production planning and control Problem 3. Decision making John Wiley Publishing
ID: 374471 • Letter: P
Question
production planning and control
Problem 3. Decision making John Wiley Publishing Company publishes an operations management textbook that is scheduled for a revision. The book has been moderately successful, but each year more new books enter the market, some existing books are dropped by publishers, and various innovative pedagogical approaches are introduced by authors and publishers, such that the competitive market is always highly uncertain. In addition, the role the Internet will play in future textbook publishing is an unknown. As a result, Wiley is trying to decide whether to publish the next edition of the OM book as a smaller paperback, publish a new edition very similar in size and content to the current edition, significantly revise the book with an emphasis on services and processes, or make a major revision with significant physical changes including adding color and more graphics. The following payoff table summarizes the possible revision decisions with profits (or losses) for the three-year lifecycle of the new edition, and the future states of nature relative to the competitive market Competitive Market Publication Decision Unfavorabl Same Favorable Paperback Similar revision Major content revision 31000 15,000 725,000 3650o 27390o Major physical revision -105,000 280,000 972,000 5735012,P50 $68,0001 $170,000 $395,00315 182, 24,000 375,000 672,000 532 316,po/GHS Determine the best decision for the publisher using the following criteria atutenu. 6355a0 c. Equal likelihood, Aaj d. Hurwicz (=0.35) 1- onExplanation / Answer
In the Given Question the Decision alternatives are paperback, similar revision, major content revision and major physical revision.
a) Maxi-max approach (Optimistic)
In this Approach we choose the best alternative with the best possible payoff
Publication Decision
Unfavorable
Same
Favorable
Best
Paper Back
$68000
$17000
$395000
$395000
Similar Revision
24000
375000
672000
672000
Major content revision
31000
515000
725000
725000
Major Physical Revision
-105000
280000
972000
972000
From the above solution we can see that the best value is 972,000 and the best alternative is major physical revision
b) Minimax Approach (Regret approach)
Regret is the difference between best payoff and payoff received (Regret= Best Payoff – Payoff Received)
In the unfavorable conditions the best payoff is 68000, in same conditions the best payoff is 515,000, in the favorable conditions the best payoff is 972000.
Publication Decision
Unfavorable
Same
Favorable
Best
Paper Back
$68000
(68000-68000=0)
$17000
(515000-17000=498000)
$395000
(972000-395000=577000)
577000
Similar Revision
24000
(68000-24000=44000)
375000
(515000-375000=140000)
672000
(972000-672000=300000)
300000
Major content revision
31000
(68000-31000=3700)
515000
(515000-515000=0)
725000
(972000-725000=247000)
247000
Major Physical Revision
-105000
(68000-(-105000)=173000
280000
(515000-280000=235000)
972000
(972000-972000=0)
235000
From the above solution the minimum of the maximum regret is 235000, the best alternative is major physical revision.
c) Equal Likelihood (Laplace)
In this method we choose the alternative with best average payoff.
Publication Decision
Unfavorable
Same
Favorable
Average
Paper Back
$68000
$17000
$395000
(395000+17000+68000)/3=1160000
Similar Revision
24000
375000
672000
(672000+24000+375000)/3=375000
Major content revision
31000
515000
725000
(725000+31000+515000)/3=423667
Major Physical Revision
-105000
280000
972000
(972000+280000-105000)/3=382333
From the above solution we can see that the best average is 423667, the best alternative is major content Revision.
d) Hurwicz Approach (Realism approach)
Coefficient of realism , 01.
Given value of is 0.35
We can find using (Best Payoff) + (1-) (Worst Payoff)
Publication Decision
Unfavorable
Same
Favorable
Weighted average
Paper Back
$68000
$17000
$395000
0.35(395000)+(1-.035)(17000)=149300
Similar Revision
24000
375000
672000
035(672000)+(1-035)(240000)=250800
Major content revision
31000
515000
725000
0.35(725000)+(1-0.35)(31000)=273900
Major Physical Revision
-105000
280000
972000
0.35(972000)+(1-.035)(-105000)=271950
In the above weighted averages 273900 is the best and the best alternative is major content revision
Publication Decision
Unfavorable
Same
Favorable
Best
Paper Back
$68000
$17000
$395000
$395000
Similar Revision
24000
375000
672000
672000
Major content revision
31000
515000
725000
725000
Major Physical Revision
-105000
280000
972000
972000
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