DECISION & RISK ANALYSIS
MODULE CODE ___________ CANDIDATE NUMBER ___________
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MSINM014/MSING014/MSING014B
DECISION & RISK ANALYSIS ─ 2015
FINAL EXAM
The examination will final for TWO (2) hours.
The examination is open e book. You might be allowed to make use of the course pack,
class hand-outs and another supplies that relate to the course.
You aren’t allowed to entry the web, e-mail, use laptops or
tablets, cellphones, and another communication gadgets.
The examination paper consists of TEN (10) questions throughout three
impartial elements. Every Question Assignment is value TEN (10) marks. You
ought to reply ALL of the questions.
Don’t ask questions concerning the examination questions, which ought to
be self-explanatory. Make specific any assumptions underlying your
solutions, interpret your outcomes and justify your solutions,
conclusions and proposals. However hold your solutions quick
and to the purpose. In grading, significance shall be connected to the readability
and conciseness of your solutions. Good luck!
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Half I: Simulation
Mark, the procurement director of the Waterstones retailer in Gower Road, wants to position an
order for the following 12 months’s diaries. He suppose that every diary will promote for wherever between £eight
and £12 through the months of November by way of February (common interval). In response to
historic information of Gower Road department, buyer demand for diaries throughout this common interval
will almost certainly be 175. The minimal and most demand for diaries throughout this era is
100 and 300, respectively. Waterstones provider has restricted capability and should not be capable to
provide all diaries requested by the Gower Road department. Mark believes that the utmost
variety of diaries the provider can ship is almost certainly 200 with minimal 125 and most
250. As soon as Waterstones Gower Road department locations the order, the provider will cost
wherever between £6.50 and £7.50 per diary.
Unsold diaries can’t be returned to the provider for a refund. As an alternative, after the common interval
beginning March (gross sales interval), Waterstones should put them on gross sales worth (discounted)
wherever between £four and £6 per diary. Once more primarily based on historic information, the demand for diaries
at Waterstones department in Gower Road throughout this gross sales interval is between zero and 75 with 50
being the almost certainly. Any diaries left over after the gross sales interval shall be thrown away.
Question Assignment 1. State of affairs Assessment
Utilizing the almost certainly estimates for demand at common and discounted costs, and one of the best
guess of the provider’s capability, Mark decides to order 200 diaries.
(i) Utilizing the important thing uncertainties (danger elements) and assuming the order amount (i.e., quantity
of diaries) is 200, decide the equation for the diary earnings at Waterstones Gower
Road (i.e., income on the common worth + income at gross sales worth – prices).
(ii) Assuming the order amount is 200, what are the best-case and worst-case situations
primarily based on the revenue equation you obtained partly (i)? What’s the vary for the revenue?
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Question Assignment 2. Simulation – Enter Distributions
To carry out a simulation Assessment, we have to determine an acceptable chance distribution to
mannequin every of uncertainties (danger elements). What are the uncertainties (danger elements) for
Waterstones at Gower Road department? Decide an acceptable distribution and their
parameters for every of the danger elements.
Question Assignment three. Simulation – Dialogue of the Outcomes
Assuming that the variety of diaries ordered is 200, you will have used the distributions specified
above to carry out a simulation Assessment (1,000 iterations) utilizing @Danger and produced the
following output.
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(i) Decide the typical revenue of Waterstones when the variety of diaries ordered is
200, and thoroughly clarify what it means.
AssignmentTutorOnline
(ii) What’s the probability that the revenue is constructive? What’s the chance that the revenue is
£800 or extra? What are the reasonable draw back and upside when it comes to the revenue stage?
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Question Assignment four. Managing Danger – Sensitivity Assessment
Look at the twister diagram from the @Danger.
(i) What data does a twister diagram present generally? What do you observe from
the twister diagram above?
(ii) Is it value time and cash to cut back the variability in worth and demand in common interval?
How about worth in gross sales interval?
Question Assignment 5. Optimization by way of Simulation – Evaluating Alternate options
We run 4 simulations for 4 completely different order portions. Simulations 1 to four corresponds to
the order portions 125, 175, 225, and 300, respectively, and every simulation has 1000
iterations. The next desk summarizes common revenue, chance that Waterstones loses
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cash, and worth in danger at 5% (reasonable draw back) and 95% (reasonable upside) corresponding
to every simulation (order amount).
Amount=125
(Sim #1) (Sim #2) (Sim #three) (Sim #four)
373.15 465.13 452.16 449.02
zero zero.009 zero.05 zero.052
142.78 129.61 23.84 12.75
VaR at 95% 611.47 813.57 884.51 884.51
Amount=175
Amount=225
Amount=300
Common Prob Revenue<zero VaR at 5% (i) Utilizing the above desk, examine order portions 125 vs. 175; 175 vs. 225; and 225 vs. 300.
