W10_Murtadha_Investment Decision


  1. 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.

  1. 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.
  3. Selection of Criteria
    Option with Lowest EMV indicates less cost on company thus will be the preferred option
  4. Analysis and Comparison of the Alternative
    Decision chart created for the alternatives in figure-1 to decide the option to go with.

 emv

Figure-1 Decision chart for alternatives

 

  1. 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.

  1. 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.

  1. References:
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One thought on “W10_Murtadha_Investment Decision

  1. Sorry Murtadha, but there is something not right about how you set this problem up…..

    Where did the 50% come from?

    Basically, you are comparing spending 20 million to get 60% X ?????? in increased revenues vs spending 7 million to get 30% X ??????? in increased revenues.

    Let’s review it during our F2F session, as it is a good problem and one you are likely to see on the PMP Exam……

    BR,
    Dr. PDG, Muscat

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