Reference no: EM13579995

Question:

Harry R.M. Pitts, the Director of Legal of Council of Vancouver, will have to make a number of tough decisions in the upcoming fiscal year due to the Federal government's austerity measures to cut spending across all provincial government agencies. The legal agency he oversees must implement cost cutting programs during the upcoming fiscal year by modifying either personnel or professional work practices. The director has identified 3 acceptable alternatives to deal with the cost cutting measures. One is to reassign present staff members to new duties, another is to let go (i.e., fire) several staff members, and the third is to redesign current work practices. An unknown factor is the caseload for the upcoming year, which will directly impact the amount of savings to the agency.

Harvey estimates that if he reassigns staff, the savings to the agency will be $135, $95 or $35 (in thousands of dollars respectively) depending on the upcoming caseload being "moderate", "high" or "very high". Likewise, if he fires legal staff members, the additional savings to the agency will be $90,000 regardless of the variation in caseload in the upcoming year. And lastly, if he redesigns the current work practices, the additional savings/costs to the agency will be $125, $100 or -$15 (in thousands of dollars respectively) depending on the upcoming caseload being "moderate", "high" or "very high".

Harvey has estimated caseload probabilities for the upcoming year to be 0.40 for "moderate", 0.40 for "high" and 0.20 for "very high".

Using paper and pencil only, neatly create the Payoff Table and determine Harvey's optimal decision using the following decision criteria:

a) Maximax
b) Maximin
c) Expected Monetary Value
d) Minimax Regret
e) Expected Opportunity Loss