Scribd
Upload
472 views11 pages

Case: Blake Electronics: Decision Analysis

Steve is considering manufacturing electronic components for home use with an estimated $500,000 manufacturing cost but $2 million increase in sales with a 60% chance of success. Steve must decide whether to hire a market research firm to conduct a survey. Hiring MAI would cost $100,000 and provide the necessary probabilities directly. Hiring Iverstine and Kinard (I&K) would cost $300,000 but their results could also provide the needed probabilities using Bayes' theorem. Regardless of the survey results, the expected monetary value of introducing the product without survey is $700,000, which is higher than conducting either survey.

Uploaded by

Alabhya Dutt Tiwari
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
472 views11 pages

Case: Blake Electronics: Decision Analysis

Steve is considering manufacturing electronic components for home use with an estimated $500,000 manufacturing cost but $2 million increase in sales with a 60% chance of success. Steve must decide whether to hire a market research firm to conduct a survey. Hiring MAI would cost $100,000 and provide the necessary probabilities directly. Hiring Iverstine and Kinard (I&K) would cost $300,000 but their results could also provide the needed probabilities using Bayes' theorem. Regardless of the survey results, the expected monetary value of introducing the product without survey is $700,000, which is higher than conducting either survey.

Uploaded by

Alabhya Dutt Tiwari
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 11

CASE : BLAKE

ELECTRONICS
Decision Analysis
Case summary
 To look at the possibility of manufacturing
electronic components for home use.
 Efficient production of the system needed.
 Low manufacturing cost and increasing sales.
In- house research team report:

 $500,000 manufacturing cost


 $2 million increase in sales
 60 % chance of success
Additional Market Research:

1. MAI
• $100,000 Survey Charges
• Survey Results

OUTCOME FAVORABLE UNFAVORABL TOTAL


E

Successful 35 20 55
venture

Unsuccessful 15 30 45
venture
Additional Market Research:

2. Iverstine and Kinard


• $300,000 Survey Charges
• 90% chances of getting favorable survey result, given
a successful venture
• 80% chances of getting unfavorable survey result,
given a unsuccessful venture
SOLUTION
P(V)= probability of successful venture
P(V’)= probability of unsuccessful venture
P(F)= probability of favorable outcome of survey
P(F’)= probability of unfavorable outcome of survey
SOLUTION
Prior Probability:
P(V)= 0.6 P(V’)= 0.4
Conditional Probability:
1. MAI: P(VIF)= 0.7 P(V’IF’)= 0.6
P(V’IF)= 0.3 P(VIF’)= 0.4
2. I&K: P(FIV)= 0.9 P(F’IV’)= 0.8
P(F’IV)=0.1 P(FIV’)= 0.2
SOLUTION
a) MAI’s proposal directly gives Steve the
conditional probabilities he needs (e.g., probability
of a successful venture given a favorable survey).
Although the information from Iverstine and
Kinard (I&K) is different, we can easily use Bayes’
theorem on I&K information to compute the
required probabilities. As such, Steve does not need
any additional information from I&K.
SOLUTION

b) Posterior Probability:
As only those for I&K need to be calculated
POSTERIOR CONDITIONAL PRIOR JOINT

P(V I F) P(F I V)= 0.9 P(V)= 0.6 P(F ∩V)= 0.54

P(V I F’) P(F’ I V)= 0.1 P(V)= 0.6 P(F’ ∩ V)= 0.06

P(V’ I F’) P(F’ I V’)= 0.8 P(V’)= 0.4 P(F’ ∩ V’)= 0.32

P(V’ I F) P(F I V’)= 0.2 P(V’)= 0.4 P(F ∩ V’)= 0.08

P(F)= 0.54+ 0.08= 0.62; P(F’)= 0.06+0.32=0.38


P(VIF)= 0.54/0.62=0.87 P(V’IF’)= 0.32/0.38=0.84
P(V’IF)= 0.08/0.62=0.13 P(VIF’)= 0.06/0.38=0.16
RECOMMENDATION

 If Steve decides not to conduct a survey


EMV= $700,000
 If Steve decides to conduct the survey
 overall EMV of hiring MAI= $500,000
 overall EMV of hiring I&K= $468,800

Comparing these alternatives, Steve should not hire


either firm to do the survey. He should simply choose to
introduce the produce right away for an EMV of
$700,000.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy