Introduction
The U.S. Army Aviation Systems looks forward to developing a blade spar for a Heavy Lift Helicopter program and contracted the Ventron Engineering Company to make the blade spar. It is a metal tube, the helicopter blade, and of the same length, with an estimated cost of $2 million. However, the Ventron Engineering Company lacks the capacity and equipment to produce the metal tube in one piece. For the Ventron Company to take on the project, they had to decide whether to improve their equipment capacity for the section and extrusion processes. The manufacturer had to design a decision tree and weigh the options to proceed with the process. Using the decision tree to evaluate the options will help Ventron improve its expected monetary value considering side advantages and identify the firm’s ability to pay.
Decision Tree Analysis
Ventron Company is in business and looking to incorporate side benefits, project revenues, and costs associated with enhancing the EMV. The company has also analyzed a risk report necessary to determine the best option. The analysis indicates that sectioning will involve 12 months and cost $1.8 million, and only requires an extension of the current technology. The extrusion process involves two steps. Step one requires improving the materials required for the manufacturing process at the cost of $300 thousand; success chances are 0.9. Step two requires a modification process costing $ 960 thousand, and the probability of success is 0.75. The project is affordable and with the added advantage of the side effects. The project time requirement is 18 months.
Side Benefit Value Consideration
The Ventron Company will utilize the decision tree to identify the maximum EMV, cost, contract value, as well as success probability. The decision tree helps determine the appropriate option with consideration of success probability and financial value (Albright & Winston, 2014). Identifying the side benefits involves trial and error to decide on enhancing the extrusion process or sectioning. The expected value of perfect information in excel helps identify the value and the organization to know the best choice.
How much would Ventron Company be willing to pay, right now, for perfect information on both steps of the improved extrusion process?
The best option for Ventron Company is the extrusion process with all constraints considered. The extrusion process would lead to the best choice for the expected monetary value of approximately $1.45 million. The amount has been determined by the multistage decision tree. Every option indicates specific revenues and costs associated with the two options. The decision tree also indicates the side benefits. The extrusion process has an expected monetary value of about $2 million. The EMV inclines the Ventron Company to embrace the extrusion process. Apart from the EMV, the Ventron Company will realize the significance of the side benefits laid out differently in the two options. The trial and error process helps the Ventron Company identify the EMV as well as the side benefits of about $124444.5 with the choice of sectioning process. Every side benefit above $124444.5 indicates the improvements in the extrusion process and excellent value.
Recommendations
It is recommended that the Ventron Company use the decision tree to identify the expected EMVs based on cost, revenues, and side effects. Many firms have used the decision tree to identify the most appropriate options considering the associated constraints and success probabilities. The Developing a Helicopter Component for the Army case indicates the importance of assessing information benefits. The Ventron Company should identify perfect information with the help of the EVPI formula. The Ventron Company has to make a decision for optimizing EMV and complete the project in the said 18 months. The decision tree is necessary when evaluating the Developing a Helicopter Component for the Army case. Necessary calculations are also essential in the process of evaluating the best option. It will also indicate the necessary changes to be made by the company for the project. Such changes also require to be documented, indicating the best course of action for the Ventron Engineering Firm. The recommendations stated above are based on my point of view and should be discussed further based on the company’s requirements for the profitability and success of the project. Other proposals can be evaluated as well if there is a need for additional changes based on concise reasoning. The management, as well as stakeholders, can have a clear picture of the required data for financials and analysis for the Developing a Helicopter Component for the Army case.
Conclusion
The Developing a Helicopter Component for the Army case has a lot to teach. A huge decision can be subdivided into smaller steps and help the company make decisions that will enhance its EMV. Proper decision-making held the Ventron Company to identify the option with maximum benefits. With considerations to the cost-benefit, the Ventron Company would consider the value associated with material source industry firms, and it would lead to cost-surpassing benefits. Developing a decision tree helps Ventron Company identify the optimal option with the feasible options and the significance for the value of information.
Reference
Albright, S. C., & Winston, W. L. (2014). Business analytics: Data analysis & decision making. Cengage Learning.