Case Study # 1 Pagana: Mosby’s Manual of Diagnostic and Lab

  

Case Study: Uncertainty [WLOs: 1, 2, 3, 4] [CLOs: 1, 2, 3, 5] Prior to beginning work on this assignment, review Chapter 6: Decision Making Under Uncertainty. Read Case 6.4, “Developing a Helicopter Component for the ARMY” in your course text. For Part 1 of this assignment, using an Excel spreadsheet, Develop a decision tree to maximize Ventron’s expected monetary value (EMV). This includes the revenue from this project, the side benefits (if applicable) from an improved extrusion process, and relevant costs. You don’t need to worry about time value of money; that is, no discounting or net present values are required. Summarize your findings in words in the spreadsheet. For Part 2 of this assignment, in a one to two page paper, Determine what value of side benefits would make Ventron indifferent between the two alternatives. Evaluate how much Ventron would be willing to pay, right now, for perfect information about both steps of the improved extrusion process. The Case Study: Uncertainty paper Must be one to two double-spaced pages in length (not including title and references pages) and formatted according to APA Style (Links to an external site.) as outlined in the Writing Center’s APA Formatting for Microsoft Word (Links to an external site.) resource. Must include a separate title page with the following: Must utilize academic voice. See the Academic Voice (Links to an external site.) resource for additional guidance. Must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper. For assistance on writing Introductions & Conclusions (Links to an external site.) and Writing a Thesis Statement (Links to an external site.), refer to the Writing Center resources. Must use at least two credible sources in addition to the course text. The Scholarly, Peer-Reviewed, and Other Credible Sources (Links to an external site.) table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source. To assist you in completing the research required for this assignment, view Quick and Easy Library Research (Links to an external site.)tutorial, which introduces the University of Arizona Global Campus Library and the research process, and provides some library search tips. CASE 6.4 DEVELOPING A HELICOPTER COMPONENT FOR THE ARMY The Ventron Engineering Company has just been awarded a $2 million development contract by the U.S. Army Aviation Systems Command to develop a blade spar for its Heavy Lift Helicopter program. The blade spar is a metal tube that runs t he length of and provides strength to the helicopter blade. Due to the unusual length and size of the Heavy Lift Helicopter blade, Ventron is unable to produce a single-piece blade spar of the required dimensions using existing extrusion equipment and material. The engineering department has prepared two alternatives for developing the blade spar: (I) sectioning or (2) an improved extrusion process. Ventron must decide which process to use. (Backing out of the contract at any point is not an option.) The risk report has been prepared by the engineering department. The information from this report is explained next. The sectioning option involves joining several shorter lengths of extruded metal into a blade spar of sufficient length. This work will require extensive testing and rework over a 12-month period at a total cost of $1.8 million. Although this process will definitely produce an adequate blade spar, it merely represents an extension of existing technology. To improve the extrusion process, on the other hand, it will be necessary to perform two steps: (I) improve the material used, at a cost of $300,000, and (2) modify the extrusion press, at a cost of $960,000. The first step will require six months of work. and if this first step is successful, the second step will require another six months of work. If both steps are successful, the blade spar will be available at that time, that is, a year from now. The engineers estimate that the probabilities of succeeding in steps I and 2 are 0.9 and 0.75, respectively. However, if either step is unsuccessful (which will be known only in six months for step I and in a year for step 2), Ventron will have no alternative but to switch to the sectioning process-and incur the sectioning cost on top of any costs already incurred. Development of the blade spar must be completed within 18 months to avoid holding up the rest of the contract. If necessary, the sectioning work can be done on an accelerated basis in a six-month period, but the cost of sectioning will then increase from $1.8 million to $2.4 million. The director of engineering, Dr. Smith, wants to try developing the improved extrusion process. He reasons that this is not only cheaper (if successful) for the current project, but its expected side benefits for future projects could be sizable. Although these side benefits are difficult to gauge, Dr. Smith’s best guess is an additional $2 million. (These side benefits are obtained only if both steps of the modified extrusion process are completed successfully.) a . Develop a decision tree to maximize Ventron’s EMV. This includes the revenue from this project, the side benefits (if applicable) from an improved extrusion process, and relevant costs. You don’t need to worry about the time value of money; that is, no discounting or net present values are required. Summarize your findings in words in the spreadsheet. b. What value of side benefits would make Ventron indifferent between the two alternatives? c. How much would Ventron be willing to pay, right now, for perfect information about both steps of the improved extrusion process? (This information would tell Ventron, right now, the ultimate success or failure outcomes of both steps.) •