Table 1.

Decision process for the commercialization of the p

States of nature

Decision alternative Demand low-

utility

Manufacture 321
Subcontract 335
Buy 318
Probabilities Ʃ = 1 0.35

a. Use EVPI to determine if the company should try to get a better estim

b.            test market study of potential product demand is expected to repor

conditional probabilitie

P (D / low) =
P (F / low) = 0, 35
0, 65
P (D / low
P (F / low average) =
average) =
0, 4 1
0, 5 9
P (D / high) =
P (F / high) = 0, 32
0, 68

Step 1 .Decision Trees

Manufacture

NOD 1(Decision) Subcontract

Buy

By expected value you get VeSIP

Node 2= 345.65

Node 3= 355.1

Node 4= 350.15

Node 1 =( Max
of the 3 nodes )=

The recommended decision is SUBCONTRACT waiting for a

VEIP =(VECIP-VESIP)

VEciP= (0,35) *117,25+ (0,35)*114,3+(0,350*126,35

VEciP= 357.9

VEIP = (357,9-355,1) 2.80

THEOREM OF BAYES

p(S1)=0,35 p(S2)=0,35 p(S3)=0,30

P (F / low) = 0, 35
P (F / low average) =
0, 4 1
P (F / high) = 0, 32

FAVORABLE
Previous
State of Nature Probabilities
P(Sj)
LOW 0.35
LOW AVERAGE 0.35
HIGH 0.3

p(S1)=0,35 p(S2)=0,35 p(S3)=0,30

P (D / low) = 0, 65
P (D / low average) =
0, 5 9
P (D / high) = 0, 68

Previous Unfavorable
Probabilities
State of Nature
P(Sj)
LOW 0.35
LOW AVERAGE 0.35
HIGH 0.3

Favorable

NODE 1

Unfavorable

NODE VALUE 1 356.38

second solution
To find the value of the sample information we have to : VEIM =(VEcIM-VEsIM)

VEcIM 356.38
VEsIM=VEsIP= $355.10

VEIM=(356-355)= 1.28138

VEIM
E= VEIP

1.281
E= 3

E=
 ision process for the commercialization of the product
States of nature

Demand low average - utility Demand High - utility

352 367
353 381
361 375
0.35 0.30

ne if the company should try to get a better estimate of the demand..

f potential product demand is expected to report a favorable (F) or unfavorable (U) condition. The relevant
conditional probabilities are

Probabilities Demand
low (0,35) 321
low average (0,35) 352
NODE 2 high (0,30) 367

low (0,35) 335

NODE 3 low average (0,35) 353
high (0,30) 381

low (0,35) 318

NODE 4 low average (0,35) 361
high (0,30) 375
 million dollars

million dollars

million dollars

Nodo 3 = $355 million dollars =VESIP

ded decision is SUBCONTRACT waiting for a payment of $ 355 million dollars

114,3+(0,350*126,35

million dollars

million dollars

P (F / low) = 0, 35 P (D / low) = 0, 65

P (D / low average) =
P (F / low average) = 0, 4 1
0, 5 9
P (F / high) = 0, 32 P (D / high) = 0, 68

FAVORABLE

Later Probabilities P
Probability Conditions P (F/Sj) Joint probabilities P (F n sj) (Sj/F)
0.35 0.1225 0.34
0.41 0.1435 0.40
0.32 0.096 0.27
P(F) 0.362
 Unfavorable
Later Probabilities P
Probability Conditions P (F/Sj) Joint probabilities P (F n sj) (Sj/F)
0.65 0.2275 0.36
0.59 0.2065 0.32
0.68 0.204 0.32
P(D) 0.638

Manufacture

0.36
NODE 2 Subcontract

buy

Manufacture

Subcontract

0.64 NODE 3

buy

million dollars VEcIM

nformation we have to : VEIM =(VEcIM-VEsIM)

million dollars
million dollars

0.4271267
ition. The relevant

112.35
123.2
110.1

117.25
123.55
114.3

111.3
126.35
112.5
 LOW (0.34) 321 349.03
NODE 4 AVERAGE (0.40) 352
HIGH (0.27) 367

LOW (0.34) 335 357.97

NODE 5 AVERAGE (0.40) 353
HIGH (0.27) 381

LOW (0.34) 318 353.77

NODE 6 AVERAGE (0.40) 361
HIGH (0.27) 375

LOW (0.36) 321 345.64

NODE 7 AVERAGE (0.32) 352
HIGH (0.32) 367

LOW (0.36) 335 355.48

NODE 8 AVERAGE (0.32) 353
HIGH (0.32) 381

LOW (0.36) 318 350

NODE 9 AVERAGE (0.32) 361
HIGH (0.32) 375
357.97

356.38

355.48
 Table 2. Decision process for the commercialization
States of nat

Decision alternative
Low utility
demand

Manufacture 438
Subcontract 426
Buy 430
To lease 451
Outsource 436
Probabilities Ʃ = 1 0.17

a.          Use EVPI to determine if the company should try to obtain a better dem
b.    
It is expected that a market study to test the potential demand for products will r
relevant conditional probabilities are

