- Problem Recognition
A company is looking to invest in their existing plant to meet the increase in demand in the country for oil. The consultant gave two options: upgrade of the existing train in which the company will satisfy the new demand but will not have taken into consideration any additional capacity, or add an additional train which will not only meet the current demand for oil but also have additional capacity for import and future requirements. Expected monetary value will be used to decide which option to be considered.
- 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.
- Development of the Outcome for Alternative
Expected monetary value will be calculated for each option to decide which to be considered.
- Selection of Criteria
Option with Lowest EMV indicates less cost on company thus will be the preferred option
- Analysis and Comparison of the Alternative
Decision chart created for the alternatives in figure-1 to decide the option to go with.
Figure-1 Decision chart for alternatives
- Selection of the Preferred Alternative
From decision chart the second option which is upgrade old machines is considered because it has a lower cost on the company.
- Performance Monitoring and the Post Evaluation of Result
Upgrade old machine is the lowest risk option to be considered despite of market demand. This does not visualize the whole situation as there are some additional factors that will be needed to be taken into consideration such as market studies, construction factors, etc.
- Expected Monetary Value (EMV): Parameters of Decision retrieved onJuly 29, 2014 http://www.brighthubpm.com/risk-management/48245-calculating-expected-monetary-value-emv/
- Decision tree analysis – and Expected Monetary Value retrieved on July 29, 2014 http://www.pm-primer.com/decision-tree-risk-analysis/
- Expected monetary value calculation retrieved on July 29, 2014 http://www.projectmanagementquestions.com/3018/expected-monetary-value-calculation