Assignment 2: Probability Analysis For Harley's Gener 203804

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, January 7, 2015 .

Paper For Above instruction

The decision-making process in business often involves evaluating uncertain outcomes and selecting the most advantageous option based on probabilistic analysis. In the context of Harley-Davidson contemplating the construction of a new manufacturing facility, a structured probability analysis can illuminate the optimal choice between building a large or small facility. This analysis combines concepts such as expected value and decision trees to support managerial decisions that maximize potential profits while considering uncertain demand conditions.

Initially, understanding the potential demand scenarios—high or low—and their associated probabilities is essential. The data indicates that the probability of low demand is 0.4, and high demand is 0.6, regardless of the facility size. For the small facility, the payoff under low demand is $40, and under high demand, it is $55 if expanded. Conversely, the large facility yields payoffs of $50 under low demand and $70 under high demand. When calculating expected monetary values (EMV), the weightings of these payoffs by their respective probabilities produce a clearer picture of each option’s expected profitability.

The EMV for the small facility is computed as follows: (0.4 × $40) + (0.6 × $55) = $16 + $33 = $49. The large facility’s EMV is: (0.4 × $50) + (0.6 × $70) = $20 + $42 = $62. Comparing these expected values shows that the large facility has a higher EMV, implying it is the more financially advantageous option based on the current probabilistic data.

While the expected monetary value provides a quantitative basis for decision-making, other qualitative factors such as strategic positioning, long-term growth, and capacity considerations should also influence the final decision. Nonetheless, the probability analysis suggests that investing in a large facility offers greater expected profitability given the current demand probabilities and payoff estimates.

Furthermore, decision trees can visually represent this analysis, showing the sequence of potential outcomes, their associated probabilities, and payoffs. Such visual aids enhance understanding and transparency in managerial decision processes. The use of probability and expected value analyses enables Harley-Davidson’s management to make data-driven decisions, balancing risk and reward effectively.

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