Project Decision Making
The project involves decision-making for a real estate company where it concerns three projects. These projects are a warehouse, an apartment building, and an office building. Each project has an estimated profit return, which varies based on the existing economic condition. For the project, the decision-makers will analyze the payoffs expected from each of the above projects in each of the three standard economic conditions.
Project Decision Making
The decision-making process for the three projects employs a quantitative approach by calculating the expected monetary value for each of the projects under the three economic conditions. Moreover, the management is also faced with the decision on whether to employ the services of a business analyst or to proceed without the business analyst. If the management does not employ the services of a business analyst, the apartment building, office building, and the warehouse indicate EMV values of $141,400, $112,400, and $271,000, respectively.
On the other hand, by employing the services of a business analyst, the firm incurs a cost of $7,000, which is paid upfront before the analysis and outcome are provided. Also, the business analysis can give either a positive or negative report regarding the project outcomes. The probability that the analysis report will be positive is 0.58 and 0.42 that it will be negative (Spreadsheet 4: Task 2-2). A positive analysis report anticipates EMV values of $178,100, $146,100, and $291,100 for the apartment building, office building, and the warehouse, respectively. However, a negative analyst report predicts -$39,600, -$10,100, and $120,000 for the apartment building, office building, and the warehouse, respectively (Spreadsheet 4: Task 2-2).. Don't use plagiarised sources.Get your custom essay just from $11/page
Risk Assessment
Risk analysis is essential in determining the relevant approach to be employed in the implementation of the presented project. The critical decision to be made is whether to use the services of a business analyst or progress without them. Considering the probabilities of either a positive (0.58) or negative (0.42) analyst report, the EMV attained for hiring an analyst is $219,648 and $271,600 for not hiring (Spreadsheet 4: Task 2-2). Therefore, not hiring an analyst indicates a hire EMV that hiring one; thus, proceeding without one would be a sound management decision. The next crucial decision would be considering the EMVs of the three projects presented under various economic conditions. Based on the calculations done, the warehouse project offers the highest EMV of $271,600 compared to the office building and the apartment building that generated EMV values of $112,400 and $141,400 respectively
Conclusion
Using the EMV as a tool for decision making under uncertainty is appropriate since the approach factors the level of risk faced in each scenario in its calculation. Consequently, the anticipated outcome of each project scenario is impacted by the probability of the achievement of the result. From the analysis conducted, the management should proceed with the Warehouse project and also without employing the services of an analyst since the EMV values suggest that it is the best decision.
Task 2-2
What’s the expected monetary value (EMV) for not hiring a business analyst and for hiring a business analyst?
EMV= Σ(Pi*Li)
EMV not hiring a business analyst = $271,600
EMV hiring a business analyst = $219,600
What is your recommendation for the two hiring options?
Based on the EMV calculation carried out for the presented projects, the EMV value for not hiring a business analyst is higher ($271,600) than that of hiring a business analyst ($219,600). Moreover, employing the services of a business analyst will cost the firm $7,000, which is supposed to be paid upfront. Therefore, the sound decision in the scenario will be not hiring a business analyst since the option increases the costs and also promises a lower return than its alternative.
Task 2-4
Prepare a decision tree with payoffs, probabilities, & EMVs using Microsoft Excel’s TreePlan (Spreadsheet 4: Task 2-4)
Task 2-5: Prepare an Executive Summary
The scenario featured in the question involves a real estate company that is presented with three viable projects and needs to make a decision regarding which one is more viable among the options. These are a warehouse, an apartment building, and an office building. The viability of a project is determined by the earnings expected from the project after it has been implemented. However, each project also presents a particular level of risk that is expected to impact the outcome of the projects depending on the prevailing economic conditions. Besides, the company is also faced with another critical decision of whether to employ the services of a business analyst in the decision-making process or to proceed forward solely based on their analysis. If the firm does not hire an analyst, the likelihood of optimistic conditions is 0.24, 0.62 for realistic conditions, and 0.14 for pessimistic conditions. Subsequently, the expected monetary values (EMV) of the three projects if the firm does not use an analyst are $141,400, $112,400, and $271,000, for the apartment building, office building, and the warehouse respectively. In the event that the firm employs the services of a business analyst, more outcomes are expected since the analyst report can be either positive or negative. The likelihood of a negative report and a positive report from the business analyst are 0.42 and 0.58, respectively. A positive analyst report presents EMV values for warehouse, apartment building, and office building at $178,100, $146,100, and $291,300, respectively.
On the other hand, a negative analyst report presents EMV values for the warehouse, apartment building, and office building as -$39,600, -$10,100, and 120,700, respectively. In conclusion, the EMVfor employing the services of a business analyst is $219,600, while that of not using a business analyst is $271,600. Therefore, progressing without one is the right choice. Moreover, the warehouse is the best option among the three presented choices since it offers the highest EMV of $271,600.