Problem 13-07 (Algorithmic)
Hudson Corporation is considering three options for managing itsdata processing operation: continuing with its own staff, hiring anoutside vendor to do the managing (referred toas outsourcing), or using a combination of its ownstaff and an outside vendor. The cost of the operation depends onfuture demand. The annual cost of each option (in thousands ofdollars) depends on demand as follows:
Own staff Outside vendor Combination
Problem 13 07 Algorithmic Hudson Corporation Is Considering Three Options For Managing Its Data Processing Operation 1 (125.22 KiB) Viewed 12 times
Problem 13 07 Algorithmic Hudson Corporation Is Considering Three Options For Managing Its Data Processing Operation 2 (40.68 KiB) Viewed 12 times
Problem 13-07 (Algorithmic) Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: Staffing Options Own staff Own staff Outside vendor Outside vendor Combination High 650 900 Combination Expected annual cost = $ 800 Demand Medium 600 650 650 Low 500 350 a. If the demand probabilities are 0.3, 0.5, and 0.2, which decision alternative will minimize the expected cost of the data processing operation? 500 annual cost associated with that recommendation? If rerequired, round your answer to the nearest dollar.
b. Construct a risk profile for the optimal decision in part (a). Cost (in thousands of dollars) Propability 0.3 0.5 0.2 1.0 What is the probability of the cost exceeding $625,000? If required, round your answer to two decimal places. Probability =
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!