A well-known artist from Victoria, Australia, is considering salvaging the wreck of RMS Titanic to be displayed in his own commercial museum at salvaging cost of $70,000. However, this project requires approval from relevant governmental agencies. The initial inquiry undertaken by a lobbyist, on behalf of the museum’s management, has revealed that if the wreck is evaluated at a substantial value, the approval may be withheld, whereas if the value is low-moderate the approval may be granted. In order for an evaluation to be done in the first place, the museum’s management has been advised to submit a bid to a nominated regulatory body. If the bid is too low, the regulatory body may not set up a mechanism to evaluate the wreck, because it will be considered not worth the hassle. However, in the event of losing the bid, the Museum could build a replica of the passenger liner at a cost of $150,000 which they consider an acceptable second-best alternative. The museum’s management has estimated that they could get an evaluation done for $150,000, but this might lead the governmental agency to considering the wreck to be of substantial value and not approve their salvaging request. With a bid of less than $30,000, however, the regulatory body is not likely to set up the evaluation mechanism in the first place. Based on this scenario, develop a decision making model representing the options available for the museum. (Marks are not equally allocated for the following elements of your response) a) Articulate the problem and outline the decision alternatives, chance events and their probabilities according to your knowledge and estimates, as well as possible outcomes; b) Construct a decision tree showing the above information, including the calculation of expected values associated with each alternative; c) Interpret the results of your analysis, including acknowledgement of any other relevant factors that need to be considered in relation to this decision scenario; and d) State clearly all assumptions and estimates utilized, including necessary justifications.
This case study is a part of a subject "Management Science and Modelling"