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Module A –
Decision-Making Tools
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. A–1
Outline
The Decision Process in
Operations
Fundamentals of Decision Making
Decision Tables
ct
u Unfavorable market
n str lant
Co ge p
lar Favorable market
Construct
small plant
Do Unfavorable market
no
thi
ng
Figure A.1
State of Nature
Alternatives Favorable Market Unfavorable Market
Construct large plant $200,000 –$180,000
Construct small plant $100,000 –$ 20,000
Do nothing $ 0 $ 0
Table A.1
Expected value
under certainty = ($200,000)(.50) + ($0)(.50) = $100,000
Payoffs
Favorable market (.5)
$200,000
t 1
p la n Unfavorable market (.5)
ge -$180,000
t l ar
c
s tr u Favorable market (.5)
n $100,000
Co
Construct
small plant
2
Unfavorable market (.5)
Do -$20,000
no
th
in EMV for node 2
g
= $40,000 = (.5)($100,000) + (.5)(-$20,000)
Figure A.2
$0
Figure A.3