1. Problem Recognition
Board of directors of LPG plant wants to increase plant production. The engineering consultant gave two options: buy additional machines and production will increase by 60% with cost 20M$ US dollars or upgrade the old machines to increase the production by 30% with cost of 7M$ US dollars. Expected monetary value will be used to decide which option to be considered. Taking in consideration the risk of market demand for LPG.
2. Development the Feasible Alternative
additional machines will increase production by 60% with cost 20M$ US dollars or upgrade the old machines to increase production by 30% with cost of 7M$ US dollars.
2. Development of the Outcome for Alternative
Expected monetary value will be calculated for each option to decide which to be considered.
4. Selection of Criteria
Option with highest EMV will be selected.
5. Analysis and Comparison of the Alternative
Decision chart created for the alternatives in figure-1 to decide the option with highest EMV:
6. Selection of the Preferred Alternative
From decision chart the second option which is upgrade old machines is considered because it has the highest EMV.
7. Performance Monitoring and the Post Evaluation of Result
Upgrade old machine is the lowest risk option to be considered despite of market demand.
- Expected Monetary Value (EMV): Parameters of Decision retrieved on 12th July 2014 http://www.brighthubpm.com/risk-management/48245-calculating-expected-monetary-value-emv/
- Decision tree analysis – and Expected Monetary Valueretrieved on 12th July 2014 – http://www.pm-primer.com/decision-tree-risk-analysis/
- Expected monetary value calculation retrieved on 12th July 2014http://www.projectmanagementquestions.com/3018/expected-monetary-value-calculation