Charles sanchez should hire vigilante security services

Assignment Help Operation Management

Reference no: EM132222386

Green Era Inc. is a company that produces hemp based composites for automobiles. It has a warehouse at a small town in Northern Colorado, where it temporarily stores its products before they are shipped to its customers. This summer, Green Era Inc. has noticed that the termite infestation in the warehouse has escalated to a point where tenting cannot be postponed anymore. (Tenting is the process of wrapping a building inside a huge tent that is subsequently filled with a poisonous gas capable of killing most forms of life inside, including insects, plants, pets, and human beings.) Green Era Inc.’s pest control company’s contract specifies a to-do list of pre-tenting tasks, which include:

Turning off all air-conditioning units and opening all windows of the warehouse

Turning off all internal and external lights, including those operating on a timer

Pruning all outdoor vegetation at least 18" away from the warehouse

Soaking the soil around the warehouse on the first day of tenting

The requirement of opening all windows is particularly worrisome to Green Era Inc. because it means turning off the alarm system, leaving the warehouse vulnerable to burglary for 48 hours—the required amount of time for the poisonous gas to do its job. Therefore, Charles Sanchez, the warehouse manager, is thinking about hiring a security company to monitor the facility during that period. GEI’s property insurance deductible is $25,000, and Charles is assuming that if thieves are willing to enter a building full of poisonous gas to steal something, they would certainly take more than $25,000 worth of product.

After making a few phone calls, Charles gets in touch with Vigilante Security Services, a trustworthy local security company that charges $150 per hour to have a security guard stationed outside their warehouse. The city’s police records indicate that about 30% of businesses that left their facilities unattended during tenting reported stolen property in the past 3 years. Although Alex thinks Vigilante Security Services’ prices are reasonable, and having a guard outside the warehouse would certainly help, he is still not sure whether it is worth spending the extra money. After all, Vigilante Security Services’ contract does not guarantee the protection it provides is infallible. In fact, an analysis of the company’s records indicates that 3% of their clients were burglarized over the past 3 years. (Despite this figure, Vigilante Security Services is still the best security company in the area.)

Discussion Questions

1. Create a decision tree analysis to help decide whether Charles Sanchez should hire Vigilante Security Services’ services.

2. Come up with a simple rule of thumb that can be applied to decisions of this nature, given any deductible amount d, extra surveillance cost c, and burglary probabilities p1 (without surveillance) and p2 (with surveillance). Hint: Calculate EMV

3. Does your decision based on the tree guarantee success? Why or why not?

Reference no: EM132222386

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