Decision tree for my small tool and die maker business

Running head: DECISION TREE FOR MY SMALL TOOL AND DIE MAKER BUSINESS

DECISION TREE FOR MY SMALL TOOL AND DIE MAKER BUSINESS 3

Decision tree for my small tool and die maker business

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Decision tree for my small tool and die maker business

Here, the decision is whether to place a high or a low bid for the contract. If I bid high, I will be in a position to earn higher profits, but my chances of winning the contract will be lowered and the chance of working as a supplier for a large company will be lost, meaning my company cannot expand more. On the other hand, if I place a lower bid, I will make less profits, but my chances of winning the contract against the other two competing firms will increase, alongside the chance to boost the reputation of my company by being a supplier to a larger company. The project will cost me $50,000 to complete in the event that I am assigned the contract. A typical bid earns a minimum of 30 percent, meaning my bid would be $65,000. Any amount higher than $65,000 would be a high bid while any amount lower would be a low bid. The decision tree below is a summary of what would transpire

Figure 1 Decision tree for my small tool and die maker business

In a high bid, I will have the chance to earn more than $15,000 in profits with a lower chance of winning the contract. Placing the typical bid with a 30% minimum margin will give me $15,000 if I win the contract, with just a typical or normal chance of winning the contract. Finally, a low bid will give me less than $15,000 but will increase my chance of winning the contract. Given that my company is small, I must make a strategic move of increasing the chance of growth and expansion through foregoing high profits; as a rational businessman, I will place a lower bid with a higher chance of winning the contract even if my business earns less than $15,000.

high bid of more than $65,000

more than $15000 in profits

lower chance of winning the contract

typical bid of $65,000

$15,000 in profits

normal/typical chance of winning the contract

low bid of less than $65,000

less than $15,000 in profits

higher chance of winning the contract