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Decision Analysis Using EVPI and EMV

1) An analysis of expected value of perfect information (EVPI) showed that obtaining a more accurate demand estimate would have very low value, indicating it is not profitable to invest more resources into finding additional information. 2) Market research on product demand is expected to report either a favorable or unfavorable result. The expected gain from obtaining this sample information is calculated. 3) The expected value of the market research information is calculated to be $120,478. 4) No information is provided on the efficiency of the information.

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Juan Pineda
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108 views4 pages

Decision Analysis Using EVPI and EMV

1) An analysis of expected value of perfect information (EVPI) showed that obtaining a more accurate demand estimate would have very low value, indicating it is not profitable to invest more resources into finding additional information. 2) Market research on product demand is expected to report either a favorable or unfavorable result. The expected gain from obtaining this sample information is calculated. 3) The expected value of the market research information is calculated to be $120,478. 4) No information is provided on the efficiency of the information.

Uploaded by

Juan Pineda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

A) Use EVPI to determine if the company should try to get a better estimate of t

PROCESS OF DECISION FOR THE MARKETING OF THE


PRODUCT

STATES OF NATURE

DECISION AVERAGE
ALTERNATIVE LOW EXPECTED
LOW HIGH
DEMAND MONETARY
DEMAND DEMAND -
AND VALUE EMV
UTILITY
UTILITY

MANUFACTURE 235 273 307 275.96

213 229 267 239.72


SUBCONTRACT

TO BUY 223 235 276 248.04

PROBABILITIES 0.28 0.32 0.4 1


∑=1

EVWPI= 275.96
EVPI= EVWPI - EVM
EVM= 275.96

EVPI= 0 THIS VALUE IS VERY LOW WHICH INDICATES THAT THE INVE

B) A test market study of potential product demand is expected to report a favor


PROCESS OF DECISION FOR THE MARKETING OF THE
PRODUCT

STATES OF NATURE

EXPECTED
DECISION AVERAGE GAIN
ALTERNATIVE LOW EXPECTED
LOW HIGH WITHOUT
DEMAND MONETARY
DEMAND DEMAND - SAMPLE
AND VALUE EMV
UTILITY INFORMATI
UTILITY ON EGSI

MANUFACTURE 235 273 307 275.96

213 229 267 239.72


SUBCONTRACT
275.96
TO BUY 223 235 276 248.04

PROBABILITIES 0.28 0.32 0.4 1


∑=1
PROCESS OF DECISION FOR THE MARKETING OF THE
PRODUCT

STATES OF NATURE

DECISION
ALTERNATIVE
DECISION AVERAGE EXPECTED
EXPECTED
ALTERNATIVE LOW MONETARY
LOW HIGH MONETARY
DEMAND VALUE
DEMAND DEMAND - VALUE
AND UNFAVORA
UTILITY FAVORABLE
UTILITY BLE

MANUFACTURE 235 273 307 296.88 518.12

213 229 267 257.74 451.26


SUBCONTRACT

TO BUY 223 235 276 266.6 467.4

FAVORABLE 0.25 0.31 0.5


INDICATOR
UNFAVORABLE 0.75 0.69 0.5
INDICATOR

EXPECTED GAIN WITH


SAMPLE 396.438
INFORMATION EGWSI

EVMI 120.478 Maximum expected value of the sample information

C) What is the expected value of market research information?

120.478

D) What is the efficiency of the information?


get a better estimate of the demand.

WHICH INDICATES THAT THE INVESTMENT OF RESOURCES IS NOT PROFITABLE TO FIND MORE INFORMATION

xpected to report a favorable (F) or unfavorable (U) condition.

DEMANDA DEMANDA
DEMANDA BAJA
INDICADOR ALTA - ∑
BAJA PROMEDIO UTILIDAD
Y UTILIDAD

FAVORABLE 0.25 0.31 0.5 1.06

0.75 0.69 0.5 1.94


DESFAVORABLE
P(favorable) P(unfavorable)

0.55 0.45

The major
alternative
is chosen in
both
favorable
and
unfavorable
indicators

the sample information

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