Answer Happy

Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, 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. Demand Staffing Options High Medium Low Own staff 600 600 550 Outside vendor 850 550 250 Combination 750 600 450 (a) If the demand probabilities are 0.2, 0.5, and 0.3, for high, medium and low demand respectively, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? (Enter your answers in dollars.) EV(Own staff) = $ 685 = X EV(Outside vendor) = $ 620 X EV(Combination) = $ 685 X The decision alternative that minimizes the expected cost is hiring an outside vendor . The expected annual cost associated with this recommendation is $ 620000 X (b) Construct a risk profile for the optimal decision in part (a). Cost (in thousands of dollars) Probability Low 950 X .2 X Medium 650 X .5 High 350 JX .3 X Total 1.0 What is the probability of the cost exceeding $750,000? 2