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# How prepare a payoff table and developing a decision tree for the problem

Problem Description

The company Business Simulations Global (BSG Co) is developing two different business simulations for a pilot offering in the next six months: International Trade and Logistics Strategies (ITLS) and Digital Marketing Strategies (DMS).

(i)     ITLS is a unique business simulation and appears to have no competition.

(ii)    BSG Co is optimistic about the success of the business simulation DMS. However, the concerns are that the profitability will be affected by a competitor’s introduction of a similar business simulation.

(iii)   For planning purposes, BSG Co is predicting there is 0.6 probability that its competitors will produce and offer on the market during the next six months a new business simulation similar to Digital Marketing Strategies.

The estimated profits and probabilities under high, medium, and low demand for both business simulations are defined by BSG Co as follows:

State of Nature (Demand)

High  Medium Low

International Trades & Logistics Strategies (IT&LS)

Profit                           A         B         C

Probability                  a          b          c

Digital Marketing Strategies (DMS) with Competition

Profit                        D         E          F

Probability                  d          e          f

Digital Marketing Strategies (DMS) without Competition

Profit                           G         H         I

Probability                  g          h          i

Each student will receive from the instructor an excel file with a different dataset for profits (A to I) and probabilities (a to i).

You have to prepare and submit a Managerial Report where you should answer the question: “which one of the two business simulations BSG Co should prepare for marketing?”.

Task 2-0(max 1 gr. pt):   Overall requirements. The expected length of the main body (tasks 2-1 to 2-4) of the managerial reports is up to 3 pages APA format, excluding cover page, table of content, executive summary (task 2-5), and appendices (screenshots of the Payoff Table, EMV Table, Sensitivity Analysis Diagram, TreePlan Diagram of the Decision Tree).

Task 2-1 (max 2 gr.pts):   Prepare a payoff table and develop a decision tree for this problem

Task 2-2 (max 2 gr.pts):   Given the planed probability of competition and using expected monetary values (EMVs), recommend which one of the two simulations to start marketing: IT & SL or BS

Task 2-3 (max 2 gr.pts):   Use sensitivity analysis to determine what probability of competition for Digital Marketing Strategies (DMS) would have to be for BSG Co to change your recommended in task 2-2 decision alternative.

Task 2-4 (max 2 gr.pts):   Apply a software tool for the decision tree/Task 2-1 (the recommended application MS Excel Add-Ins TreePlan is preinstalled on all V-PCs of the MET V-LABs).

Task 2-5 (max 1 gr.pt):    Prepare an executive summary

List of Worksheets in the Excel File (it should be used as a reference for different tasks of the managerial report)

(i)     A2 Text

(ii)    Payoff Table – Template

(iii)   Payoff Table – Solution –> Needed for Task 2-1

(iv)   EMV Table: use EMV as a decision criterion for each decision nodes and states of nature nodes and recommend which one of the two simulations to start marketing –> Needed for Task 2-2

(v)    Sensitivity Analysis Diagram: compute the probability of competition for GMS and define the range of probability values before BSG Co would change to IT&LS (probability of the cross point = ?) –> Needed for Task 2-3

(vi)   TreePlan Diagram of the Decision Tree: use BU MET V-LAB for Excel Add-In TreePlan   –> Needed for Task 2-4

Submission Requirements:

Assignment 2 is due W7/D7 by 11:59pm ET

Submit the Managerial Report (pdf file), and the excel file with completed worksheets (iii) to (vi).

Submit the assignment as a zip file using the Attachments tool on this page. Please be sure to include your own name in the filename (last name, then first initial, for example:doej_assignX.doc) and in the text of the document, so your instructor/facilitator always knows whose submission he/she is reading.