Reference no: EM132992914

Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:

Demand
Staffing Options High Medium Low
Own staff 650 650 600
Outside vendor 900 600 300
Combination 800 650 500

If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation?

Own Staff/Outside/Combo

What is the expected annual cost associated with that recommendation (in thousands of dollars)?

Expected annual cost = $

Construct a risk profile for the optimal decision in part (a).

What is the probability of the cost exceeding $700,000? If required, round your answer to two decimal places.

Probability =