Decision Analysis

For this part of the assessment, you will compose a reflective essay in a word document to address the following scenario and questions: 
 
Scenario: You are a business owner faced with an important decision that could potentially be very lucrative. Keep in mind the Six Steps in Decision Making as you set up your decision analysis. See the CA Starter video in the LiveBinder. 

1.    Identify factors in a decision-making environment
a.    What is the problem and objective of this decision?
b.    Identify at least 3 alternatives and 3 states of nature.
2.    Interpret decisions made under uncertainty.
a.    Create a decision table in Excel. 
b.    Identify the potential payoff/losses for each alternative and state of nature and include in your decision table.
c.    Choose two decision strategies and determine the best alternative: (Clearly state the best alternative for each strategy.)
i.    Optimistic
ii.    Pessimistic
iii.    Criterion of Realism (Hurwicz)
d. Why did you choose the two strategies? What are the results of the best alternative? What is your final decision? 
3.    Demonstrate college-level communication through the composition of original materials in Standard English.
a.    After you have contemplated the questions for number 1 and 2, draft your reflective essay. Every piece of writing should have an introduction, body, and conclusion. 
b.    A good way to plan this particular reflective essay is to write an introduction to the essay. 
c.    Next, write at least three body paragraphs and address each of the points listed above. 
d.    End your essay with a conclusion paragraph tying all of your ideas together. 
e.    The essay should be at least five paragraphs in length.
 

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1a. I am the business owner for my personal juice/smoothie business, The New Green!  I have smoothie carts in various locations around town.  Business has been going very well and I am considering expanding my business to our neighboring town.   
1b. Three alternatives would be: 
1.    Expand fully to neighboring town with 3 new smoothie carts 
2.    Pilot the expansion with just 1 new smoothie cart 
3.    Stay status quo do not expand (Make the customers come to me!) 
Three states of nature would be: 
1.    Serious demand for good nutrition  
2.    Moderate demand for good nutrition  
3.    Nobody cares about good nutrition  
2a, and 2b.  On a typical awesome day, I sell about $250 in smoothies per cart and it costs about $100 for electricity and staffing. So, a net income of about $150 per day.   
On a typical moderate day, I sell about $150 in smoothies per cart and it still costs about $100 for electricity and staffing. So, a net income of about $50 per day.   
On a typical poor day, I sell about $50 in smoothies per cart and it still costs about $100 for electricity and staffing. So, a net loss of about $50 per day.   
I will set up my decision table based on the above profit/losses per smoothie cart.   
      Awesome 
Nutritional Demand      Moderate 
Nutritional Demand      Poor 
Nutritional Demand 
3 New Carts      450      150      -150 
1 New Cart      150      50      -50 
0 New Carts      0      0      0 
 
2c.  I will choose to use the Optimistic and Criteria of Realism strategies. 
The Optimistic (Maximax) decision is to build 3 new carts with a possibly payoff of $450 per day. 
 
       
For the Criteria of Realism (Hurwicz), I will use a coefficient of realism of = 0.75. As a reminder, this means that I will be 75% optimistic and 25% pessimistic a compromise between the optimistic and pessimistic strategies.  The Criteria of Realism decision is still to build 3 new carts, based upon the decision strategy’s alternative value of 300.