Assignment task:
Production of Chipset by the project team
"Start-up" costs (fixed plus production costs) $100,000.
Probability of 0.40 that the production will succeed
Probability of 0.60 that the production will fail. If the production fails, the project team will have to re-evaluate the situation and decide whether to try all over again.
If the team decides to try all over again:
The project must incur the "start-up" costs plus it must spend an additional $100,000 to redesign the chipset.
The probability of success is estimated to be 0.90.
The probability of failure is estimated to be 0.10. If failure occurs, the chip must be purchased from an outside vendor.
Purchasing the chipset from Galactic.
The project must pay the vendor $100,000 in development costs plus $50 per chipset.
Draw a Decision Tree Diagram and label it appropriately.
What is the best decision that the project can make? Why?
What is the worst that can happen to the project in managing the Chipset production risk? Why?