Orion Controls Case Essay

644 Words Nov 16th, 2014 3 Pages
Orion Controls Case
Answer 1 I would say we should sell existing valves than develop an improved model and sell it at increased price if you simply look at the decision tree I made based on the assumption and information the case provides. The Expected Monetary Value (EMV) of building new model is $105,500, whereas we can earn $100,000 payoffs by selling current model (see Figure 1). When considering the situation the Orion Controls faces, however, I should reconsider my decision. Orion has established its reputation in leading-edge technology, product reliability, customer relations and willingness to design customized products. For such reputation, Avion Chemicals approached to Orion and asked them to develop a new valve
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Answer 2 Armstrong may be upset about Harrington because she estimated that there was only an 80 percent chance the improvements would be dramatic enough to warrant the full 100 percent price premium. Again, Orion is the leading designer and manufacturer of industrial valve systems. For such leading and innovative company, her assumption seems to be quite low. It is obvious that her low expectation for dramatic improvement doesn’t make significant difference in the EMVs. In other words, if she proactively dedicates her effort to redesigning and increases the possibility for dramatic improvement to 90%, the EMV will go up to $141,500 so that Armstrong can positively go ahead with the development efforts (see Figure 3).
Answer 3 In order to evaluate if it is worth paying $30,000 to Professor Calliope for make Gemini’s shortcut work, I would like to use The Expected Value of Perfect Information (EVPI) method.
[Calculation]
Max EMV:Event node 10.8*275,000 + 0.2*(-125,000) = 195,000
Event node 20.9*195,000 + 0.1*(-100,000) = 165,500
Event node 30.8*35,000 + 0.2*(-365,000) = -45,000
Event node 40.9*(-45,000) + 0.1* (-340,000) = -74,500
Event node 50.75*165,500 + 0.25* (-74,500) = $105,500
EVwPI:Event node 10.8*275,000 + 0.2*(-125,000) = 195,000
Event node 20.9*195,000 + 0.1*(-100,000) = 165,500
Event node 30.8*35,000 + 0.2*(-365,000) = -45,000
Event node

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