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Management Science

The document discusses a decision-making scenario for a company manager regarding whether to prepare a bid costing P5,000 with a 60% chance of winning a contract. If awarded, the company could earn P60,000 with a 70% success rate, or incur a P15,000 fine if it fails. The document outlines the expected value calculations to determine the financial implications of preparing the bid versus not submitting it.

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wellalltoo13
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22 views4 pages

Management Science

The document discusses a decision-making scenario for a company manager regarding whether to prepare a bid costing P5,000 with a 60% chance of winning a contract. If awarded, the company could earn P60,000 with a 70% success rate, or incur a P15,000 fine if it fails. The document outlines the expected value calculations to determine the financial implications of preparing the bid versus not submitting it.

Uploaded by

wellalltoo13
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
°e Example ° ° * : The manager of the company has to decide whethesto prepare a bid or set. It cost P5,000.00 to prepare the bid. If the bid is submitted, ° the probability that the contract will be awarded is 60%. If the company f awarded the contract, it may earn an income of P60,000.00 if it succeeds or pay a fine of P15,000 if it fails. The. probability of success is estimated to be 70%. Should the owner ® prepare the bid. a e Solution: cm At the en of the success branch, P60,000 is the return, but since there is a cost of P5,000 for bid preparation, then P5,000 should be subtracted, Since a fine of P15,000 is forced in case of failure, and there is also a cost of P§,000 for bid preparation, then -15,000-5,000 are indication at the end of the failure branch. The sign of -5,000 also be indicated at the end of the failure branch. If the contract is not awarded, there is a cost of P5,000 for bid preparation. e Continuation “Compute the E.V. Backward from position: e EM. = .7(55,000}+.3(-20,000) 8,500 — 6,000 EN. = .6(32,500) + .4(-5,000) 9,500" 2,000 Example. XD Troster stented ONES att eee cba nada pea ata aa 1A the od ofthe sce brash 45000 te epration,henP10000 shuld oe sabraced 75000 100 ar teat at ee fe

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