Question

A construction manager wanted to evaluate the options for a project objectively based on the expected monetary value (EMV). The company can either expand at site A (RM6 million construction cost) OR site B (RM10 million construction cost) - Project A has favourable outcome 60% with RM15 million estimated profit and unfavourable 40% chance of RM2 million estimated profit. - Project B has a favorable outcome of 70% RM30 million estimated profit and unfavourable 30% chance of RM6 million estimated profit.

a) As a consultant, explain to the construction manager the benefits of using a decision tree to determine EMV.

b) Based on this scenario (draw a decision tree with EMV), state your recommendation to the construction manager.

Answer 1

SOLUTION : -

A decision tree is a diagram represenation of possible solutions to a decision.shows defferent outomes from a set of decisions. The diagram is a widely used decision- making tool for a analysis and planning.

Advantages of Decision tree:

• 1) It is very easy to understand and interpret.
• 2) The data for the decision trees require minimal preparation.
• 3) They force you to find many possible outcomes of a decision.
• 4) Can be easily used with many other decision tools.
• 5) Helps you to make the best decisions and best guesses on the basis of the information you have.
• 6) Helps you to see the difference between controlled and uncontrolled events.
• 7) Helps you to estimate the likely results of one decision against another.