Phase 2 - Solve problems by applying the algorithms of the Unit 1 - Delivery of the

activity

Estefania Calderon- Cod:

Enyi Carolina Villarraga – Cod: 1’016’017.017

Leidy Stella Picon- Cod: 63.541.192

Marunsamy Pedraza - Cod:

Milton Arley Ochoa

Group Number: 212066_8

Ricardo Javier Pineda

Tutor

Universidad Nacional Abierta y a Distancia (UNAD)

Pitalito

Theory of decisions

March 2018
 Introduction.

In the following work you will see the concepts acquired about the theory of decisions,

for the development of the practical exercises proposed in the course guide. With the

application of this knowledge, it is intended that students pose tools for the search for

the optimal solution of problems and complexes that allow them to do both in everyday

life and in the exercise of their professional and work life.

Exercises solved according to the proposed theme.

Problem 1. DECISION TREES, EVPI and EVMI

Teratex, a textile company that has a productive experience in the foreign market of 25

years, must decide if it manufactures a new product in its main plant, or if on the

contrary the purchase from an external supplier. The profits depend on the demand of

the product. The table shows projected profits, in millions of dollars.

Table 1. Decision process for the commercialization of the product

States of nature
Decision alternative Demand low- Demand low average -
Demand High Medium - utility
utility utility
Manufacture 51 57 63
Subcontract 55 59 63
Buy 53 57 61
Probabilities Ʃ = 1 0,35 0,40 0,25

According to the corresponding information in Table 1 and the Predicted Value of

Perfect Information (EVPI) theory, the Expected Value of Sample Information (EVMI)
and Decision Trees, respond:

a. Use EVPI to determine if the company should try to get a better estimate of the
demand.
b. A test market study of potential product demand is expected to report a favorable (F)
or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,25 P(D/low) = 0,75

P(F/low average) = 0,38 P(D/ low average) = 0,62
P(F/high medium) = 0,4 P(D/ high medium) = 0,6
P(F/high) = 0,5 P(D/high) = 0,5
 c. What is the expected value of market research information?
d. What is the efficiency of the information?

k. What is the expected value of market research information?

l. What is the efficiency of the information?

Decision Trees

PROBABILITIES DEMAND

Low (0,30) 85 25,5

MANUFACTURE NODE 2 Low average (0,22) 87 19,14

89,24

High Medium (0,25) 91 22,75

High (0,23) 95 21,85

Low (0,30) 78 23,4

SUBCONTRACT NODE 3 Low average (0,22) 81 17,82

82,94

High Medium (0,25) 85 21,25

NODE 1 High (0,23) 89 20,47

Is obtained by expected value VesIP

NODE (2)= 56,4 Millions of dollars

NODE (3)= 58,6 Millions of dollars

NODE (4)= 56,6 Millions of dollars

NODE 1=(Max Nodo 2 vs Nodo 3 y vs Nodo 4) Nodo 3 = 58,6 Millions of dollars

The expected decision is to subcontract waiting for a payment of 58.6 millions of dollars
VEIP= VEcIP - VEsIP

VEcIP= (0,35) x 55 + (0,40) x 59 + (0,25) x 63

VEcIP= 58,6 Millions

VEIP= |58,6 - 58,6| = 0

TEOREMA DE BAYES

p(s1)=0,35 p(s2)=0,40 p(s3)=0,25 Of the probabilities of VEcIP

P(F/low) = 0,25
P(F/low average) = 0,38
P(F/high medium) = 0,4
P(F/high) = 0,5

FAVORABLE

Previous Conditional
State of probabilities probabilities P Joint odds P
nature P(Sj) (f/sj) (F n Sj) Later odds P(sj/F)
Low 0,35 0,25 0,0875 0,257731959
Low Average 0,4 0,38 0,152 0,447717231
High Medium 0,25 0,4 0,1 0,29455081
P(F) 0,3395 1

