Introduction:

In this assignment, you will practice using decision analysis methods as well as profit/loss analysis to select the best decision among a small set of alternatives.

Scenario:

Bayou City Manufacturing (BCM) BCM has recently purchased a factory in Rio de Janeiro that produces chemical additives used in plastic manufacturing. The business is doing very well, and they see an opportunity to become the primary supplier in the region. A planning team is putting together a business plan and financial projection for the next year. Security of the visiting executives and their families is one of the elements of this plan.

There are two key personnel and their families who will move to Rio de Janeiro in December. The employees’ families are currently planning to move in January. The employees and families will be in Rio de Janeiro for one year. At the conclusion of the year, these executives will turn over operations management to a local senior manager.

Brazil is a high threat environment and use of armored cars is common for some executives, expatriates, and travelers. Losses from threats such as robbery, vandalism, terrorism, and K&R (kidnap and ransom) are common. Consequently, BCM has tasked your team with determining which of three alternatives for mitigating these risks is the best decision based on the available data.

*includes personnel costs

*Note: This is not the payoff table. You must deduct all relevant costs from

these savings to obtain the payoffs.

BCM’s planning team has asked you to make a recommendation concerning the acquisition or lease of vehicles and drivers for these two executives and families. The team has identified three alternatives for each executive and family: lease a high technology armored van, purchase an armored minivan, or purchase a soft-sided sedan. Monthly costs of each alternative per family including equipment and security personnel are listed in the tables above. Additional tables include the probability of specific threat levels during the year when the visiting personnel will be housed in Brazil and the expected savings over the use of personal vehicles associated with the actual threat environment as estimated by BCM’s Risk Analysis Department.

Questions:

1.Using the probabilities given, develop a decision model that identifies the best alternative. Based on your analysis, which alternative is best? Justify your answer.

2.For this question, assume that you do not trust the accuracy of the probabilities given above. Use the uncertainty criteria covered in the lecture to develop recommendations based on level of risk or regret. Develop decision models using the following techniques: maximax, maximin, equally likely, and minimax regret. Identify the recommended alternative for each of these models.

3.You make the decision. Base your answers on the results of your analysis in questions 1,2. Justify your answer. Note: since your answer is based to some extent on your level of risk aversion, there is not one correct answer. So, your justification is the most important part of this question.

Deliverables:

For this assignment, please word process your report. Use spreadsheet software for your analysis (as needed), but please embed your analysis and results in your report document. Your

spreadsheets will not be reviewed on this assignment. So, you do not need to submit anything but your single report file.