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  • PETRONAS Service Station Size Decision Analysis

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    Ryan is considering opening a PETRONAS service station and must choose between four size options - small, medium, large, or very large. The expected annual profit depends on the size and market conditions. Under Maximax, the very large option is best with a potential profit of $300K. Under Maximin, the medium option is safest with a minimum loss of -$20K. Using an equally likely probability for each market, the very large option has the highest expected monetary value of $55K.

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    answer for decision analysis question

    Original Title

    Answer Decision Analysis

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    Ryan is considering opening a PETRONAS service station and must choose between four size options - small, medium, large, or very large. The expected annual profit depends on the size and market conditions. Under Maximax, the very large option is best with a potential profit of $300K. Under Maximin, the medium option is safest with a minimum loss of -$20K. Using an equally likely probability for each market, the very large option has the highest expected monetary value of $55K.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    18 views2 pages

    PETRONAS Service Station Size Decision Analysis

    Uploaded by

    dzuleffendi
    Ryan is considering opening a PETRONAS service station and must choose between four size options - small, medium, large, or very large. The expected annual profit depends on the size and market conditions. Under Maximax, the very large option is best with a potential profit of $300K. Under Maximin, the medium option is safest with a minimum loss of -$20K. Using an equally likely probability for each market, the very large option has the highest expected monetary value of $55K.

    Copyright:

    © All Rights Reserved
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    of 2

    Operations Management

    Decision Analysis Assignment


    Question

    1. Ryan has been offered to open up a PETRONAS Service station.


    However, the size of the establishment will be based on his decision.
    The annual return and investment required will be based on both size
    and market condition. To help out in the decision making, Ryan has
    done the analysis and the expected profit/loss are shown in the table:
    Size of the
    station
    Small
    Medium
    Large
    Very Large

    Good Market

    Fair Market

    Poor Market

    50K
    80K
    100K
    300K

    20K
    30K
    30K
    25K

    -10K
    -20K
    -40K
    -160K

    Answer

    a. Develop the decision table


    State of nature
    Favourable market
    Unfavourable market
    300K
    -160K
    100K
    -40K
    80K
    -20K
    50K
    -10K

    Alternatives
    Very large service station
    Large service station
    Medium service station
    Small service station

    b. What is the decision for Maximax, Maximin and Equally likely?


    Alternatives

    Very large service


    station
    Large service
    station
    Medium service
    station
    Small service
    station

    State of nature
    Favourable Unfavourab
    market
    le market
    300K

    -160K

    Maxim
    um in
    row
    300K

    100K

    -40K

    100K

    -40K

    30K

    80K

    -20K

    80K

    -20K

    30K

    50K

    -10K

    50K

    -10K

    20K

    Maxima
    x

    Minimu
    m in
    row
    -160K

    Row
    averag
    e
    25K

    Maximin

    Equally
    like

    c. Develop the decision tree and evaluate the highest EMV


    55K
    Very large service

    Good market
    Fair market
    Poor market

    Large service

    30K

    Good market

    Fair market
    Poor market

    30K
    Medium service

    Good market
    Fair market
    Poor market

    20K
    Medium service

    Good market
    Fair market
    Poor market

    EMV (1) = 300(1/3)-160(1/3)+25(1/3) =Best


    55K
    option

    EMV (2) = 100(1/3)-40(1/3)+30(1/3)

    = 30K

    EMV (3) = 80(1/3)-20(1/3)+30(1/3)

    = 30K

    EMV (4) = 50(1/3)-10(1/3)+20(1/3)

    =20K

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