Once we have an understanding of the consequences, then we get to the big step o
ID: 456421 • Letter: O
Question
Once we have an understanding of the consequences, then we get to the big step of making the decision by evaluating our alternatives and making tradeoffs. The Lecture describes the even swap method for making tradeoffs. I have found that this approach works well for personal decisions, but becomes quite cumbersome when applying it to complex business decisions. The Lecture also describes the weighted scoring model approach to tradeoff analysis, which is used extensively in the business world. Let's be sure to understand both approaches. Here is the link to the Part II recorded lecture: Part II: https://dvg.adobeconnect.com/p8cmzp0vck7/ We can discuss the example in the Lectures, or you or I can introduce another situation to explore these two approaches. I look forward to your examples regarding evaluating alternatives and making tradeoffs!
Explanation / Answer
The example that I am presenting is of decision to select a house in a high rise apartment.
There are three potential options
Fresco
Harmony
Espace
Upfront Purchase Cost ($1000)
50
60
70
Variable Utility Cost ($ / unit)
9
8.5
8
Amenities
3
2
1
Project Fresco offers the option with lowest upfront cost of purchase, but it has the highest utility cost, which includes maintenance, water, electricity and other facility related services. Fresco project has the least amenities of all the three projects. Its club is not operational yet. Parking space is limited to 1 car per unit for occupants and 1 car for visitors. The garden spaces in between the towers and children pay areas are smaller.
Espace offers the similar unit at the highest cost of $ 70k, but it has more amenities and the variable utility cost is also the lowest, because the services are maintained by an RWA, which manages the operational expenses more efficiently.
Harmony features in between the two projects discussed above. It has medium cost of purchase and variable utility cost. Amenities are also somewhere in between the two projects.
In the matrix, upfront purchase cost and variable utility cost are mentioned as actual, whereas the amenities are ranked in order, 1 being the most preferred.
Next we do an even swap to make Variable cost at par. By paying an upfront additional cost, I can opt to become the member of RWA, which will entitle me to a discount on the variable utility cost.
Fresco
Harmony
Espace
Upfront Purchase Cost ($1000)
59
65
70
Variable Utility Cost ($ / unit)
8
8
8
Amenities
3
2
1
Next even swap is done for the third variable, amenities. By paying additional cost, it is possible to buy additional car parking and club membership of a nearby club Patio.
Fresco
Harmony
Espace
Upfront Purchase Cost ($1000)
68
71
70
Amenities
1
1
1
With this the two variables Variable utility cost and amenities are eliminated. And decision can be made basis the remaining variable, i.e. upfront purchase cost.
Fresco
Harmony
Espace
Upfront Purchase Cost ($1000)
68
71
70
Fresco
Harmony
Espace
Upfront Purchase Cost ($1000)
50
60
70
Variable Utility Cost ($ / unit)
9
8.5
8
Amenities
3
2
1
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