighted risk = 0}\text{.4 + 1}\text{.4 + 0}\text{.3 + 0}\text{.5 + 0}\text{.4 + 0}\text{.3}\\ \text{= 3}\text{.3}\end{array}$

The total weighted risk for Mexico is 3.3.

Calculation of weighted risk for Panama:

The weighted risk is calculated my multiplying the weights with risk rating of each criteria.

The weighted risk is calculated as follows:

Trust:

$\begin{array}{c}\text{Trust = 0}\text{.4 }\times \text{ 2}\\ =\text{0}\text{.8}\end{array}$

The weighted risk for Trust is 0.8.

Society value of quality work:

$\begin{array}{c}\text{Society value of quality work = 0}\text{.2 }\times \text{ 10}\\ =2\end{array}$

The weighted risk for society value of quality work is 2.

Religious attitudes:

$\begin{array}{c}\text{Religious attitudes = 0}\text{.1 }\times \text{ 3}\\ =\text{0}\text{.3}\end{array}$

The weighted risk for Religious attitudes is 0.3.

Individualism attitudes:

$\begin{array}{c}\text{Individualism attitudes = 0}\text{.1 }\times \text{ 2}\\ =\text{0}\text{.2}\end{array}$

The weighted risk for Individualism attitudes is 0.2.

Time orientation attitudes:

$\begin{array}{c}\text{Time orientation attitudes = 0}\text{.1 }\times \text{ 6}\\ =\text{0}\text{.6}\end{array}$

The weighted risk for Time orientation attitudes is 0.6.

Uncertainty avoidance attitudes:

$\begin{array}{c}\text{Uncertainty avoidance attitudes = 0}\text{.1 }\times \text{ 2}\\ =\text{0}\text{.2}\end{array}$

The weighted risk for Uncertainty avoidance attitudes is 0.2.

Calculation of Total weighted risk:

The total weighted risk is calculated be summing all the weighted risk values.

$\begin{array}{c}\text{Total weighted risk = 0}\text{.8 + 2 + 0}\text{.3 + 0}\text{.2 + 0}\text{.6 + 0}\text{.2}\\ \text{= 4}\text{.1}\end{array}$

The total weighted risk for Panama is 4.1.

Calculation of weighted risk for Costa Rica:

The weighted risk is calculated my multiplying the weights with risk rating of each criteria.

The weighted risk is calculated as follows:

Trust:

$\begin{array}{c}\text{Trust = 0}\text{.4 }\times \text{ 2}\\ =\text{0}\text{.8}\end{array}$

The weighted risk for Trust is 0.8.

Society value of quality work:

$\begin{array}{c}\text{Society value of quality work = 0}\text{.2 }\times \text{ 9}\\ =1.8\end{array}$

The weighted risk for society value of quality work is 1.8.

Religious attitudes:

$\begin{array}{c}\text{Religious attitudes = 0}\text{.1 }\times \text{ 3}\\ =\text{0}\text{.3}\end{array}$

The weighted risk for Religious attitudes is 0.3.

Individualism attitudes:

$\begin{array}{c}\text{Individualism attitudes = 0}\text{.1 }\times \text{ 4}\\ =\text{0}\text{.4}\end{array}$

The weighted risk for Individualism attitudes is 0.4.

Time orientation attitudes:

$\begin{array}{c}\text{Time orientation attitudes = 0}\text{.1 }\times \text{ 7}\\ =\text{0}\text{.7}\end{array}$

The weighted risk for Time orientation attitudes is 0.7.

Uncertainty avoidance attitudes:

$\begin{array}{c}\text{Uncertainty avoidance attitudes = 0}\text{.1 }\times \text{ 4}\\ =\text{0}\text{.4}\end{array}$

The weighted risk for Uncertainty avoidance attitudes is 0.4.

Calculation of Total weighted risk:

The total weighted risk is calculated be summing all the weighted risk values.

$\begin{array}{c}\text{Total weighted risk = 0}\text{.8 + 1}\text{.8 + 0}\text{.3 + 0}\text{.4 + 0}\text{.7 + 0}\text{.4}\\ \text{= 4}\text{.4}\end{array}$

The total weighted risk for Costa Rica is 4.4.

Calculation of weighted risk for Peru:

The weighted risk is calculated my multiplying the weights with risk rating of each criteria.

The weighted risk is calculated as follows:

Trust:

$\begin{array}{c}\text{Trust = 0}\text{.4 }\times \text{ 1}\\ =\text{0}\text{.4}\end{array}$

The weighted risk for Trust is 0.4.

Society value of quality work:

$\begin{array}{c}\text{Society value of quality work = 0}\text{.2 }\times \text{ 10}\\ =2\end{array}$

The weighted risk for society value of quality work is 2.

Religious attitudes:

$\begin{array}{c}\text{Religious attitudes = 0}\text{.1 }\times \text{ 5}\\ =\text{0}\text{.5}\end{array}$

The weighted risk for Religious attitudes is 0.5.

Individualism attitudes:

$\begin{array}{c}\text{Individualism attitudes = 0}\text{.1 }\times \text{ 8}\\ =\text{0}\text{.8}\end{array}$

The weighted risk for Individualism attitudes is 0.8.

Time orientation attitudes:

$\begin{array}{c}\text{Time orientation attitudes = 0}\text{.1 }\times \text{ 3}\\ =\text{0}\text{.3}\end{array}$

The weighted risk for Time orientation attitudes is 0.3.

Uncertainty avoidance attitudes:

$\begin{array}{c}\text{Uncertainty avoidance attitudes = 0}\text{.1 }\times \text{ 2}\\ =\text{0}\text{.2}\end{array}$

The weighted risk for Uncertainty avoidance attitudes is 0.2.

Calculation of Total weighted risk:

The total weighted risk is calculated be summing all the weighted risk values.

$\begin{array}{c}\text{Total weighted risk = 0}\text{.4 + 2 + 0}\text{.5 + 0}\text{.8 + 0}\text{.3 + 0}\text{.2}\\ \text{= 4}\text{.2}\end{array}$

The total weighted risk for Peru is 4.2.

The weighted risk value for Mexico is 3.3. The weighted risk value for Panama is 4.1. The weighted risk value for Costa Rica is 4.4. The weighted risk value for Peru is 4.2. Since, the risk value for Mexico is less (3.3 < 4.1, 4.4, 4.2), Mexico is selected.

Hence, Ranga should select Mexico.