BUS606 Decision Making and Decision Analytics

Ashford University Decision Making and Analytics Worksheet

Decision Making and Decision Analytics (BUS606.1W1)

GRADED HOMEWORK ASSIGNMENT #3

You will submit TWO documents: a Word document and an Excel file, showing your answers. Do not write the question in your document only the question number and part (a, b, c, etc.). This is important for the similarity index (Turnitin). Please be concise, complete and clear. I am including maximum number of words in essay questions (you determine this by looking in Word the number of words when highlight the paragraph you have written). When you show a choice or choices, explain the reason succinctly. Thank you for paying attention to these instructions.

Question 1 (25 points)

Please review two documents in our module:

1. Schwab Investor Profile Questionnaire (I do not endorse Charles Schwab or do not receive any payment for using this document; it is as an example for assessing investor profile). You can find this document under the following link https://www.schwab.com/resource/investmentquestionnaire

2. Under the following link, you will find how to measure your risk profile. https://merceruniversity.co1.qualtrics.com/jfe/form/SV_0NcwoXTcDdRJCXs

At the end of the survey and if you answer all questions, you will receive a score. You can see the risk profiles in the table below. All answers are anonymous and you can check the link several times.

 These are the categories for the risk profiles

Risk Profile Score Very Defensive Less than 35 Defensive 36 to 45 Conservative 46 to 55 Moderate 56 to 65 Moderately Aggressive 66 to 75 Aggressive 76 to 85 Very Aggressive 86 to 100

Please these scores are estimates, for academic purposes.

Source: https://www.calcxml.com/calculators/inv08. I did not endorse or ask you to accept cookies or have your information recorded in this website. Using the questions in 1 and 2, please answer the following questions:

 a) (10 points) Who is the client? What are the choices? What are the attributes? How would you build a value tree? Briefly explain how you arrive to your answers.

b) (15 points) How these questions are trying to assess the risk attitude of the client? You need to use your notes from class and textbook, and look at the questions in 1 and 2. Explain (Hint refer to the questions in 1 and 2 to support your answer. If you plot your utility function of money, how would it look? [This is not a Finance question.]

 Question 2 (75 points) A new sorting machine is not working properly and it costs $3200 each day that the machine is out of order.

The manager has three options:

1. He can call an expert; this expert will charge $20,000 to carry out the repair. The expert estimates there is 30% chance that they will be able to return the machine to working order in 2 days. There is a 70% chance that repairs will take 4 days.

2. He can attempt to fix it. There is a 50% chance that he will be successful in 5 days. However, if he is not successful after 5 days, he has to decide whether to call an expert (in option 1) or to make a second attempt at repair by looking at a different mechanism. This second attempt would take 2 additional days, and he estimates that there is a 25% chance that this second attempt would be successful. If he fails at the second attempt, he will have no alternative other than to call in the expert. It can be assumed that the probability distribution for the expert’s repair time will be unaffected by any work carried by the manager.

3. He can return the sorting machine to the supplier who agreed to repair free of charge, however, the supplier will not compensate for any losses they might incur while the repair is carried out. The supplier will not repair the machine if there was any attempt to repair by other person (different from the supplier). If returned, the supplier will guarantee to return it in working order in 10 days. Assume that the manager wants to minimize expected costs.

a) How would an influence diagram for repairing a machine look like? (10 points)

b) Present your decision tree showing your three options and choices. Show how much each choice would cost (hint: how does a day cost when the machine is not working?) (25 points)

 c) What course of action would you recommend to the manager? Explain how you reach your decision. You might want to explain how you go through your decision tree (remember you go from right to left) (25 points)

d) Would you carry a sensitivity analysis? How would you carry this analysis (i.e. what is the variable that you would change to carry this analysis?) (15 points)