Decision Analysis

“Once we solve the technical problem the product will sell itself”

Or “If only we had smarter customer to recongize all the value in the features the product provides.  All good engineering solutions solve a customer’s; however, all solutions have a price.

“Engineers are problem solvers. They are strategic and analytical, examining complex issues from all angles. The qualitative and quantitative skill sets of an engineer already differentiate them when they leave school and start a career in the business world. From the start, an engineer’s academic background and technical skills allow them to easily understand product design and build, enabling them to speak with customers, consult clients, and lead teams in a business setting.”

“For me, the decision to pursue an MBA stemmed from a desire to tackle larger and more abstract strategic problems instead of the structured ‘engineering type’ problems I was accustomed to. The strong analytical capability that engineers possess is highly valued in the business world, but it is imperative that you also understand the other, more qualitative, aspects. These qualitative skills are what engineers stereotypically lack; we like black and white answers, but in the business world, it’s not typically that simple.”

Decision Making in Management

Larry Jacava is considering producing a novelty item for golfers that will be sold through pro shops. Larry has decided on a selling price of $3.50 for the item. The item’s variable cost of production is $2.00 per unit, with fixed costs of $3,750. Larry has marketed his product to local pro shops and believes the demand for the item will be either 2,000 units, 3,000 units, 4,000 units, or 5,000 units. a. Set up the payoff table for Larry’s decision. b. Determine the number of units that Larry should produce using each of the following criteria: 1. maximax criterion 2. maximin criterion 3. minimax regret criterion



In the United States, more money is now being spent on take-out and restaurant food than is spent buying groceries. Many grocery chains, in an effort to keep up with this trend, have added extensive deli and take-out sections. Haroldson’s is a regional chain that has joined the movement. A popular packaged meal is made up of broiled chicken, potato salad, and a green salad. However, because of several television news specials about potentially spoiled food, Haroldson’s has a company policy of giving all unsold food to a local homeless shelter at the end of each day. Although the company doesn’t mind giving the food away, it would rather sell all the meals it prepares. Therefore, the question that deli managers face each day is how many meals to make. A deli manager feels that on any weekday, the minimum demand for the broiled-chicken meal will be 50 and the maximum demand will be 90. Based on historical data, the probabilities for each demand level are,  Demand x 50 60 70 80 90 P(x) 0.05 0.10 0.20 0.40 0.25 S

Demand X  P(x)

50     0.05

60     0.1

70     0.2

80     0.4

90     0.25

The fixed cost of setting up to cook the meals is $120, variable costs amount to $1.50 per meal, and the selling price is $3.70 each.


Equation of Profit = ($3.7*Meals sold-$1.5*Meals Produced)- $120

Simplified Equation of Profit if Sold equals Produced = ($3.7-$1.5)*Meals- $120

Demand   Profit

50      -$10

60       $12

70       $34

80       $56

90       $78

The breakeven point is 54.5 units



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