Assignment 2: Probability Analysis For Harley's General Mana

Assignment 2 Probability Analysisa General Manger Of Harley Davidson

Assignment 2: Probability Analysis A General Manger of Harley-Davidson has to decide on the size of a new facility. The GM has narrowed the choices to two: large facility or small facility. The company has collected information on the payoffs. It now has to decide which option is the best using probability analysis, the decision tree model, and expected monetary value. Options: Facility Demand Options Probability Actions Expected Payoffs Large Low Demand 0.4 Do Nothing ($10) Low Demand 0.4 Reduce Prices $50 High Demand 0.6 $70 Small Low Demand 0.4 $40 High Demand 0.6 Do Nothing $40 High Demand 0.6 Overtime $50 High Demand 0.6 Expand $55 Determination of chance probability and respective payoffs: Build Small: Low Demand 0.4($40)=$16 High Demand 0.6($55)=$33 Build Large: Low Demand 0.4($50)=$20 High Demand 0.6($70)=$42 Determination of Expected Value of each alternative Build Small: $16+$33=$49 Build Large: $20+$42=$62 Click here for the Statistical Terms review sheet. Submit your conclusion in a Word document to the M4: Assignment 2 Dropbox by Wednesday, February 8, 2017. Assignment 2 Grading Criteria Maximum Points The diagram is accurate and labeled correctly. The diagram clearly illustrates the sequence of events and their probability of occurrences. 32 A step-by-step breakdown of the calculations for the chance of probability and respective payoff is clearly communicated. The results of the calculations are accurate. 28 A step-by-step breakdown of the calculations for expected value is clearly communicated. The results of the calculations are accurate. 20 Clear and concise statement explaining the decision and a description of elements that lead to the decision. 20 Total: 100

Paper For Above instruction

The decision-making process for Harley-Davidson's new facility involves a comprehensive probability analysis utilizing decision trees and expected monetary value (EMV). This approach enables the company to objectively evaluate the potential outcomes associated with constructing either a large or small facility, considering the fluctuating demand scenarios and their respective probabilities.

To systematically analyze the decision, we first identify the key options and their potential payoffs based on demand levels. For the large facility, the payoffs are contingent on whether demand is low or high. The company has estimated the probabilities for demand: a 0.4 chance of low demand and a 0.6 chance of high demand. The associated payoffs are computed by multiplying these probabilities by the respective payoffs: for low demand, the payoff is perceived as a loss or minimal profit, while high demand offers higher returns.

The calculation of expected payoffs for the large facility involves applying the probability-weighted payoffs. Specifically, for low demand, the payoff is 0.4 multiplied by the payoff of $50 when reducing prices or $10 if doing nothing, and for high demand, 0.6 multiplied by the payoff of $70 or other actions. In this case, the focus is on the payoffs of $50 and $70, which are typical scenarios under the respective demand levels.

Similarly, for the small facility, the demand probabilities and payoffs are considered to estimate the expected value. The payoffs are evaluated as follows: for low demand, the expected payoff is 0.4 times $40; for high demand, it is 0.6 times $55, resulting in expected payoffs of $16 and $33 respectively. Adding these yields an overall expected value of the small facility of $49, compared to $62 for the large facility after similar calculations.

These calculations lead to the comparison of expected values: the large facility has an expected payoff of $62, while the small facility’s expected payoff amounts to $49. This quantitative assessment suggests that, under current estimates and assumptions, choosing to build the large facility is the more financially advantageous decision, as it offers a higher expected return.

The analysis demonstrates that the application of probability, decision tree modeling, and expected monetary value provides a rational foundation for decision-making. It highlights the importance of considering demand variability and payoff outcomes in strategic planning. The decision to proceed with the large facility aligns with maximizing expected monetary benefits, although other qualitative factors such as long-term growth and brand impact should also be considered in a comprehensive decision process.

In conclusion, based on the expected monetary value analysis, Harley-Davidson's management should opt to build the large facility. This decision is supported by the calculated expected payoffs, which favor the larger investment given the current demand estimates. Employing probability analysis ensures a disciplined approach to managing uncertainties and optimizing financial outcomes in strategic operational decisions.

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