P (D / low) =
P (F / low) = 0,15
0,85
P (D/ low
average) =
P (F / low average) = 0,45
0, 55
P (D /
medium high)
P (F / medium high) = 0, 3
= 0, 7
P (D / high)
P (F / high) = 0, 5 = 0, 5

step 1 decision tree

Manufacture

NOD 1(Decision) Subcontract

 buy

To lease

Outsource

For expected value you get VeSIP

Node 2= 478.55

Node 3= 477.63

Node 4= 479.35

Node 5= 482.39

Node 6= 480.54

Node 1 =( Max de los 5 nodos )=

the recommended decision is to LEASE waiting for a paymen

VEIP =(VECIP-VESIP)

VEciP= (0,21) *103,95+ (0,33)*168,96+(0,17)*76,67+(0,29)*137,46

VEciP= $487

VEIP = (487-482,39) 4.65

THEOREM OF BAYES

p(S1)=0,17 p(S2)=0,29 p(S3)=0,21 p(S4)=0,33

P (F / low) = 0,15
P (F / low average) = 0,45

P (F / medium high) = 0, 3

P P (F / high) = 0, 5

FAVORABLE
Prior
Probabilities P
State of Nature (Sj))
LOW 0.17
LOW AVERAGE 0.29
HIGH HALF 0.21
HIGH 0.33

p(S1)=0,17 p(S2)=0,29 p(S3)=0,21 p(S4)=0,33

P (D / Low) = 0,85
P (D / Low average) = 0, 55
P (D / High half) = 0, 7
P (D / High) = 0, 5

Unfavorable
Prior
Probabilities P
State of Nature (Sj))
LOW 0.17
LOW AVERAGE 0.29
HIGH HALF 0.21
HIGH 0.33

FAVORABLE
NODE 1

Unfavorable

NODE VALUE 1 482.46

second solution

To find the value of the sample information we have to : VEIM =(VEcIM-VEsIM)

VEcIM 482.46
VEsIM=VEsIP= 482.39

VEIM=(482,456-482)= 0.06552

VEIM
E= VEIP

$0.066
E= 5
 Decision process for the commercialization of the product.
States of nature

Average low demand - High medium demand - High-utility

profit utility demand

466 495 500

462 487 512
469 487 509
474 487 503
470 488 508
0.29 0.21 0.33

he company should try to obtain a better demand estimate.

o test the potential demand for products will report a favorable (F) or unfavorable (U) condition. The
re

Probabilities Demand
LOW (0.17) 438
AVERAGE (0.29) 466
HALF-HIGH (0.21) 495
NODE 2 HIGH (0.33) 500

LOW (0.17) 426

NODE 3 AVERAGE (0.29) 462
HALF-HIGH (0.21) 487
HIGH (0.33) 512
 LOW (0.17) 430
NODE 4 AVERAGE (0.29) 469
HALF-HIGH (0.21) 487
HIGH (0.33) 509

LOW (0.17) 451

NODE 5 AVERAGE (0.29) 474
HALF-HIGH (0.21) 487
HIGH (0.33) 503

LOW (0.17) 436

NODE 6 AVERAGE (0.29) 470
HALF-HIGH (0.21) 488
HIGH (0.33) 508

million dollars

million dollars

million dollars

million dollars

million dollars

Node 5 = $482,39 million dollars =VESIP

decision is to LEASE waiting for a payment of $ 482 million dollars

,17)*76,67+(0,29)*137,46

million dollars

million dollars

P (F / low) = 0,15 P (D /low) = 0,85

P (F / low average) = 0,45 P (D / low average) = 0, 55

P (F / medium high) = 0, 3 P (D / medium high) = 0, 7

P P (F / high) = 0, 5 P (D / high) = 0, 5
 FAVORABLE

Later Probabilities P (Sj

Conditional Probability P (F / Sj) Joint probabilities P (F n sj) / F)
0.15 0.0255 0.07
0.45 0.1305 0.34
0.3 0.063 0.16
0.5 0.165 0.43
P(F) 0.384

