Mini-course 1 Decision Analysis (Dr. Mariya Sodenkamp) / Class 3 / ITB_L3_ 2015_04_20
.pdf
Fastigum Manufacturing
Fes3gum is a european manufacturing company specializing in design, manufacturing, installa3on and commissioing of hydraulic systems since 1975. For eleven years Fes3gum purchased all of its steel from Eastern Eagle, the 3me-proved domes3c steel maker. Their current contract is about to expire and Eastern Eagle has unexpectedly almost doubled its steel price, due to drama3cally increased energy prices, taxes and costs for human resources. Rodrigo Costagnola, the CEO at Fas3gum, has to decide whether to trust his gut or his head and to extend the contract with Eastern Eagle for a further 36 months or to change the supplier. Rodrigo announced a tender for the selec3on of a new contractor of steel. A.er screening a list of candidates, five promising o ers were selected to compete with Eastern Eagle. In order to evaluate the six contractors Rodrigo and his team iden3fied nine cri3cal decision factors and collected the candidates‘ performance informa3on. Rodrigo is an experienced manager ac3ng according to the Fes3gum‘s mission and objec3ves, and he has to take the right decision
by the next quarter‘s broad mee3ng. |
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Fastigum Manufacturing
Criteria |
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Alterna3ve suppliers |
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Astorix |
Be`le |
Cituszi |
Drux |
Eastern Eagle |
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Supplier's suggested price, euro |
140 |
220 |
195 |
260 |
210 |
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Reputa3on, scores out of 10 |
4 |
7 |
5 |
8 |
10 |
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A.er sales service |
no |
no |
yes |
yes |
yes |
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Probability of future poten3al |
50 |
30 |
55 |
60 |
70 |
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purchses from supplier, % |
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Supplier organiza3onal behavior, |
6 |
7 |
8 |
9 |
8 |
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scores out of 10 |
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Supplier's adap3on with the |
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purchaser's procedures and |
par3al |
complete |
par3al |
complete |
par3al |
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instruments (no - 0 points, par3al - |
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5 points, complete - 10 points) |
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Supplier's delivery capabili3es |
good |
good |
excellent |
excellent |
bad |
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(no - 0, bad - 0.3, good - 0.7, |
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excellent - 1.0) |
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Probability of delivery delays, % |
0,12 |
0,1 |
0,05 |
0,11 |
0,3 |
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Distance, km |
1200 |
4127 |
800 |
3508 |
250 |
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IT in Business: Decision Analysis| © Sodenkamp
Fastigum Manufacturing
Tasks:
1.Find and compare solutions obtained using different methods:
a)Weighed additive value
b)Ideal point
c)Main criterion
e) Lexicographic method
Explain what method could be useful in what situation.
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IT in Business: Decision Analysis| © Sodenkamp
Fastigum Manufacturing
2. Rodrigo assigned importance scores to the factors that will help him to
alighn his decision with the company‘s objectives and his vision:
Criteria |
Criteria weights, [0,100] |
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scale |
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Supplier's suggested price, euro |
100 |
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Reputa3on, scores out of 10 |
60 |
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A.er sales service |
45 |
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Probability of future poten3al purchses from supplier, % |
20 |
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Supplier organiza3onal behavior, scores out of 10 |
20 |
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Supplier's adap3on with the purchaser's procedures and |
55 |
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instruments (no - 0 points, par+al - 5 points, complete - 10 points) |
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Supplier's delivery capabili3es (no - 0, bad - 0.3, good - 0.7, |
75 |
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excellent - 1.0) |
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Probability of delivery delays, % |
60 |
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Distance, km |
10 |
3. Which of the six suppliers should Rodrigo Costagnola choose now?
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IT in Business: Decision Analysis| © Sodenkamp