(ii) Which of the 4 order amount would you select? Why? Clarify your reasoning clearly.
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Half II: True or False
Question Assignment 6. Circle “T” if the assertion is true and “F” if the assertion is fake.
(i) (T / F) In simulations, there shall be a big distinction within the VaR at 5% between
working 1000 iteration and working 5000 iterations.
(ii) (T / F) In an optimization mannequin with the target of maximizing income,
eliminating a constraint will all the time result in a rise within the optimum income.
(iii) (T / F) The aim of simulation Assessment is to foretell the long run occasions higher.
(iv) (T / F) If an optimization mannequin has a linear goal perform, the excel solver can
all the time discover the optimum (“greatest”) resolution.
(v) (T / F) In resolution timber, worth of details about a danger issue might be larger than
the worth of controlling the identical danger issue.
Half III: Determination Assessment
Waterstones, the complete chain, is going through aggressive pressures from on-line e book sellers (e.g.
Amazon.co.uk) and the emergence of e-books (e.g. Kindle). To extend its e book gross sales and to
take one of the best benefit of its present enterprise mannequin, Waterstones is reviewing the viability
of reworking Waterstones from a bookstore into an old school “studying lounges” with
books. Extra particularly, it needs to extend the “dwell time” of its prospects to revitalize the
studying tradition within the UK, and in addition to encourage prospects to buy books on-line from
their very own on-line store whereas they’re within the Waterstones shops (e.g. utilizing simply accessible
retailer iPads). They consider that the comfy lounge and occasional retailers not solely can entice readers
and patrons, but additionally present extra income that may subsidize their e book operations to
cut back e book worth, enabling them to compete with on-line e book sellers.
If Waterstones keep the established order enterprise mannequin, analysts estimate the current worth
of future income at £150M. If Waterstones decides to undertake the transformation, it requires
upfront funding of £50M to refurbish all of their shops and launch the espresso store
operations, and spend money on warehouse to retailer their books. In return, the current worth of future
income can probably enhance by 33% (to £200M). Nevertheless, such enhance just isn’t
assured, and the current worth of future revenues could keep the identical (£150) with equal
probability.
If Waterstones undertakes the transformation and the current worth of future income
will increase, it might resolve additional to compete head on with the most important on-line book-sellers.
Particularly, an extra funding of £20M can streamline their on-line operations (e.g.
enhanced web site, warehouse, and international provide chain) to take market shares from different
main on-line book-sellers. Such funding, if profitable, can drive up additional enhance in e book
gross sales, resulting in a gift worth of future revenues of £400M. Nevertheless, there could also be
reactions from the most important on-line book-sellers (e.g. by way of additional price-cuts) making the
income keep the identical. The chances are, once more, equally seemingly.
Question Assignment 7. Determination Tree
(i) What are the important thing selections and uncertainties going through Waterstones?
(ii) Assemble the choice tree.
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Question Assignment eight. Danger Profiles
State the optimum technique and the danger profiles related to the optimum technique.
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Question Assignment 9. Worth of Management
Waterstones is investigating the choice of a proper (large-scale) partnership with a serious espresso
model, Costa. As a result of Waterstones had earlier relationships at choose Waterstones shops
(e.g. at Gower Road), it is aware of that Costas will entice e book patrons and usher in additional
revenues. With beneficial phrases of negotiations, Waterstones consider that their probability of
rising their income to £200 might be elevated to 60% (from 50%). Waterstones needs to
know what that worth is.
(i) Assemble the brand new resolution tree.
(ii) How a lot is it value partnering with Costa?
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Question Assignment 10. Worth of Info
Executives at Waterstones was not too long ago made conscious that Amazon.co.uk has discovered their
potential plan to compete within the on-line e book market. Amazon is now taking preventive
measures in opposition to potential competitors. Consequently, Waterstone can not afford to attend
and see whether or not the income would enhance or to not make the extra £20M funding.
As an alternative, it should make investments the overall sum of £70M (£50M+£20M) straight and rework itself and
compete on-line. If the income doesn’t enhance after transformation, the current worth of
future revenues will keep the identical at £150M, and Waterstones is not going to try and compete
head-on within the on-line market. Nevertheless, if the income does enhance after transformation,
Waterstones will be capable to compete within the on-line market instantly.
(i) Assemble the brand new resolution tree.
(ii) How a lot worth was misplaced from the leakage of data to Amazon.co.uk?