Unfavorable

Later Probabilities P (Sj

Conditional Probability P (F / Sj) Joint probabilities P (F n sj) / F)
0.85 0.1445 0.23
0.55 0.1595 0.26
0.7 0.147 0.24
0.5 0.165 0.27
P(D) 0.62

Manufacture NODE 4

0.38 NODE 2
Subcontract NODE 5

buy NODE 6
 To lease NODE 7

Outsource NODE 8

Manufacture NODE 9

Subcontract NODE 10

0.62 NODE 3

buy NODE 11

To lease NODE 12

Outsource NODE 13

million dollars VEcIM

ormation we have to : VEIM =(VEcIM-VEsIM)

million dollars
million dollars

X100

= 1.3104000

Efficiency of 9,1
 74.46
135.14
103.95
165

72.42
133.98
102.27
168.96
 73.1
136.01
102.27
167.97

76.67
137.46
102.27
165.99

74.12
136.3
102.48
167.64
Low(0,07) 438 483.3
Low Average(0,34) 466
High Half(0,16) 495
High(0,43) 500

486.9400
Low(0,07) 426 484.98
Low Average(0,34) 462
High Half(0,16) 487
High(0,43) 512
Low(0,07) 430 486.35
Low Average(0,34) 469
High Half(0,16) 487
High(0,43) 509
Low(0,07) 451 486.94
Low Average(0,34) 474
High Half(0,16) 487
High(0,43) 503

Low(0,07) 436 486.84

Low Average(0,34) 470
High Half(0,16) 488
High(0,43) 508

Low(0,23) 438 475.7

Low average(0,26) 466
High Half(0,24) 495
High(0,27) 500

479.6600
Low(0,23) 426 473.22
Low average(0,26) 462
High Half(0,24) 487
High(0,27) 512
Low(0,23) 430 475.15
Low average(0,26) 469
High Half(0,24) 487
High(0,27) 509
Low(0,23) 451 479.66
Low average(0,26) 474
High Half(0,24) 487
High(0,27) 503

Low(0,23) 436 476.76

Low average(0,26) 470
High Half(0,24) 488
High(0,27) 508
482.46
482.46
 Table 3. Decision process for the commercialization o
States of natur

Decision alternative
Low utility
demand

Manufacture 525
Subcontract 537
Buy 540
To lease 549
Outsource 536
Probabilities Ʃ = 1 0.17

a. Use EVPI to determine if the company should try to obtain a better demand e

b. It is expected that a market study to test the potential demand for products w
condition. The relevant conditional probabilities are:

P (D / low) =
P (F / low) = 0,2 1
0,7 9
P (D/ low
P (F / low average =
average) =
0, 25
0, 7 5

P (D /
P (F / medium high) =
medium
0, 42
high)) = 0, 58

P (D / high) =
P (F / high) = 0, 3 0, 7

step 1 decision tree

Manufacture

NOD 1(Decision)
Subcontract
 buy

To lease

Outsource

For expected value you get VeSIP

Node 2= 578.39

Node 3= 580.37

Node 4= 578.78

Node 5= 580.37

Node 6= 579.69

Node 1 =( Max de los 5 nodos )=

The recommended decision is SUBCONTRACT OR LEASE waiting for a

VEIP =(VECIP-VESIP)

VEciP= (0,29) *166,46+ (0,33)*201,3+(0,17)*93,3+(0,21)*124,530

VEciP= 585.62

VEIP = (586-580,37) 5.25

THEOREM OF BAYES
p(S1)=0,17 p(S2)=0,29 p(S3)=0,21 p(S4)=0,33

P (F / low) = 0,2 1
P (F / low average) =
0, 25
P (F / medium high) =
0, 42
P (F / high) = 0, 3

FAVORABLE

Prior
Probabilities P
State of Nature (Sj))
LOW 0.17
LOW AVERAGE 0.29
HIGH HALF 0.21
HIGH 0.33

p(S1)=0,17 p(S2)=0,29 p(S3)=0,21 p(S4)=0,33

P (D / low) = 0,7 9
P (D / low average) = 0, 7 5
P (D / medium high) = 0, 58
P (D / High) = 0, 7

Unfavorable
Prior
Probabilities P
State of Nature (Sj))
LOW 0.17
LOW AVERAGE 0.29
HIGH HALF 0.21
HIGH 0.33

