Reference no: EM132460390

Question 1: Your company has two project opportunities - you must use a decision tree to make a recommendation of which project to pursue (or should it be both?) based on the information below. What would be the Expected value?

• The cost of developing a proposal for Project 1 is $20,000. If you get the project, the cost of the project would be $50,000. You estimate that the probabilities of winning the project if you bid at $100,000 is 85% it goes down to 50% if you bid at $150,000 and falls to 15% if you bid at $200,000
• The cost of developing a proposal for Project 2 is $15,000. If you get the project, the cost of the project would be $40,000. You estimate that the probabilities of winning the project if you bid at $90,000 is 85% it goes down to 60% if you bid at $110,000 and falls to 30% if you bid at $130,000
• Based on resource availability, bidding on both projects will cost you more than bidding on just one (bid cost=$50,000). If I get both projects, the combined cost is only $70,000. You estimate that the probabilities of winning both projects if you bid at $190,000 is 73% it goes down to 33% if you bid at $250,000.
• Hint: the first step is to determine the potential profit for every option

Question 2: Based on Q4, which additional criteria might the organization want to take into account when making a decision? Construct a decision matrix of the most relevant criteria. Make some assumptions and fill in the matrix. Would your decision change? Why?