Faculty of engineering 3th year Civil

Alexandria University 1st term, 2020-2021

Structural Engineering dep. Assignment # 3

Project Management
Decision analysis / tree
Question # (1)
The ABC Construction company was awarded a contract for the construction of an
advanced and complex facility. Due to the complexity of this project, the company
can choose one the following three options: (1) invest in new equipment and
technology; (2) use current equipment and technology; or (3) subcontract the complex
portions to other specialty contractors. The expected results from these three
alternatives are summarized in the following Table.

2 Use current
1 Invest in new 3 Subcontract
technology
technology
Outcomes
probability Profit probability Profit probability Profit
($millions) ($millions) ($millions)
Great
0.30 $600 0.50 $300 0.00 NA
success
Moderate
0.60 $300 0.30 $200 1.00 $250
success
Failure 0.10 -$100 0.20 -$40 0.00 NA*

* NA = not available

The cost of preparing the bid is estimated at $2million. If the company does not make
a bid, it will invest in an alternative venture with a guaranteed profit $30 million.
Perform the necessary decision analysis to advice the construction company on the
best decision(s) to make for this problem.

Dr. Yasser Elfahham Page 1 of 3

Question # (2)
Carlisle Tire and Rubber Company (‫ )شركة اطارات‬is considering expanding production
to meet potential increases in the demand for one of its tire products. Carlisle’s
alternatives are to construct a new plant, expand the existing plant, or do nothing in
the short run. The market for this particular tire product may expand, remain stable, or
contract. Carlisle’s marketing department estimates the probabilities of these market
outcomes as 0.25, 0.35, and 0.40, respectively. Table 2 contains Carlisle’s estimated
profit (in dollars) table.
Use the Decision Tree to identify the strategy that maximizes this tire manufacturer’s
expected profit.

Table 2E 10.1
profit Table for Carlisle’s Decision Problem
Decision/Market Market Market Market
Outcome Expands Stable Contracts
Construct a new plant 400,000 −100,000 −200,000
Expand existing plant 250,000 −50,000 −75,000
Do nothing 50,000 0 −30,000

Dr. Yasser Elfahham Page 2 of 3

Question # (3)

A contractor has the opportunity to bid on major projects to construct a highway

project and reservoir dam project. The contractor only has sufficient resources (labor,
equipment, etc.) to bid on one project. He has the chance weather to submit a low or
high bid in the two projects. The historical Contract Award Data on Project Bids are
as follows:
For Highway project:
a) Low bid 20% success rate
b) High bid 10% success rate
For Dam project:
a) Low bid 40% success rate
b) High bid 20% success rate

The historical Profit Data on the two Projects are:

For Highway project:
a) Low bid :
$800,000 → 0.2
$400,000 → 0.6
-$400,000 → 0.2

b) High bid :
$2,000,000 → 0.3
$1,000,000 → 0.6
-$400,000 → 0.1
For Dam project:
a) High bid:
$800,000 → 0.2
$400,000 → 0.5
-$200,000 → 0.3
b) Low bid :
$500,000 → 0.3
$100,000 → 0.5
-$400,000 → 0.2
Help the contractor to choose the best decision about his bidding strategy using
decision tree technique.

Dr. Yasser Elfahham Page 3 of 3