FAVORABLE
NODE 1

Unfavorable

NODE VALUE 1 582.185

2da Solucion

To find the value of the sample information we have to : VEIM =(VEcIM-VEsIM)

VEcIM 582
VEsIM=VEsIP= $580

VEIM=(582,185-580)= 1.814872

VEIM
E= VEIP

1.814872
E= 6
 Decision process for the commercialization of the product.
States of nature

Average low demand - High medium demand - High-utility

profit utility demand

574 589 603

568 586 610
568 587 603
565 593 602
571 592 602
0.29 0.21 0.33

company should try to obtain a better demand estimate.

udy to test the potential demand for products will report a favorable (F) or unfavorable (U)
nal probabilities are:

Probabilities Demand
LOW (0.17) 525
AVERAGE (0.29) 574
HALF-HIGH (0.21) 589
NODE 2 HIGH (0.33) 603

LOW (0.17) 537

NODE 3 AVERAGE (0.29) 568
HALF-HIGH (0.21) 586
 HIGH (0.33) 610

LOW (0.17) 540

NODE 4 AVERAGE (0.29) 568
HALF-HIGH (0.21) 587
HIGH (0.33) 603

LOW (0.17) 549

NODE 5 AVERAGE (0.29) 565
HALF-HIGH (0.21) 593
HIGH (0.33) 602

LOW (0.17) 536

NODE 6 AVERAGE (0.29) 571
HALF-HIGH (0.21) 592
HIGH (0.33) 602

million dollars

million dollars

million dollars

million dollars

million dollars

Node 3 Y 5= $580 million dollars =VESIP

n is SUBCONTRACT OR LEASE waiting for a payment of $ 580 million dollars

0,17)*93,3+(0,21)*124,530

million dollars

million dollars

P (F / low) = 0,2 1 P (D / low) = 0,7 9

P (D / low average) =
P (F / low average) = 0, 25
0, 7 5
P (F / medium high) = P (D / medium high) =
0, 42 0, 58
P (F / high) = 0, 3 P (D / high) = 0, 7
 FAVORABLE

Later Probabilities P (Sj

Conditional Probability P (F / Sj) Joint probabilities P (F n sj) / F)
0.21 0.0357 0.12
0.25 0.0725 0.25
0.42 0.0882 0.30
0.3 0.099 0.34
P(F) 0.2954

Unfavorable
Later Probabilities P (Sj
Conditional Probability P (F / Sj) Joint probabilities P (F n sj) / F)
0.79 0.1343 0.19
0.75 0.2175 0.31
0.58 0.1218 0.17
0.7 0.231 0.33
P(D) 0.7046

Manufacture NODE 4

0.2954 NODE 2
Subcontract NODE 5
 buy NODE 6

To lease NODE 7

Outsource NODE 8

Manufacture NODE 9

Subcontract NODE 10

0.7046 NODE 3

buy NODE 11

To lease NODE 12

Outsource NODE 13

million dollars VEcIM

mation we have to : VEIM =(VEcIM-VEsIM)

million dollars
million dollars

X100

= 30.2478667

Efficiency of 30,247%
 89.25
166.46
123.69
198.99

91.29
164.72
123.06
 201.3

91.8
164.72
123.27
198.99

93.33
163.850
124.53
198.660

91.12
165.59
124.32
198.66
lOW(0,12) 525 588.22
Low average(0,25) 574
High Half(0,30) 589
High(0,34) 603

589.71
lOW(0,12) 537 589.64
Low average(0,25) 568
High Half(0,30) 586
High(0,34) 610
lOW(0,12) 540 587.92
Low average(0,25) 568
High Half(0,30) 587
High(0,34) 603
lOW(0,12) 549 589.71
Low average(0,25) 565
High Half(0,30) 593
High(0,34) 602

lOW(0,12) 536 589.35

Low average(0,25) 571
High Half(0,30) 592
High(0,34) 602

Low(0,19) 525 576.81

Low average(0,31) 574
High Half(0,17) 589
High(0,33) 603

579.03
Low(0,19) 537 579.03
Low average(0,31) 568
High Half(0,17) 586
High(0,33) 610
Low(0,19) 540 577.46
Low average(0,31) 568
High Half(0,17) 587
High(0,33) 603
Low(0,19) 549 578.93
Low average(0,31) 565
High Half(0,17) 593
High(0,33) 602

Low(0,19) 536 578.15

Low average(0,31) 571
High Half(0,17) 592
High(0,33) 602
582.185