George’s T-Shirts Decision Analysis

DECISION ANALYSIS CASE SUBMISSION

GEORGE’S T-SHIRTS

GROUP 7

SECTION: 2

22ST SEPTEMBER 2014

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QUESTION 1: WHAT ARE THE POSSIBLE FINANCIAL OUTCOMES IF LASSITER ORDERS 5,000 T-SHIRTS? 7,500? 10,000?

For each order possibility, that is 5000, 7500 and 10000; we have calculated in descending order what the total revenue as well as the total profit will be. The effect of concert attendees is incorporated by the Sales and Leftovers columns. The first three rows in each table represent an attendance of 100,000, the next three rows consider 70,000 and the last three represent 40,000.

The table of revenues and cost (as projected) of 5,000 orders is as follows:

[pic 1]

The table of revenues and cost (as projected) of 7,500 orders is as follows:

[pic 2]

The table of revenues and cost (as projected) of 10,000 orders is as follows:

[pic 3]

An analysis of the above three tables reflects the decision three attached as an appendix to this document. By organizing them in this manner the problem becomes more reflective of the order size repercussions as compared to the unknown variable of concert attendants.

QUESTION 2: How many T-shirts should Lassiter order?

In terms of the analysis we have performed through the use of our decision tree and the risk profile, we have reached at a clear outcome in terms of the most viable decision for George Lassiter. By using the unknown variable (that it, the number of attendees to the concert) as the first step, we have counted for every combination of shirts ordered (second step) and every percentage likelihood of attendance (third step) we have calculated the Expected Monetary Value (EMV) for each of the alternatives. Below, we have also described how the Risk Profile for this particular decision analysis supports the decision to order 10,000 shirts.

The decision tree displays that after accounting for the fact that leftover shirts will be sold at a rate of $1.50, ordering 10,000 shirts gives him an EMV of $26,574 which is higher than each of the 7,500 and 5,000 shirt order alternatives that exist at $26,351 and $20,329 respectively. Through PrecisionTree, we have developed a comprehensive model which evaluates each of the alternatives in terms of the variables (and probability) involved and has also reached the same conclusion.

The principle of Expected Monetary Value lies in the concept that given a situation with a number of alternatives (the likelihood for occurrence of which is unsure, yet known) and by being placed in the same situation an infinite number of times, there is an amount that your average payments converge to and this is the Expected Monetary Value you can expect to earn from that alternative. Intuitively speaking, EMV is the probability multiplied by the outcome payoff; hence the decision that attributes the highest probabilities to the largest outcomes is that which we side with – assuming we’re taking the decision only once.