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Managerial Decision Making-Case Study 1

The manager of an xyz hardware company must decide whether to use a single-walled or double-walled storage tank for hazardous substances. A decision table was created listing the costs associated with installing each tank type and the potential repair costs if the tank leaks. For a single-walled tank, the costs are $20,000 if no leak, $0 if a minor leak, and -$90,000 if a major leak. For a double-walled tank, the costs are $10,000 if no leak, -$1,000 if a minor leak, and -$100,000 if a major leak. Based on the probabilities of each outcome and their associated costs, the manager must decide which tank option to

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Kabeer Qureshi
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88 views

Managerial Decision Making-Case Study 1

The manager of an xyz hardware company must decide whether to use a single-walled or double-walled storage tank for hazardous substances. A decision table was created listing the costs associated with installing each tank type and the potential repair costs if the tank leaks. For a single-walled tank, the costs are $20,000 if no leak, $0 if a minor leak, and -$90,000 if a major leak. For a double-walled tank, the costs are $10,000 if no leak, -$1,000 if a minor leak, and -$100,000 if a major leak. Based on the probabilities of each outcome and their associated costs, the manager must decide which tank option to

Uploaded by

Kabeer Qureshi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Managerial Decision Making

Case Study – I
An xyz hardware company is designing a storage tank for some hazardous substance and are faced with
the decision of making the tank double walled or single walled. The manager has to decide on a useful
way to selecting the different options. The possible outcomes from the alternatives he has are tank
never leaks, tank develops only a small hole or tank develops a major leak. These outcomes are mutually
exclusive and exhaustive. For the option of single walled tank, the probabilities that the tank never
leaks, develops a minor leak or develops a major leak are 90%, 9% and 1% respectively. Similarly for the
option of single walled tank, the probabilities that the tank never leaks, develops a minor leak or
develops a major leak are 99%, 0.0 9% and 0.01% respectively. Analyzing the cost of installing and
maintaining the tank, the profits gained from using the tank over a period of 5 years and repair and
clean up costs required if the tank leaks is predicted and forecasted by the company’s quantitative
analysis department. They have come up with some numerical figures which are $20,000/=, $0/= and -
$90,000 for the alternative of single walled tank and possible outcomes of tank never leaks, tank
develops minor leak or tank develops major leaks respectively. Similarly with the numerical figures
$10,000/=, -$1000/= and -$100,000 for using the alternative of double walled tank and possible
outcomes of tank never leaks, tank develops minor leak or tank develops major leaks respectively.

Considering yourself as project manager and decision making authority, develop a decision table for the
given problem and then take a decision for which alternative to go for.

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