A construction company is planning on taking up one of the projects for executio

Question

A construction company is planning on taking up one of the projects for execution. The company is considering seven different types of Projects 1 – 7 to choose from under two possible climatic conditions, favorable and unfavorable. Because of favorable climatic conditions, there is an 80% probability of favorable and 20% of unfavorable climatic condition. The table in ‘Question 1’ tab of the attached spreadsheet indicates the profit and loss of taking up the projects under the given states – Favorable and Unfavorable. Using Excel set up a spreadsheet to find the best decision using: a) Maximax b) Minimax c) Regret d) Hurwicz Criterion

This is the excel spread sheet blewo can you explain youur answer.

Projects Favorable(in thousands) Unfavorable (in thousands) Project 1 75 30 Project 2 80 39.6 Project 3 88 40 Project 4 76 39.9 Project 5 74.9 35 Project 6 70 20 Project 7 69 17

Explanation / Answer

1) Maximax maximizes the best possible value. This is in project 3 (88 thousand)

2) Maximin maximizes the minimum payoff. This is in project 7.( 17 thousand loss )

3)

The decision maker attempts to avoid regret by selecting the decision alternative that minimizes the maximum regret. A decision maker first selects the maximum payoff under each state of nature; then all other payoffs under the respective states of nature are subtracted from these amounts.

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13 is minimum. Hence answer is project 1

4) In this the formula used for project 1 and the other projects is as:

Payoff= 0.8* 75 -0.2* 30= 54 .

The values for all projects are

51.8

Hence the answer is project 3

Project 1 88-75=13 30-17=13 Project 2 8 22.6 Project 3 0 23 Project 4 12 22.9 Project 5 13.1 18 Project 6 18 3 Project 7 19

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