Quantitative Methods Individual work wk4 - Assignment Example

In conservative approach, there will be determination of the minimum payoff in each alternative that are available. The second step using the approach will involve selection of an alternative that maximized the minimum payoff that can be obtained. Basing on this approach, the maximum of minimum payoff values, the recommend alternative is decision one with the third state of nature 25. The mind max regret approach involves evaluation of each alternative available in terms of maximum and minimum regret values that are able to occur.

In the consideration, the second alternative will apply as compared to the first alternative. In making decision on the plant size to construct, the recreational products will be demanded most in large company except due to low demand periods. The best alternative that the company is able to go for is small size plant. During low demand, the firm when puts up a large size will gain less profit as compared to small firms but when the demand rises, the demand is equal in medium demand and higher in high demand.

The small size farm will be appropriate as there is no much loss that is incurred in all demand seasons. From the decision tree, in case the firm starts the project at 5 million dollars it has the probability of failing and succeeding in the investment. In case the firm is successful and decides to build the facility that they operate, the firm is exposed to different profits in different demand situation. If the business decides to have sell rights after it is successful, the business will gain 20 million as the profit.

In this situation, the business should invest and start the project. After the project is started, the business should then make sure to focus on the success of the project. When the project becomes successful, the business will invest in building the facility such that high demand will lead to more profit than the firm invested. The selling price of the rights to the product will be 25 million dollars