Stats Report

1763 WordsApr 20, 20118 Pages
Case Study: Property Purchase Strategy Table of Contents Main Report 3 Introduction3 Decision Analysis 3 Increasing the expected payoff 5 Conclusion 5 Appendix6 Decision Tree6 Calculation of probabilities 7 Calculation of expected payoff8 Relationship between the expected payoff and amount of bid9 Introduction Decision analysis is an integral and powerful component in the decision making process, and can be used to determine the optimal decision alternative according to the criterion set by the business by objectively assessing the complicating factors and underlying issues of each decision. In this case study, the analysis of the problems faced by Oceanview Development Corporation will start off with a decision tree…show more content…
However, it should be noted that the probability that the zoning change will be approved, given that the market research study predicts rejection, is only 0.05085. Hence, there is a high probability of 0.9492 that the zoning change is indeed rejected, given that the market research predicts rejection. In such a scenario, whereby Oceanview conducts market research and rejection of the zoning change is predicted, it is faced with an expected loss of $387,900.75 if it proceeds with the bid, and an expected loss of $15,000 if it does not. Hence in this case, it will not focus on maximizing profits but on minimizing loss. Hence it should not bid if market research predicts rejection, as this decision is more likely to keep its loss at a minimum. To decide whether to employ market research, Oceanview should consider the value of the market research information. If it conducts market research, the expected value of its payoff is $28,992.50 higher than otherwise. Since the value of the market information is positive, Oceanview should conduct the market research as it brings benefits. Hence, the optimal strategy for Oceanview will be to conduct market research. If approval is predicted, it should then proceed with the bidding, whereas if rejection is predicted, it should not bid. This will allow Oceanview to either maximize profits, if approval of zoning change is predicted, or to minimize losses, if rejection is predicted.
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