25 ious intuitive decision their thinking patterns wih e of decision modelin cis

Question

25 ious intuitive decision their thinking patterns wih e of decision modelin cision-making process iques that can yield e a substantial payoff, the DISCUSSION QUESTIONS AND PROBLEMS 2-21 A manufacturer is evaluating options regarding his production equipment. He is trying to decide whether he should refurbish his old equipment for $70,000, make major modifications to the produc- tion line for $135,000, or purchase new equipment for $230,000. The product sells for $10, but the variable costs to make the product are expected to ary widely, depending on the decision that is to be made regarding the equipment. If the manufac- turer refurbishes, the variable costs will be $7.20 per unit. If he modifies or purchases new equipment, the variable costs are expected to be $5.25 and $4.75, 2-6 Why is it important to have an iterative process between the steps of the decision modeling approach? Briefly trace the history of decision modeling. What 2-7 happened to the development of decision modeling during World War I1? nvolvement are critical 2-8 What different types of models are mentioned in this h study found that onl But 70% of the model gers, were chapter? Give examples of each List some sources of input data 2-9 2-10 Define decision variable. Give some examples of 2-11 What is a problem parameter? Give some examples 2-12 List some advantages of using spreadsheets for deci- model. of parameters in a decision model (a) Which alternative should the manufacturer choose if it the demand is expected to be between fore the final solution only used to develop 30,000 and 40,000 units? (b) What will be the manufacturer's profit if the Describe the use of sensitivity analysis, or postopti mality analysis, in analyzing the results of decision 2-14 demand is 38,000 units? St. Joseph's School has 1,200 students, each of whom currently pays $8,000 per year to attend. In addition to revenues from tuition, the school receives an appropriation from the church to sustain its activ- ity. The budget for the upcoming year is $15 million, and the church appropriation will be $4.8 million. By how much will the school have to raise tuition per student to keep from having a shortfall in the upcoming year? Refer to Problem 2-22. Sensing resistance to the idea of raising tuition from members of St. Joseph's Church, one of the board members suggested that the 960 children of church members could $8,000 as usualChildren of nonmembers would pay more. What would the nonmember tuition per year be if St. Joseph's wanted to continue to planf $15 million budget? oach, however, there flicting viewpoints, other departments the model, difficulty 2-22 Managers are quick to claim that decision modelers talk to them in a jargon that does not sound like Eng lish. List four terms that might not be understood by a manager. Then explain in nontechnical terms what each of them means. Why do you think many decision analysts don't like to participate in the implementation process? What could be done to change this attitude? Should people who will be using the results of a new modeling approach become involved in the techni- cal aspects of the problem-solving procedure? C. W. Churchman once said that "mathematics tends to lull the unsuspecting into believing that he who thinks elaborately thinks well." Do you think that the best decision models are the ones that are most elaborate and complex mathematically? Why? 2-15 derstand mathemat- ation is not the final to the approach and 2-16 2-23 2-17 users to specify a matically manipu- 2-18 2-24 Refer to Problems 2-22 and 2-23. Another board member believes that Problems

Explanation / Answer

There are times when we may discover during a later step of the decision modelling approach that we made a mistake in setting up an earlier step. For example, during the testion of the solution, we may notice that some of the input data are being measured incorrectly.This means that the formulation and all subsequent steps have to be revised. The process or steps involved in decision making process seems quite easy but in reality it is a difficult task to do. It requires n times of repetition of single method sometimes. So the steps in decision modelling are iterative type to find out accurate solution; as a single fault may mislead the whole result

For this reason, it is important to have an iterative process between the steps before the final sulution is obtained.

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