1.
The main issue that faces the Bill Galen Development Company lies in the decision on the hiring of a consultant. It is the decision that precedes the other decisions that can be made. As such, the problem entails deciding whether hiring the consultant is the best decision and the decisions that follow the hiring or not hiring the consultant.
3.
The information that was relied on in the decision tree was obtained from the data provided for in the case study. As indicated in the previous question, all the decisions made must begin with the decision whether to hire a consultant or not. This section shall explore both options;
The decision made to hire the consultant avoids the fee of $5,000 and then offers three decisions that can follow that; do nothing, buy land and purchase option. Where the decision made is doing nothing, and then the decision tree concludes there. The decision the buy land option will cost of $300,000 while the purchasing option costs $20,000. In both instances, the decision must lead to an application for a variance that costs $30,000. The probability of approval for the variance in both situations is 0.4 and a 0.6 for denial of the variance. When the decision made was to purchase the land then the company will incur a cost of $500,000 for building and the sale made will be $950,000. The resulting profit then in $120,000 the company will deduct all the expenses incurred, buying land, variance and the actual building from the sale made. On the other hand, if the variance were rejected then the resulting sale would have earned a $260,000 and led to a loss of $70,000 because the sale would have been less than the expenses incurred in buying land, and variance.
Hiring the Consultant
If the company decides to hire the consultant, there a key issue at this stage is arriving at the posterior probabilities for the approval and the denial of the variance. The posterior probability of denial is 0.3 and probability for approval is .7. With these probabilities, the other decisions are the same as in the previous question. This can be observed from the decision tree.
4.
The strategies have differing expected results depending on the path of the decision made. The decision tree demonstrates this clearly with the returns being 0, 120000, 100000, 115000, 95000, and 55000 for the profits and 5000. -30000, -50000, -5000, -75000 for the losses. The worst possible outcome is the strategy of not hiring a consultant, buying land and applying for a variance that leads to an outcome of a loss of $75,000. For the optimal decision, the strategy relied on is as follows, hiring the consultant, a prediction of approval, buying the land and applying for a variance. If the variance is approved, then a profit of $115,000 is realized. Of course, this is the decision that this paper recommends.
5.
The decision trees produce results that are both accurate and complete, serving as a perfect demonstration of the probabilities of events, impacts of decisions and their eventual results.
6.
The information prepared in steps 1-5 are an indication of the impacts of decisions made, the effect of events on those decisions and the eventual outcomes from the interactions of both. Having the possible probabilities allows this paper to develop an optimal strategy to be recommended to Bill Galen Development Company.
7.
