Perform an analysis of the problem facing Allied Insurance and prepare a report that summarizes your findings and recommendations. Be sure to address the following issues:
The payoff table of Russo Manufacturing, ignoring all the probabilities.
(5 marks)
Recommendations regarding which decision the management should take if they ignore
the probabilities and decide to apply the following decision criteria:
Optimistic Approach
Conservative Approach
Minimax Regret Approach
(5 marks)
(5 marks)
(5 marks)
Computation of the posterior probabilities of weak demand, medium demand and strong demand given the market research is conducted. Briefly explain the meaning of
these probabilities.
(5 marks)
A decision tree illustrating the decisions and events that Russo is facing. All the payoffs,
probabilities and decision at each step need to be labelled carefully on the tree.
(25 marks)
A recommendation whether the market research should be undertaken. Explain clearly the reasons for your recommendation.
(10 marks)
A decision strategy that Russo should follow if they take the recommended action in 5. (10 marks)
A sensitivity analysis to illustrate how different decisions change if the prior probability
of [xiii.] change by 0.1 at a time.
(20 marks)
Presentation (10 marks)
The report must be written in a clear manner and including the required items. There is no need to restate the questions in your report. Your report must have the following structure:
Executive summary
Give an overview of the problem, the solutions and the recommendation
Introduction
Introduce the case study and the objectives of the report
Main body
This section addresses all the questions associated with the case study.
Conclusion
Conclude the case study and present your recommendations to the board of directors based on the analysis.
