Related with Goal Seek & Tree-Diagram
Needs to be detailed
ITM 501: Decision Analysis
Homework Assignment 1
- The assignment must be submitted through Blackboard.
- Submit one spreadsheet file named according to the following format:
<first name>_<last name>#1.xlsx (e.g. amir_gandomi #1.xlsx)
- Create one worksheet for each question which clearly shows your analysis. Use the question number
as the title of the worksheet.
- Create one separate titled ?Answers? that summarizes all the answers in one single table.
- Submissions that do not conform to these guidelines are subject to penalty.
- Late submission penalty: 0.0694% per minute! Questions:
ABC Enterprise Solutions is the provider of hosted solutions for Small to Medium Enterprises (SMEs).
The headquarters are in Mississauga, ON, and they have clients across the globe. Currently, they are
charging a $95 weekly fee for their CRM services that they offer to 400 of their clients. They have
recently been contacted by their software vendor, and been told that, with an $180,000 upgrade on their
hardware and CRM software platform, they can substantially improve their direct marketing offerings.
The new system will cost them nothing beyond the initial cost, but they will have to increase the
number of their maintenance and support staff from 11 to 14 to be able to comply with their service
level agreements. The maintenance staff is paid $800 weekly.
Using the Goal Seek analysis feature of MS Excel, answer the following question:
1. The management thinks the upgrade will cause the demand (# of clients) to grow uniformly
(same percentage every week). What level of weekly demand increase (percentage) would
justify the investment if ABC wants to break even (reach the status quo profit levels) after 2
years (104 weeks)?
ABC has learnt that there are talks about a bill in the US that will change the regulation on trans-border
data flow. Since a good portion of their clients are in the US, this concerns ABC. The new regulation:
a. May be stricter than the current one and cause ABC to lose 25% of their clientele (with a
linear weekly decline, i.e. same amount every week) in a year until the demand stabilizes at
that level (unfavorable situation: UF); (Hint: Demand in Week 0 is 400, it declines to 300 in
Week 52 and remains 300 until the end of week 156).
b. May not impact ABC at all (Neither favorable nor unfavorable situation: N); ITM501 Amir Gandomi, Ph.D. Page 1 of 2 c. May actually be advantageous and let the company increase the size of their clientele by
30% in 2 years (with a linear weekly growth), and after that the demand stays at that level
(favorable situation: F).
Note that ABC currently has 400 clients whom are being charged $95 weekly. ABC also believes that
this bill is the only foreseeable event that will affect their future demand (i.e. ignore the analysis you
did in Question 1). Due to changing demand, their estimated annual operating expenses are $500,000,
$600,000, and $800,000 respectively for the UF, N, and F situations.
Meanwhile, a larger company impressed by ABC?s continued success has approached them and offered
$1,300,000 a year to acquire their CRM business.
ABC does not have the luxury to wait until the bill passes the congress to make a decision on whether
to sell their business or not. Therefore, they need to analyze their options and act before the bill is voted
on. Your task is to help ABC analyze the problem. Use the profits for the next 3 years as the pay-off.
2. Construct the payoff table.
3. If ABC wants to be pessimistic, what decision-making method should they use? Why?
According to the method(s) chosen, what alternative (i.e., do nothing or sell the CRM business)
would they decide on?
4. If ABC wants to be risk neutral, what decision-making method should they use? Why?
According to the method(s) chosen, what alternative would they decide on?
5. If ABC wants to be optimistic, what decision-making method should they use? Why? According
to the method(s) chosen, what alternative would they decide on?
6. If the probabilities for the three different scenarios are: Pr(UF)=0.5, Pr(N)=0.4, and Pr(F)=0.1,
what should ABC do? Why? (Create a decision tree using TreePlan to answer this question)
7. According to the scenario in question 6, what is value of perfect information (to disclose in
certain terms what the bill would be like) for ABC? ITM501 Amir Gandomi, Ph.D. Page 2 of 2
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