Reference no: EM132800002

Wricketie Engineering Ltd. (WEL) designs and builds clean rooms for semiconductor manufacture. Business has been good plus WEL has bid and won a project that requires more work than they have engineers to complete. WEL estimated its on time cost of the project would be $310,000. If WEL completes the work internally and is late, each week will incur $16,000 of internal costs. WEL has to decide whether it will hire more engineers (thus incurring internal costs and risking a first ever layoff at the end of the project), subcontract the work to another firm, or enter into a joint venture with another firm completing some portion of the work and WEL engineers completing the remainder. Kwiksand Engineering has submitted a bid for the complete project at $284, 000. The joint venture, with Ropee Engineers, would be $242,000 for a major portion of the work with WEL completing the rest for $60,000. However, each option would not complete the work on time and WEL would incur charges of $28, 000 for each week the project is late. WEL has estimated the probabilities for each week the project is late;

Option:

-WEL engineers only; On time -0.4, One week late -0.5, Two weeks late -0.1, Three weeks late -nil

-Kwiksand; On time -0.2, One week late -0.4, Two weeks late -0.3, Three weeks late -0.1

-Joint Venture - Ropee Eng; On time -0.1, One week late -0.3, Two weeks late -0.4, Three weeks late -0.2 Deliverables:

1. Prepare the decision tree to evaluate WEL's three options. Show all necessary calculations.

2. Based on the expected monetary value (EMV), what is WEL's best choice (assuming the probability estimates are accurate)?

3. What factor(s) might influence WEL's decision other than a choice based solely on the options' EMV?