BUS9040M: Decision Analysis for Managers Assignment 3: Case Study Analysis - BMAC Research & Development Decision Note:

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BUS9040M: Decision Analysis for Managers
Assignment 3: Case Study Analysis - BMAC Research &
Development Decision
Note: Please do make sure that you appropriately
cite any reference material, using Harvard Referencing style and
ensure that you draw from quality academic sources. On this note,
remember that general internet sources such as Wikipedia and
Investopedia are not recognised academic sources.
Following on from what you have learnt about the key elements of
decision problems and Structuring/Modelling Decision Problems from
your readings and lectures, this activity provides you with the
opportunity to apply your knowledge to a case study on BMAC
research and development (R & D) decision problem.
Read the BMAC research & development (R & D) decision
case study below address the following questions related to the
case study (300 - 500 words, excluding diagrams).
Case study: BMAC Research & Development
decision
BMAC, a research and development (R & D) company, must
decide whether to spend $2 million to continue with a particular
drug development research project. The success of the project (as
measured by obtaining a patent) is not assured, and at this point
the decision-maker judges only a 65% chance of getting the patent.
If the patent is awarded, the company can either license the patent
for an estimated $25 million or invest an additional $10 million to
create a production and marketing system to sell the product
directly. If the company chooses the latter, it faces uncertainty
of demand (categorized as high, medium or low demand) and
associated profit from sales. The probabilities of the three levels
of demand and associated revenues are summarised on the Table
below.
Probability
Revenue ($M)
Demand High
0.2
55
Demand Medium
0.5
33
Demand Low
0.3
15