Assignment 1: LASA 2 Strategic Plan and Self-Reflection Summary

Probability analysis

If the firm decides to take the large facility, the possible payoffs under different circumstances will be; if the demand is low and there is nothing done towards the low demand situation, the firm will only get 40% of the expected payoffs and this means the amount that will be gotten will be; $10*40% = $4 and this shows that the firm will miss $6 of the expected payoffs. Still in the large facility, if the demand is still low and some actions is taken in reducing the prices, the firm will still get a 40% of the expected payoffs and this means that the amount will add up to; 50*40% = $20 and this suggests that the firm will miss $30 of the expected payoffs and the third option under the large facility will be where the demand is high and the firm decides to give no way forward in the action taken. In this case, the firm will get 60% of the expected payoffs and this will amount to; $70*60% = $42 and thus the firm misses $28 of the expected payoffs.

On the other hand, if the firm decides to take a small facility, the possible payoffs under different circumstances will be; if the situation taken is where the demand is low and the firm is not clear the kind of action it will take towards the low demand situation, the firm will just get 40% of the expected payoffs and this will amount to; $40*40% = $16 and thus it misses $24 of the expected payoffs. In the case where the demand is high and the firm decides to do nothing about the high demand, the firm will get just a 60% of the expected payoffs that amounts to; $40*60% = $24 and it thus misses $16 of the expected payoffs. In the third situation under the large facility where the demand is still high but this time the firm decides to introduce overtime in the working schedule, then the firm will get a 60% of the expected payoffs and that amounts to; $50*60% = $30 and thus misses $20 of the expected payoffs. Lastly, if the firm takes the high demand challenge and decides to expand, then they will get 60% of the expected payoffs amounting to $55*60% = $33 and thus missing $22.

The decision tree

Build small low demand (0.4) --------- expected (0.6)

High demand (0.6) --- do nothing (0.6)

---overtime (0.6)

---expand (0.6)

Build large low demand (0.4) ----- doing nothing (0.4)

-----reduce prices (0.4)

High demand (0.6) --- expected (0.6)

The chance of probability and the respective payoffs will be;

Small

1. For building small, high demand and doing nothing probability chance will be = 0.6*0.6 = 0.36

The payoff will be; 0.36*40 = $14.4

2. For small, high demand and overtime probability chance will be = 0.6*0.6 = 0.36

The expected payoffs will be; 0.36*50 = $18

3. For small, high demand and expand probability chance will be = 0.6*0.6 = 0.36

The expected payoffs will be; 0.36*55 = $19.8

Large

1. For large, low demand and doing nothing probability chance will be = 0.4*0.4 = 0.16

The expected payoff will be = 0.16*10 = $1.6

2. For large, low and reduce prices probability chance will be = 0.4*0.4 = 0.16

The expected payoff will be; 0.16*50 = $8

The Expected Monetary Value from each alternative;

Small facility = $14.4 + $18 + $19.8 = $52.2

Large facility = $1.6 + $8 = $9.6

Harley-Davidson General Manager Decision

From the analysis above, the general manager should take a small new facility. The probability analysis shows that over a range of outcomes and given the other factors like demand and options that will be taken, the small facility illustrates the positive demand which in turn yields lots of payoffs at an increasing rate while the large firm may be increasing in the payoffs, they are lower as compared to those of a small firm, (Jackie, 2018)

Besides, the expected monetary value of the small facility is expected to be far much better than the large facility with a very large margin of $42.6 and this is after the use of tree decision that gave a variety of range for each facility, (Mike, 2017). The profitability of smaller facility may be associated with; the close customer contact that creates a good rapport with the customers and this increases the sales thus a more profitable business, a small facility with be much flexible to the changing trends of the market and furthermore they are able to get immediate feedback from customers and act on that and the small facility will have a lower investment and thus its costs will not be higher and it will be easier to manage how it grows through innovations and tests in the small market. These are the reasons why the small facility with higher demand will be expected to flourish than the large facility, (Devra, 2018)

References