Reference no: EM133049845

Question 1 - Maternity ward capacity management

a. What would be a good distribution to choose to model the number of mothers booked per week who do not show up to deliver? Justify your choice.

b. What do you think of this reasoning?

c. How would you build a simulation model to estimate the probability of achieving the 14000 births target if the number of deliveries booked per week is 307?

d. Usethese figures to interpret the results of the simulation. Can you estimate the probability that the hospital trust meets the 14000 annual target?

Question 2

RiskyOil Inc. is considering the undertaking of a new venture. The government of the Mediterranean island of Mepos has decided to put the highly risky Poseidon plot up for leasing for oil exploration and production. RiskyOil is the only company considering bidding for the lease. To even consider the bid, the Mepos government requires an upfront fee of $5M. If the bid is successful, which will be announced shortly after the payment of the upfront fee, the government will grant permission to RiskyOil to begin exploration and extraction immediately; if it is not successful, the $5M upfront fee will be lost.

Olive, the exploration and production director of RiskyOil, believes that, if RiskyOil decides to bid, the probability that the bid will be successful is 50%.The oil reserves have been mapped and are known to be worth $100M (after RiskyOil pays the Mepos government royalties and extraction fees). The precise costs of extracting the oil are not known at the time of the bidding decision; they will become known after the bid is successful and before extraction begins. From past experience with such projects, Olive believes costs will either be $120M with probability 70%, or $60M with probability 30%. In either case, RiskyOil does not have to extract the oil and can always return the plot to the government for no extra cost.

Olive is considering whether this is a project worth bidding for.

a) Frame the problem. What are Olive's objectives? Lay down the decisions she has to take and the uncertainties she faces in chronological order.

b) Draw a decision tree to determine the payoffs and risks associated with each decision. Use the tree to help Olive make her decisions. You can do this by hand or using Precision Tree.

c) Interpret the sensitivity analyses. Based on these, what recommendations would you give to Olive?

d) What is the value of the test? Draw a new decision tree to help Olive decide if she should follow this advice.

e) Does this change the value of the test? Is it still worth pursuing?