Quiz 5: Decision Making

Business

Give some examples of each of the three "occasions for decision" cited by Chester Barnard. Explain in your own words why Barnard thought the third category was most important.

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The first occasion for decision is when an individual is given an assignment to complete by a superior. Examples: • A manager assigning stress analysis calculation to an engineer. • A military officer ordering enlisted men to carry out an order. The second occasion is when an individual in a position of authority is handed a situation for review by a subordinate. Examples: • A Supreme Justice receiving a case to be reviewed. • A manager receiving a report that production is not being completed according to schedule. The third occasion for decision is when an individual in a position of authority decides to take the initiative to solve a problem. Examples: • An engineer designing a new automated method that speeds up production in a facility. • A programmer taking initiative to design a script to analyze large amounts of data in a short period of time. This category of decision-making is the most important because it challenges the decision-maker to create a positive change in the status quo without being given an impulse from outside. In other words, this is the opportunity for a professional to distinguish himself.

Q 2

You operate a small wooden toy company making two products: alphabet blocks and wooden trucks. Your profit is $30.00 per box of blocks and $40.00 per box of trucks. Producing a box of blocks requires one hour of woodworking and two hours of painting; producing a box of trucks takes three hours of woodworking, but only one hour of painting. You employ three woodworkers and two painters, each working 40 hours a week. How many boxes of blocks ( B ) and trucks ( T ) should you make each week to maximize profit? Solve graphically as a linear program and confirm analytically.

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Linear programming model is used to obtain maximum profits, by utilizing minimum resources available. It helps the decision makers to take effective decisions by using the resources productively. It helps in minimizing cost of operations. It consists of objective function, model constraints and decision variables. Formulate the LPP to solve this problem graphically, first use the following constraint equations and plot a graph. The first equation represents the painting constraint. There is a total of 80 hours of painting available from the two painters in one week. The two variable b and t represent the number of blocks and trucks produced, respectively. The second equation represents the wood working constraint. Construct a graph using the following methodology as explained below: Consider B as x and T as Y for the coordinate calculation. Calculate coordinates for equation (1) as shown below: Step: 1 Calculate the coordinates for the equation (1) by assuming the value of y=0 shown as follows: Calculate the coordinates for the equation (1) by assuming the value of x=0 shown as follows: Therefore, the coordinates for the equation (1) are (40, 0) and (0,80). Calculate coordinates for equation (2) as shown below: Step: 1 Calculate the coordinates for the equation (2) by assuming the value of y=0 shown as follows: Calculate the coordinates for the equation (2) by assuming the value of x=0 shown as follows: Therefore, the coordinates for the equation (1) are (120, 0) and (0,40). Construct a graph by using the above coordinates as shown below: From the above graph, it can be identified that points O, D and B are in the feasible region. Notice the green region having coordinates of x 1 =24 and x 2 = 32, which satisfies the objective function as follows: Substitute the values of x 1 and x 2 in the objective function as shown below: Therefore, from the above graphical analysis it indicates that the optimal number of blocks is 24 , and the optimal number of trucks is 32. Solving the system of equations will give the same result.

Q 3

Explain the difference between "optimizing" and "sufficing" in making decisions, and ( b ) distinguish between routine and nonroutine decisions.

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a) Optimizing means making the best decision that gives most desirable results at most desirable cost. Sufficing means to make a decision that solves a problem , even though this decision may not be the most efficient way to solve the problem. b) A non-routine decision is a new situation that has not occurred before and involves a great deal of ambiguity and uncertainty. A routine decision is a common problem that is regularly solved by decision maker. This type of decisions involves very little uncertainty because decision maker is familiar with similar decisions.

Q 4

A commercial orchard grows, picks, and packs apples and pears. A peck (quarter bushel) of apples takes four minutes to pick and five minutes to pack; a peck of pears takes five minutes to pick and four minutes to pack. Only one picker and one packer are available. How many pecks each of apples and pears should be picked and packed every hour (60 minutes) if the profit is $3.00 per peck for apples and $2.00 per peck for pears? Solve graphically as a linear program and confirm analytically.

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Q 5

Use a concrete example showing the five-step process by which management science uses a simulation model to solve real-world problems.

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Q 6

Solve the drilling problem (Table) by using a decision tree. Well Drilling Example-Decision Making Under Risk

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Q 7

You must decide whether to buy new machinery to produce product X or to modify existing machinery. You believe the probability of a prosperous economy next year is 0.6 and of a recession is 0.4. Prepare a decision tree, and use it to recommend the best course of action. The applicable payoff table of profits (+) and losses (-) is:

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Q 8

Describe an example from an organization you know or have read about where a common database is used for a number of different purposes. Also, can you describe an example where a common database is not used for a number of different purposes?

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Q 9

f you have no idea of the economic probabilities pj in Question 5-4, what would be your decision based on uncertainty using ( a ) maximax, ( b ) maximin, ( c ) equally likely, and ( d ) minimax regret assumptions?

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Q 10

You are considering three investment alternatives for some spare cash: Old Reliable Corporation stock ( A 1), Fly-By-Nite Air Cargo Company stock ( A 2), and a federally insured savings certificate ( A 3). You expect the economy will either "boom" ( N 1) or "bust" ( N 2), and you estimate that a boom is more likely ( p 1 = 0.6) than a bust ( p 2 = 0.4). Outcomes for the three alternatives are expected to be (1) $2,000 in boom or $500 in bust for Old Reliable Corporation; (2) $6,000 in boom, but -$5,000 (loss) in bust for Fly-By-Nite; and (3) $1,200 for the certificate in either case. Set up a payoff table (decision matrix) for this problem, and show which alternative maximizes expected value.

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Q 11

If you have no idea of the economic probabilities pj in Question 5-6, what would be your decision based on uncertainty using ( a ) maximax, ( b ) maximin, ( c ) equally likely, and ( d ) minimax regret assumptions?

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Q 12

Your company has proposed to produce a component for an automobile plant, but it will not have a decision from that plant for six months. You estimate the possible future states and their probabilities as follows: Receive full contract (N1, with probability p1 = 0.3); receive partial contract (N2, p2 = 0.2); and lose award (no contract) (N3, p3 = 0.5). Any tooling you use on the contract must be ordered now. If your alternatives and their outcomes (in thousands of dollars) are as shown in the following table, what should be your decision?

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