p(s1)=0,35 p(s2)=0,40 p(s3)=0,25 Of the probabilities of VEcIP

 P(D/low) = 0,75
P(D/ low average) = 0,62
P(D/ high medium) = 0,6
P(D/high) = 0,5

UNFAVORABLE

Previous Conditional
State of probabilities probabilities P Joint odds P
nature P(Sj) (D/sj) (D n Sj) Later odds P(sj/D)
Low 0,35 0,75 0,2625 0,397426192
Low Average 0,4 0,62 0,248 0,375473126
High Medium 0,25 0,6 0,15 0,227100681
P (F) 0,6605 1

BAJA 0,257731959 51

MEDIA 0,447717231 57
57,2209131
MANUFACTURE NODE 4
ALTA 0,29455081 63

FAVORABLE 0,3395 NODE 2 BAJA 0,257731959 55

SUBCONTRACT NODE 5 MEDIA 0,447717231 59

59,1472754 59,1472754

ALTA 0,29455081 63

BAJA 0,257731959 53

BUY NODE 6 MEDIA 0,447717231 57

57,1472754
NODE 1 ALTA 0,29455081 61

58,59999996

BAJA 0,397426192 51
55,9780469
MANUFACTURE NODE 7 MEDIA 0,375473126 57

ALTA 0,227100681 63

UNFAVORABLE 0,6605
NODE 3
BAJA 0,397426192 55
58,3186979 58,3186979
SUBCONTRACT NODE 8 MEDIA 0,375473126 59

ALTA 0,227100681 63

BAJA 0,397426192 53
BUY NODE 9
56,3186979
MEDIA 0,375473126 57

ALTA 0,227100681 61
NODE 4= 0,257731959*51+0,447717231*57+0,29455081*63 57,2209131
NODE 5= 0,257731959*55+0,447717231*59+0,29455081*63 59,1472754
NODE 6= 0,257731959*53+0,447717231*57+0,29455081*61 571472754
NODE 7= 0,397426192*51+0,375473126*57+0,227100681*63 55,9780469
NODE 8= 0,397426192*55+0,375473126*59+0,227100681*63 58,3186979
NODE 9= 0,397426192*53+0,375473126*57+0,227100681*61 56,3186979

HIGHER NODE 4, NODE 5 Y NODE 6 59,1472754

HIGHER NODE 7, NODE 8 Y NODE 9 58,3186979

VALUE NODE 1 = 59,1472754*0,3395+58,3186979*0,6605= 58,599999996 VEcIM

2 SOLUTION

VEIM= (VEcIM-VEsIM))

VEcIM= 58,59999996 MILLIONS

VEsIM= 58, 6 MILLIONS

VEIM=

VEIM
E= x 100
VEIP

-0,00000004 EFFICIENCY OF 0%
E= x 100= 0
0
Problem 2. DECISION TREES, EVPI and EVMI

ElectroCom, a company that manufactures electronic components for the introduction in

its product catalog, must decide whether to manufacture a new product in its main plant,
subcontract it with company supervision or if it buys it from an external supplier. The
profits depend on the demand of the product. The table shows projected profits, in
millions of dollars.

Table 2. Decision process for the commercialization of the product

States of nature
Decision alternative Demand low- Demand low average -
Demand High Medium - utility Demand High - utility
utility utility
Manufacture 115 122 130 145
Subcontract 121 128 138 143
Buy 122 131 138 143
Outsource 125 128 132 139
Probabilities Ʃ = 1 0,21 0,28 0,29 0,22

According to the corresponding information in Table 2 and the Predicted Value of

Perfect Information (EVPI) theory, the Expected Value of Sample Information (EVMI)
and Decision Trees, respond:

e. Use EVPI to determine if the company should try to get a better estimate of the
demand.

f. A test market study of potential product demand is expected to report a favorable (F)
or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,2 P(D/low) = 0,8

P(F/low average) = 0,3 P(D/ low average) = 0,7
P(F/high medium) = 0,35 P(D/ high medium) = 0,65
P(F/high) = 0,5 P(D/high) = 0,5
 g. What is the expected value of market research information?

h. What is the efficiency of the information?