Fastigum Manufacturing
4. Assuming the following restrictions, what is the best option?
Reputa3on, scores out of 10 |
> |
6 |
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A.er sales service |
= |
1 |
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Probability of future poten3al purchses from |
> |
33 |
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supplier, % |
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Supplier organiza3onal behavior, points out of 10 |
> |
5 |
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Supplier's adap3on with the purchaser's |
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procedures and instruments (no - 0 points, par+al - |
>= |
5 |
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5 points, complete - 10 points) |
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Supplier's delivery capabili3es |
> |
0,3 |
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(no - 0, bad - 0.3, good - 0.7, excellent - 1.0) |
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Probability of delivery delays, % |
< |
0,15 |
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Distance, km |
< |
4000 |
5. Which vendor would be the best if the CEO sets all concessions at the level of 25%?
IT in Business: Decision Analysis| © Sodenkamp |
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Coralikoil
Coralikoil is a petrolium manufacturing company exploring for oil ocean o shore. Several promising fields have been iden3fied. A crucial decision for the manufacturer's management is to determine the best site of oil produc3on - a field that will be selected for the development and crude oil produc3on. The evalua3on team agreed on considering of 7 criteria. All criteria have di erent impacts on the final decision and the team of experts rated all criteria on the scale from 1 to 10, where 1 stands for the lowest impact and 10 for the highest.
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IT in Business: Decision Analysis| © Sodenkamp
Decision criteria and their weights:
1.Oil Output - an es+mated output measured in thousands of barrels per day. Impact is 10.
Depth to Seabed - depth from the ocean surface to the wellhead at the ocean
2.floor, measured in meters. A lower number means lower maintenance costs. Impact is 5.
3.Life of Well - Es+mated life of the well in years. Impact is 7.
4.Distance to Land - distance to the nearest point of land, in kilometers. Big distance is associated with higher costs. Impact is 4.
5.Start Up Costs - the total costs involved un+l the first barrel of oil is produced, millions of euro. Impact is 8.
Crude Quality - measure of the quality of the oil coming out of the well: A,B or C.
6.A is the best, followed by B and C. Group A has the highest ra+ng 1,0; ra+ngs of the groups B and C are 0,65 and 0,3 respec+vely. Impact is 9.
Environmental Risk - ra+ng reflec+ng possible influence of the environment
7.factors, such as hurricanes, low / high temperatures etc. A ra+ng of 1 is considered a low risk, and 10 is the highest risk. Impact is 3.
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IT in Business: Decision Analysis| © Sodenkamp
Criteria |
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Alterna3ve Oil Fields |
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Field 1 |
Field 2 |
Field 3 |
Field 4 |
Field 5 |
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Oil Output |
1,7 |
1,4 |
1,2 |
0,9 |
1,1 |
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Depth to Seabad |
375 |
450 |
400 |
770 |
500 |
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Life of Well |
9 |
4 |
12 |
8 |
7 |
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Distance to Land |
8 |
22 |
18 |
6 |
20 |
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Start Up Costs |
10 |
15 |
19 |
12 |
11 |
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Crude Quality |
C |
B |
A |
C |
B |
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Environmental Risk |
5 |
5 |
7 |
8 |
4 |
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Given the information provided in the case description and the matrix, which field should be selected for the development and production
of crude oil?
Apply di erent solution strategies and compare their outcomes.
Solution … |
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Evaluate the oil fields using the method of successive concessions if concessions for the criteria are given in percentages and mean acceptable devia+ons from the best values:
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Oil Output |
30% |
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Depth to Seabad |
25% |
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Life of Well |
100% |
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Distance to Land |
180% |
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Start Up Costs |
15% |
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Crude Quality |
40% |
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Solution… |
Environmental Risk |
20% |
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IT in Business: Decision Analysis| © Sodenkamp |
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Decision making under uncertainty
• Uncertain3es and risks are involved into any decision situa3on.
• Many essen3al factors are uncontrollable, they cannot be a ected by the company representa3ves.
The outcome can depend on:
- The poli+cal circumstances (stable / unstable situa+on, ruling party and its key strategies),
- The bahaviour of rivals (reac+ve, non-reac+ve, proac+ve), - Socio-economic condi+ons (demand, taxes) etc.
A set of uncontrolable e ects is called a scenario, environmental state or hypothesis.
Scenario Planning, a widely employed methodology for suppor3ng strategic decision making, employs imaginary future scenarios to help DMs think about the main uncertain3es they face, and devise strategies to cope with those
uncertain3es. |
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