Red Brand Canners

As you are aware, there is a decision that needs to be made about how the company should execute the CARV software development project for the next ten months. There are three options available at the immediate time: continue with only the software development, begin an expansion of the hardware systems immediately, or delay the hardware expansion to see where the software development is in five months. In order to make a decision that fits the company’s business needs, each of the three options have been evaluated to calculate which option would cost the company the least amount of money, and then calculated a second time to decide which option would cost the least in both monetary value and reputational value. Below, you will see the results and explanations for each calculation, and the resulting decision guidance, as well as attachments for clarification.

Analysis for Minimizing Expected Cost (Excluding Reputation Loss)

In order to get an idea of the expected cost for each decision, the probabilities and calculated costs for each outcome, provided by you, were used for the calculations. Because the outcome in ten months is not a known fact, taking the probability of each possible outcome and multiplying it by the cost of the end result shows the average of each possible result. By doing this, the expected monetary values can be calculated. Appendix 1 shows the expected monetary cost of each possible decision using a decision tree in order to visually depict each path.

Most companies which wanted to base their decisions on minimizing cost would think to choose the least expensive, worst case scenario. If this were the case, the highest cost for each decision would be compared, and the least of those values would be selected, thus losing the least possible amount of money. However, because the company wants to minimize the expected cost based on risk, all possible outcomes of each decision have to be considered. The expected cost of each...