Decision Trees

PROBABILITIES DEMAND

Low (0,21) 115 24,15

MANUFACTURE NODE 2 Low average (0,28) 122 34,16

127,91
High Medium (0,29) 130 37,7

High (0,22) 145 31,9

Low (0,21) 121 25,41

SUBCONTRACT NODE 3 Low average (0,28) 128 35,84

132,73
High Medium (0,29) 138 40,02

NODE 1 High (0,22) 143 31,46 134,85

Low (0,21) 122 25,62

BUY NODE 4 Low average (0,28) 131 36,68

133,78
High Medium (0,29) 138 40,02

High (0,22) 143 31,46

Low (0,21) 125 26,25

OUTSOURCE NODE 5 Low average (0,28) 128 35,84

130,95
High Medium (0,29) 132 38,28

High (0,22) 139 30,58

Is obtained by expected value VEsIP
NODE (2)= 127,91 MILLIONS

NODE (3)= 132,73 MILLIONS

NODE (4)= 133,78 MILLIONS

NODE (5)= 130,95 MILLIONS

NODE 1=(Max Nodo 2 vs Nodo 3 vs Nodo 4 Y vs Nodo 5) Node 4 = 133,78

MILLIONS

The expected decision is to BUY waiting for a payment of 133,78 millions of dollars

VEIP= VEcIP - VEsIP

VEcIP= (0,22) x 145 + (0,28) x 131 + (0,29) x 138 +(0,21) x 125

VEcIP= 134,85 Millions

VEIP= |134,85 - 133,78| = 1,07

TEOREMA DE BAYES

p(s1)=0,22 p(s2)=0,28 p(s3)=0,29 p(s4)=0,21 Of the probabilities of VecIP

P(F/low) = 0,2
P(F/low average) = 0,3
P(F/high medium) = 0,35
P(F/high) = 0,5

FAVORABLE

Previous Conditional
State of probabilities probabilities P Joint odds P
nature P(Sj) (f/sj) (F n Sj) Later odds P(sj/F)
Low 0,21 0,2 0,042 0,124444444
Low
Average 0,28 0,3 0,084 0,248888889
High
Medium 0,29 0,35 0,1015 0,300740741
High 0,22 0,5 0,11 0,325925926
P(F) 0,3375 1

p(s1)=0,22 p(s2)=0,28 p(s3)=0,29 p(s4)=0,21 Of the probabilities of VecIP

P(D/low) = 0,8
P(D/ low average) = 0,7
P(D/ high medium) = 0,65
P(D/high) = 0,5

UNFAVORABLE

Previous Conditional
State of probabilities probabilities P Joint odds P
nature P(Sj) (D/sj) (D n Sj) Later odds P(sj/D)
Low 0,21 0,8 0,168 0,253584906
Low
Average 0,28 0,7 0,196 0,295849057
High
Medium 0,29 0,65 0,1885 0,284528302
High 0,22 0,5 0,11 0,166037736
 LOW 0,124444444 115
LOW AVERAGE
0,248888889 122
131,0311111
MANUFACTURE NODE 4 HIGH MEDIUM
0,300740741 130

