Chapter 4, Problem 15PA

Summary Introduction

Interpretation:

Decision analysis process based on the techniques used in the supplementary chapter SCE to evaluate the choice of vendors.

Concept Introduction:

Decision-making strategies are those strategies that help the professionals to select the best alternative according to the situation.

Explanation of Solution

The aggressive strategy is also known by the name optimistic strategy. In this technique, alternate is selected based on their maximum possible payoff. The main objective of this strategy is to maximize the maximum. Conservative strategy is also known as the pessimistic strategy. The main objective of this strategy is to maximize the minimum profit. The opportunity loss strategy minimizes the maximum regret.

Given data

Decision Alternative	Short ($)	Medium ($)	Long ($)
Delphi Inc	4	5.5	8
CRM international	6	4.25	6.5
Murray Analytics	4.5	5	7.2

Aggressive strategy

In the aggressive strategy, maximum cost based on the time duration for each alternative is recognized i.e. $8 for Delphi Inc, $6.5 for CRM international, and 7.2 for Murray Analytics.

Thus, in this case, that alternative has been selected which has the highest payoff. Hence, the alternative which has the highest possible payoff is Delphi Inc ($8).

Conservative strategy

In the conservative strategy, minimum cost based on the time duration for each alternative is recognized i.e. $4 for Delphi Inc, $4.25 for CRM international, and 4.5 for Murray Analytics.

Thus, in this case, that alternative has been selected which has the highest cost value. Hence, the alternative which has the highest cost value is Murray analytics ($4.5).

Opportunity strategy

In the opportunity strategy, maximum cost based on the time duration for each alternative is recognized i.e. $6 for short, $5.5 for CRM international, and $8 for Murray Analytics.

Medium and long term duration is subtracted from the maximum cost identified in the previous steps to achieve the opportunity loss.

The short time duration for Delphi Inc. is as follows.

  $\begin{array}{l}\text{Opportunity loss = \$6-\$4}\\ \text{= \$2}\end{array}$

The short time duration for Delphi Inc. is as follows.

  $\begin{array}{l}\text{Opportunity loss = \$6-\$6}\\ \text{= 0}\end{array}$

The short time duration for Murray Analytics is as follows.

  $\begin{array}{l}\text{Opportunity loss = \$6-\$4}\text{.5}\\ \text{= \$1}\text{.5}\end{array}$

Similarly, opportunity loss can be achieved for short, medium, and long time duration for each alternative. Thus, maximum loss for each alternative is recognized as $2 for Delphi Inc., $1.5 for CRM international and $1.5 for Murray Analytics. Minimize the maximum cost is achieved in previous steps is $1.5 for CRM international and $1.5 for Murray analytics.

Aggressive strategy (Maximax)
Decision Alternative	Short ($)	Medium ($)	Long ($)	Maximax
Delphi Inc	4	5.5	8	8
CRM international	6	4.25	6.5	6.5
Murray Analytics	4.5	5	7.2	7.2

Conservative strategy (Maximin)
Decision Alternative	Short ($)	Medium ($)	Long ($)	Maximin
Delphi Inc	4	5.5	8	4
CRM international	6	4.25	6.5	4.25
Murray Analytics	4.5	5	7.2	4.5

Opportunity loss strategy (Minimax)
Decision Alternative	Short ($)	Medium ($)	Long ($)	Minimax
Delphi Inc	4	5.5	8
CRM international	6	4.25	6.5
Murray Analytics	4.5	5	7.2

Opportunity loss strategy (Minimax)
Decision Alternative	Short ($)	Medium ($)	Long ($)	Minimax
Delphi Inc	2	0	0	2
CRM international	0	1.25	1.5	1.5
Murray Analytics	1.5	0.5	0.8	1.5

Thus, from the above calculation, it can be concluded that the

1. Delphi Inc. is selected when an aggressive strategy is applied.
2. Murray Analytics is selected when the conservative strategy is applied
3. Both CRM international and Murray analytics is selected when the opportunity loss strategy is applied.