Draw a decision tree for given problem

Reference no: EM132791115

Question

Analyze the case and answer all of the following questions related to the case, be sure to justify your answers

DECISION TREES

The health care manager of a medical city in Pocatello is quite concerned about the recent deterioration of a section of the building that houses her urgent care operations. According to her analyst assistant, four options merit her consideration:

A. a new building,

B. major structural renovation,

C. moderate renovation, and

D. minor renovations.

Moreover, three possible weather conditions could affect the costs of fixing the building within the next six months. Good weather condition has a probability of 0.40; moderate weather with rain has a probability of 0.35, and bad weather has a probability of 0.25.

If good weather materializes, (A) will cost $ 215,000; (B) will cost $ 120,000; (C) will cost $ 90,000; and (D) will cost $ 56,000.

If moderate weather materializes, the costs will be $ 255,000 for (A); $ 145,500 for (B); $ 98,000 for (C); and $ 75,000 for (D).

If bad weather materializes, the costs will be $ 316,000 for (A); $ 214,000 for (B); 123,000 for (C); and $ 119,000 for (D).

1. Build a payoff table for this problem.

2. Draw a decision tree for this problem. (Show cost outcomes, probabilities, and expected monetary values [EMV] for each event node.)

3. Using expected monetary value (rollback procedure), which alternative should be chosen?

Reference no: EM132791115

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