HIGH 0,325925926 145

LOW 0,124444444 121

LOW AVERAGE
0,248888889 128
135,0251852
SUBCONTRACT NODE 5 HIGH MEDIUM
0,300740741 138

HIGH 0,325925926 143

135,8962963

FAVORABLE 0,3375 NODE 2 LOW 0,124444444 122

LOW AVERAGE
0,248888889 131
135,8962963
HIGH MEDIUM
BUY NODE 6 0,300740741 138

HIGH 0,325925926 143

LOW 0,124444444 125

LOW AVERAGE
0,248888889 128
132,4148148
OUTSOURCE NODE 7 HIGH MEDIUM
0,300740741 132

HIGH 0,325925926 139

133,7800001
NODE1

LOW 0,253584906 115

LOW AVERAGE
0,295849057 122
126,3200001
MANUFACTURE NODE 8 HIGH MEDIUM
0,284528302 130

HIGH 0,166037736 145

LOW 0,253584906 121

LOW AVERAGE
0,295849057 128
131,5607548
SUBCONTRACT NODE 9 HIGH MEDIUM
0,284528302 138

HIGH 0,166037736 143

132,7018869
UNFAVORABLE 0,6625
NODE 3
LOW 0,253584906 122
LOW AVERAGE
0,295849057 131
132,7018869
HIGH MEDIUM
BUY NODE 10 0,284528302 138

HIGH 0,166037736 143

LOW 0,253584906 125

LOW AVERAGE
0,295849057 128
130,2037737
OUTSOURCE NODE 11 HIGH MEDIUM
0,284528302 132

HIGH 0,166037736 139

NODE 4= 0,124444444*115+0,248888889*122+0,300740741*130+0,325925926*145 131,0311111
NODE 5= 0,124444444*121+0,248888889*128+0,300740741*138+0,325925926*143 135,0251852
NODE 6= 0,124444444*122+0,248888889*131+0,300740741*138+0,325925926*143 135,8962963
NODE 7= 0,124444444*125+0,248888889*128+0,300740741*132+0,325925926*139 132,4148148
NODE 8= 0,253584906*115+0,295849057*122+0,284528302*130+0,166037736*145 126,3200001
NODE 9= 0,253584906*121+0,295849057*128+0,284528302*138+0,166037736*143 131,5607548
NODE 10= 0,253584906*122+0,295849057*131+0,284528302*138+0,166037736*143 132,7018869
NODE 11= 0,253584906*125+0,295849057*128+0,284528302*132+0,166037736*139 130,2037737

VALUE NODE 1 = 135,8962963 *0,3375+ 132,7018869*0,6625= 133,7800001 VEcIM

2 SOLUTION

VEIM= (VEcIM-VEsIM))

VEcIM= 133,7800001 MILLONES

VEsIM= 133,78 MILLONES

VEIM= 0,0000001
VEIM
E= x 100
VEIP

0,0000001
E= x 100= 0,000009345794393
1,07

EFFICIENCY OF 0,000009345794393 %
Problem 3. DECISION TREES, EVPI and EVMI

Teratextyl, a textile company that has a productive experience in the foreign market of
30 years, must decide if it manufactures a new product in its main plant, or if on the
contrary the purchase from an external supplier. The profits depend on the demand of
the product. The table shows projected profits, in millions of dollars.
Table 3. Decision process for the commercialization of the product
States of nature
Decision alternative Demand low- Demand low average - Demand High Demand High -
utility utility Medium - utility utility
Manufacture 85 87 91 95
Subcontract 78 81 85 89
Buy 82 85 87 90
Lease 83 85 87 91
Outsource 85 87 89 93
Probabilities Ʃ = 1 0,30 0,22 0,25 0,23

According to the corresponding information in Table 3 and the Predicted Value of

Perfect Information (EVPI) theory, the Expected Value of Sample Information (EVMI)
and Decision Trees, respond:

i. Use EVPI to determine if the company should try to get a better estimate of the
demand.

j. A test market study of potential product demand is expected to report a favorable (F)
or unfavorable (U) condition. The relevant conditional probabilities are:

P(F/low) = 0,22 P(D/low) = 0,78

P(F/low average) = 0,4 P(D/ low average) = 0,6
P(F/high medium) = 0,33 P(D/ high medium) = 0,67
P(F/high) = 0,42 P(D/high) = 0,58

k. What is the expected value of market research information?

