Reference no: EM133125256

Rockies Adventure Wear, Inc. has upgraded its order-processing centre in order to improve the processing speed and customer access rate. Before completely switching to the upgraded system, Rockies has an option of testing it. The test will cost Rockies $55000, which includes the testing cost and loss of business due to shut- ting down the business for a half-day. If Rockies does not test the system, there is a 45 per-cent chance of severe failure ($140000 repair and loss of business costs), a 35 percent chance of minor failure ($30000 repair and loss of business costs), and a 20 percent chance of no failure. If Rockies tests the system, the result can be favourable with the probability of 0.32, which requires no modification, and not favourable with the probability of 0.68. If the test result is not favourable, Rockies has two options: minor modification and major modification. The minor modification costs $4000 and the major modification costs $25000. After the minor modification, there is still a 15 percent chance of severe failure ($120000 costs), a 45 percent chance of minor failure ($30000 costs), and a 40 percent chance of no failure. Finally, after the major modification, there is still a 5 percent chance of severe failure, a 25 percent chance of minor failure, and a 70 percent chance of no failure. What is the recommended action for Rockies, using a decision tree analysis?