Nanoflux Project

NanoFlux Desalination Unit Problem

Problem

• •

Background: Contract with Libya Water Authority

• •

100 units of “Eau-De-Nano” desalination units

Price at $1.05m per piece

Problem: Choose strategy based on risk of failure of Unit

Robusta Production Strategy Singapura Ship & Install Directly Conduct Test Rebuild, Ship & Install Ship & Install

•

Objective: Maximize Profit to keep Shareholders happy

• •

Robusta gross profit

= 1.050 – 720 = $ 330k per unit

Singapura gross profit = 1.050 – 600 = $ 450k per unit (w/o test)

Standard Operating Procedure

Desalination Model Decision 394.8 Perform Singapura Model w/o test TRUE -600 Not Perform Chance 394.8 12.0% 590 12.0% -10 88.0% 1050 88.0% 450

Decision Tree Recommendation: Singapura without Test

Robusta Production Strategy Singapura Conduct Test Ship & Install Rebuild, Ship & Install

Ship & Install Directly

Probability Chart

•

Spread of “Singapura models WITHOUT Test” = “Singapura models WITH Test”

•

Singapura models WITHOUT Test gives the company highest profit.

Test Analysis

•

Expected Value of SAMPLE Information (EVSI) = 409.5 – 394.8 = 14.70 If test-cost < $14.7K per unit Decision changes: Singapura model WITH test.

•

Expected Value of PERFECT Information (EVPI) = 432- 394.8 = 37.20 If the accuracy of the test result is 100%, the maximum cost the company should pay is $37.2K per unit.

Tornado Graph

Cost_per_unit_SGP (B61) Cost_per_unit_ROB (B56)

Rebuilding_cost (B66)

P_True_Positive (E65) Installation_cost (B67) Probability_to_fail (B64) Test cost per unit (E63) Image_cost (B68) Probability_to_work_ROB (B57) P_True_Negative (F67) 400 450 350 500 300 550

Expected Value

Solution most sensitive to:

• • • • •

Cost of Singapura and Robusta models Rebuilding Cost P(True, Positive) of test P(Singapura Model Fail) Test Cost

Sensitivity Analysis

Production Costs

Expected Value of 'Decision' (B13) With Variation of Singapura_Cost...