l. What is the efficiency of the information?
 Decision Trees

PROBABILITIES DEMAND

Low (0,30) 85 25,5

MANUFACTURE NODE 2 Low average (0,22) 87 19,14

89,24

High Medium (0,25) 91 22,75

High (0,23) 95 21,85

Low (0,30) 78 23,4

SUBCONTRACT NODE 3 Low average (0,22) 81 17,82

82,94

High Medium (0,25) 85 21,25

NODE 1 High (0,23) 89 20,47

Low (0,30) 82 24,6

89,24
BUY NODE 4 Low average (0,22) 85 18,7
85,75

High Medium (0,25) 87 21,75

High (0,23) 90 20,7

Low (0,30) 83 24,9

LEASE NODE 5 Low average (0,22) 85 18,7

86,28

High Medium (0,25) 87 21,75

High (0,23) 91 20,93

Low (0,30) 85 25,5

OUTSOURCE NODE 6 Low average (0,22) 87 19,14

88,28

High Medium (0,25) 89 22,25

High (0,23) 93 21,39

Is obtained by expected value VesIP

NODE (2)= 89,24 MILLIONS

NODE (3)= 82,94 MILLIONS

NODE (4)= 85,75 MILLIONS

NODE (5)= 86,28 MILLIONS

NODE (6)= 88,28 MILLIONS

NODE 1=(Max Node 2 vs Node 3 vs Node 4 vs Node 5 Y vs Node 6) Node 2 = 89,24

Millions

The expected decision is to MANUFACTURE waiting for a payment of 89,24 millions

of dollars

VEIP= VEcIP - VEsIP

VEcIP= (0,30) x 85 + (0,22) x 87 + (0,25) x 91 +(0,23) x 95
VEcIP= 89,24 Millions

VEIP= |89,24 - 89,24| = 0

TEOREMA DE BAYES

p(s1)=0,30 p(s2)=0,22 p(s3)=0,25 p(s4)=0,23 Of the probabilities of VecIP

P(F/low) = 0,22
P(F/low average) = 0,4
P(F/high medium) = 0,33
P(F/high) = 0,42
 FAVORABLE

Previous Conditional
State of probabilities probabilities Joint odds P
nature P(Sj) P (f/sj) (F n Sj) Later odds P(sj/F)
Low 0,3 0,22 0,066 0,198138697
Low
Average 0,22 0,4 0,088 0,264184929
High
Medium 0,25 0,33 0,0825 0,247673371
High 0,23 0,42 0,0966 0,290003002
P(F) 0,3331 1

p(s1)=0,22 p(s2)=0,28 p(s3)=0,29 p(s4)=0,21 Of the probabilities of VecIP

P(D/low) = 0,78
P(D/ low average) = 0,6
P(D/ high medium) = 0,67
P(D/high) = 0,58

UNFAVORABLE

Previous Conditional
State of probabilities probabilities Joint odds P
nature P(Sj) P (D/sj) (D n Sj) Later odds P(sj/D)
Low 0,3 0,78 0,234 0,350877193
Low
Average 0,22 0,6 0,132 0,197930724
High
Medium 0,25 0,67 0,1675 0,251162093
High 0,23 0,58 0,1334 0,20002999
P(F) 0,6669 1
 LOW 0,198138697 85
LOW AVERAGE
0,264184929 87
89,91444002
MANUFACTURE NODE 4 HIGH MEDIUM
0,247673371 91

