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DECISION ANALYSIS FOR BUSINESS : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 1 www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS DECISION ANALYSIS FOR BUSINESS AFTERSCHO?OL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL

DECISION ANALYSIS FOR BUSINESS : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 2 www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS DECISION ANALYSIS FOR BUSINESS Dr. T.K. Jain. AFTERSCHO?OL Centre for social entrepreneurship Bikaner M: 9414430763 tkjainbkn@yahoo.co.in www.afterschool.tk, www.afterschoool.tk

EVPI : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 3 EVPI Expected Value of Perfect Information the maximum amount which the decision maker can spend for obtaining the perfect information as to which event would occur is called EVPI. EVPI = expected profit with perfect information - expected monetary value of optimal act.

EXAMPLE… : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 4 EXAMPLE… A physician purchases a particular medicine on Monday of each week. The medicine must be used within the week following, otherwise it becomes worthless. The medicine costs Rs. 2 per dose and Physician charges Rs. 4 per dose. The past 50 weeks record of uses are as foliows Dose per week 20 25 40 60 No. of weeks 5 15 25 5

Solution – payoff matrix : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 5 Solution – payoff matrix Optimal action Perfect information

SOLUTION…. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 6 SOLUTION…. EMPI = with perfect information: 40*.1 + 50*.3 + 80*.5 + 120*.1 = 71 EMV = 54 EVPI = 71 – 54 = 17 answer.

MAXIMIN CRITERION : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 7 MAXIMIN CRITERION The decision maker tries to maximise the minimum gains or he tries to pick the best of the worst.

MINIMAX REGRET CRETERION : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 8 MINIMAX REGRET CRETERION The decision maker selects that act, which will give the minimum of the maximum opportunity losses. Hence prepare opportunity loss table for each option (act).

Example = solve it using Maximin and Minimax criterion : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 9 Example = solve it using Maximin and Minimax criterion

MAXIMIN : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 10 MAXIMIN

SOLUTION : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 11 SOLUTION Maximin is 6, because it is maximum out of the minimums.

MINIMAX OPPORTUNITY LOSS TABLE : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 12 MINIMAX OPPORTUNITY LOSS TABLE

Solution … : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 13 Solution … We will first identify the regrets for each value, then select maximum regret for each row and then pick up the minimum regret out of all the regrets (which are maximum from their rows). For calculating regrets, subtract each value from the maximum value from its column.

Decision tree… : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 14 Decision tree… An organisation has two packaging machines old and new. the new machine is more efficient if the materials are of good quality; on the other hand the old machine performs better if the materials are of poor quality. The following information is available (i) In the previous batches 80% of the materials have been of good quality and 20% of poor quality (ii) The profit position is as under (a) Using old machine If the materials are good Profit of Rs. 2,000 If the materials are poor Profit of Rs. 1,600 (b) Using new Machine If the materials are good Profit of Rs. 2,400 If the materials are poor Profit of Rs. 800 You have to decide which machine should be used under the condition that quality of the materials is not known at this stage.

Decision tree…. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 15 Decision tree…. old NEW Good poor Good Poor 2000 P = .8 1600 p =.2 2400 p =.8 800 P = .2 1600 + 320 = 1920 1920+160 =2080

Solution …. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 16 Solution …. When we prepare a decision tree, we are preparing a list of all the options with their respective payoffs along with their probabilities. The option, which has the highest payoff possibilities is selected based on the computations.

Slide 17: 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 17 A client asks an estate agent to sell three properties A, B and C:. The agent has to sell A first within 60 days. If he is successful he can either backout or try to sell B or C. After selling second again either he can backout or try to sell third. He receives 5% commission on each sale. The detail is given in next slide:

Continued.. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 18 Continued..

Decision tree .. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 19 Decision tree .. Fail Sell A .7 .3 Sell B .6 Sell C .5 Sold b Sell C .5 Fail .4 backout Sold C sold c Try B fail Backout Sold b -400 200 400 -225 1288 800 525 765 1063 884 Final expected value = 764

Tabular presentation …. : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 20 Tabular presentation …. We will try for each option. We will look at all the possibilities and multiply those with respective probabilities to find their expected payoffs. First option : sell B :

Solve it … : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 21 Solve it … A businessman has two independent investments A and B available to him : but he lacks the capital to undertake both of them simultaneouly He can choose to take A first and then stop, or if A is successful then take B, vice versa. The probability of success of A is 0.7, while for B it is 0.4. Both investing ii require an initial capital outlay of Rs. 2,000 and both return nothing if the venture unsuccessful. Successful completion of A will return Rs. 3,000 (over cost) successful completion of B will return Rs. 5,000 (over cost).

Decision tree : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 22 Decision tree s A B s fail B A Drop Drop Fail success Fail success 800 2660 600 2060 1500 2600 -1200 1400

About AFTERSCHO?OL : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 23 About AFTERSCHO?OL PGPSE - World’s most comprehensive programme on social entrepreneurship – after class 12th Flexible – fast changing to meet the requirements Admission open throughout the year Complete support from beginning to the end – from idea generation to making the project viable.

Branches of AFTERSCHO?OL : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 24 Branches of AFTERSCHO?OL PGPSE programme is open all over the world as free online programme. Those who complete PSPSE have the freedom to start branches of AFTERSCHO?OL A few branches have already started - one such branch is at KOTA (Rajasthan).

Workshop on social entrepreneurship : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 25 Workshop on social entrepreneurship We conduct workshop on social entrepreneurship – all over India and out of India also - in school, college, club, association or any such place - just send us a call and we will come to conduct the workshop on social entrepreeurship. These workshops are great moments of learning, sharing, and commitments.

FREE ONLINE PROGRAMME : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 26 FREE ONLINE PROGRAMME AFTERSCHO?OL is absolutely free programme available online – any person can join it. The programme has four components : 1. case studies – writing and analysing – using latest tools of management 2. articles / reports writing & presentation of them in conferences / seminars 3. Study material / books / ebooks / audio / audio visual material to support the study 4. business plan preparation and presentations of those plans in conferences / seminars

100% placement / entrepreneurship : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 27 100% placement / entrepreneurship AFTERSCHO?OL has the record of 100% placement / entrepreneurship till date Be assured of a bright career – if you join AFTERSCHO?OL

Pursue professional courses along with PGPSE : 

2/6/2009www.afterschoool.tk AFTERSCHO?OL's MATERIAL FOR PGPSE PARTICIPANTS 28 Pursue professional courses along with PGPSE AFTERSCHO?OL permits you to pursue distance education based professional / vocational courses and gives you support for that also. Many students are doing CA / CS/ ICWA / CMA / FRM / CFP / CFA and other courses along with PGPSE. Come and join AFTERSCHO?OL