HIGH 0,290003002 95

LOW 0,198138697 78
LOW AVERAGE
0,264184929 81
83,71630133
SUBCONTRACT NODE 5 HIGH MEDIUM
0,247673371 85

HIGH 0,290003002 89

FAVORABLE 0,3331 NODE 2 LOW 0,198138697 82

LOW AVERAGE
0,264184929 85
86,35094558 89,91444002
HIGH MEDIUM
BUY NODE 6 0,247673371 87

HIGH 0,290003002 90

LOW 0,198138697 83
LOW AVERAGE
0,264184929 85
86,83908728
LEASE NODE 7 HIGH MEDIUM
0,247673371 87

HIGH 0,290003002 91

LOW 0,198138697 85
LOW AVERAGE
0,264184929 87
88,83908727
OUTSOURCE NODE 8 HIGH MEDIUM
0,247673371 89

HIGH 0,290003002 93

NODE 1
89,23999998

LOW 0,350877193 85
LOW AVERAGE
0,197930724 87
88,90313391
MANUFACTURE NODE 9 HIGH MEDIUM
0,251162093 91

HIGH 0,20002999 95

LOW 0,350877193 78
LOW AVERAGE
0,197930724 81
82,55225671
SUBCONTRACT NODE 10 HIGH MEDIUM
0,251162093 85

HIGH 0,20002999 89

UNFAVORABLE 0,6669
NODE 3
LOW 0,350877193 82
LOW AVERAGE
0,197930724 85
85,44984256 88,90313391
HIGH MEDIUM
BUY NODE 11 0,251162093 87

HIGH 0,20002999 90

LOW 0,350877193 83
LOW AVERAGE
0,197930724 85
86,00074974
LEASE NODE 12 HIGH MEDIUM
0,251162093 87

HIGH 0,20002999 91

LOW 0,350877193 85
LOW AVERAGE
0,197930724 87
88,00074974
OUTSOURCE NODE 13 HIGH MEDIUM
0,251162093 89

HIGH 0,20002999 93
 NODE 4= 0,198138697*85+0,264184929*87+0,247673371*91+0,290003002*95 89,91444002
NODE 5= 0,198138697*78+0,264184929*81+0,247673371*85+0,290003002*89 83,71630133
NODE 6= 0,198138697*82+0,264184929*85+0,247673371*87+0,290003002*90 86,35094558
NODE 7= 0,198138697*83+0,264184929*85+0,247673371*87+0,290003002*91 86,83908728
NODE 8= 0,198138697*85+0,264184929*87+0,247673371*89+0,290003002*93 88,83908727
NODE 9= 0,350877193*85+0,197930724*87+0,251162093*91+0,20002999*95 88,90313391
NODE 10= 0,350877193*78+0,197930724*81+0,251162093*85+0,20002999*89 82,55225671
NODE 11= 0,350877193*82+0,197930724*85+0,251162093*87+0,20002999*90 85,44984256
NODE 12= 0,350877193*83+0,197930724*85+0,251162093*87+0,20002999*91 86,00074974
NODE 13= 0,350877193*85+0,197930724*87+0,251162093*89+0,20002999*93 88,00074974

HIGHER NODE 4, NODE 5, NODE 6, NODE 7 Y NODE 8 89,91444002

HIGHER NODE 9, NODE 10, NODE 11, NODE 12 Y NODE 13 88,90313391

VALUE NODE 1 = 89,91444002 *0,3331+ 88,90313391*0,6669= 89,23999998 VEcIM

2 SOLUTION

VEIM= (VEcIM-VEsIM))

VEcIM= 89,23999998 MILLIONS

VEsIM= 89,24 MILLIONS

VEIM= 0,00000002

VEIM
E= x 100
VEIP

0,00000002
E= x 100= 0
0

EFFICIENCY OF 0 %
Screen shots solution exercises with the WinQSB that performed in the practical
learning environment.

Problem 1.

Problem 2.
Problem 3.
 Conclusions

 The concepts presented in the knowledge environment were applied to solve the

problems raised.

 With the calculations made for problems 1 and 2, it can be affirmed that the optimum

value in estimating the demand is obtained when manufacturing the products, so this

alternative is recommended as the main decision.

 Differentiating between methods for decision making under uncertainty was

achieved from the perception of market research with or without sample information.
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