MS&L 252 landout 41¯

Decision Analvsis I No·ember 9
. 2004

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Case Study

Due: 1hursdav December 2
. 2003 bv 5pm

1he case studv will gi·e vou practice applving the concepts vou are learning in MS&L 252. .

\ou are írom the X\Z consulting companv vou can create vour own name,. \illiam Jaeger oí
lreemark Abbev \inerv has hired vour companv to help him make a production decision. A storm
is approaching the winerv and Jaeger is not sure ií he should wait íor the storm or har·est the grapes
immediatelv. Sometimes aíter a warm rain the grapes are attacked bv botrvtis mold. 1his mold helps
to produce botrvtised Riesling. which is highlv ·alued bv wine connoisseurs.

Meeting with your TA
1eaching assistants will be a·ailable to meet groups between No·ember 19
and No·ember 23rd.
1ime and location will be made a·ailable on the announcements section oí the website. 1his is an
opportunitv íor groups to recei·e íeedback and ask clariíication questions. Prepare íor the meeting
as ií vou will meet Mr. Jaeger himselí. and to make the most oí this meeting. vou should ha·e
elicited the decision basis. proposed a decision tree with numerical assessments and ií possible, a
tentati·e decision diagram.

\ou must pro·ide Mr. Jaeger with a report that summarizes vour conclusions and recommendations.

\our report should consist oí:
• A one-page executi·e summarv will show vour main assumptions and conclusions. It will be
gi·en to Mrs. lreemark herselí.
• A series oí slides no more than 15, to support vour conclusions

Please note that vour executi·e summarv´slides should highlight vour most interesting and insightíul
results in an intuiti·e and readable íashion. Keep in mind that more iníormation is not necessarilv
better. Mr. Jaeger is a busv indi·idual who wants to make a quick and well iníormed decision. le
expects vou to respect his time and add ·alue bv clearlv identiíving the important iníormation so
that he does not ha·e to do it himselí. le requests that vou place anv less important results or
technical details in the support slides and do not mention them in the executi·e summarv.

Ií vou íeel that vour slides are not explicit enough. vou can add written comments íor each slide.

\our report should. at a minimum. contain the íollowing elements:
• 1he details oí the decision basis iníormation. alternati·e. preíerences,.
• A decision diagram.
• A decision tree.
• Sensiti·itv analvsis to one or se·eral uncertainties.
MS&L 252 landout 41¯
Decision Analvsis I No·ember 9
. 2004

(ase Studv Page 2 oí 4
• Sensiti·itv analvsis to the risk-a·ersion coeííicient.
• Value oí iníormation - should \illiam Jaeger rent the SuperDoppler weather detector·
• Value oí control - should \illiam Jaeger buv the spores írom Borz·
• Iinal recommendation ÷ what is the best course of action for Mr. William Jaeger?

J) Issue raising and categorization
Read the lreemark Abbev \inerv case and write down the issues that come to mind:
\hat are the principal concerns oí \illiam Jaeger·
\hat choices can he make·
\hat uncertainties does he íace·
\hat does he care about·

In addition to the iníormation pro·ided in the case. the íollowing additional iníormation might be
useíul in vour analvsis:
• 1he same process that results in increased sugar content íor botrvtised Riesling results in a
decrease in juice ·olume.
• Ií it rains and the botrvtis does not íorm. the rainwater will be absorbed bv the ·ines. swelling
the grapes. 1his would result in a less ·aluable thin` wine.
• Jaeger alwavs has the alternati·e oí not bottling substandard wine to a·oid harming lreemark
Abbev`s reputation. le could sell the grapes in bulk to another wine maker. 1his alternati·e
would bring in less re·enue but would sa·e the winerv`s reputation.
• Ií Jaeger decided not to har·est the grapes immediatelv and the storm did not strike. he would
lea·e the grapes to ripen more íullv. \hile waiting íor the sugar le·el to rise. the aciditv
le·els must also be monitored. Ií the aciditv íalls below a critical le·el. the grapes must be
har·ested immediatelv whate·er the sugar content.
• 1he costs to the winerv are about the same íor each possible wine stvle and are small relati·e
to the wholesale price.
• 1he storm will produce either a light. warm rain or no rain at all.

\ou are welcome to take vour own perspecti·e on the case. Include whate·er issue vou judge
rele·ant that mav not ha·e been mentioned in the problem statement.

linallv. categorize issues as decisions. uncertainties. ·alues and others íacts or process issues,.
2) Sorting decisions
Sort the decisions that appeared in the issue raising process as íollows:
• Decisions alreadv made.
• Decisions that are going to be the íocus oí this analvsis. 1hat is. the decisions vour
recommendation will be about. \e will call these decisions strategic decisions.`
• Subsequent decisions. 1hese decisions will not be considered in the present analvsis. but onlv
later in the íuture. once the abo·e decisions ha·e been made.
MS&L 252 landout 41¯
Decision Analvsis I No·ember 9
. 2004

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Once the strategic decisions` ha·e been selected. vou should select uncertainties. Keep in vour
analvsis onlv those uncertainties that are rele·ant to the strategic decisions.
3) Decision Diagram
Once vou ha·e íramed vour problem. vou should know which decisions and which uncertainties
vou are going to consider in vour analvsis. It is then time to build a decision diagram to make explicit
the relationships that connect uncertainties. decisions. and ·alues. 1he decision diagram is extremelv
important since it will be used as a communication tool to support vour modeling eííorts.
lere are a íew tips íor building vour decision diagram:
• Start with the ·alue node.
• Add the uncertainties.
• Add the decisions that are within the project írame.
• Make sure vou add arrows to indicate important relationships in the diagram. Be
careíul not to add superíluous arrows.
• (heck that vou ha·e no cvcles.
4) Decision 1ree
Build \illiam Jaeger`s decision tree. Make sure that vou check the coherence between your
decision tree and your decision diagram.. All the distinctions considered in the decision diagram.
and onlv those. should appear in the decision tree. Ií vou detect a problem at this point. it mav be
good to go back and work again on vour decision diagram.

\hen constructing vour decision tree. please make the íollowing assumptions:
• 1he grapes will swell ¯.5° ií it rains and ií the botrvtis does not íorm.
• Ií lreemark Abbev har·ested the grapes now. thev would obtain 1.000 cases.
• \illiam Jaeger estimates that the damage to lreemark Abbev`s reputation írom bottling and
marketing an iníerior wine such as the thin wine`, would cost >25.000 in ad·ertising to
• \illiam Jaeger estimates that a botrvtis wine would help impro·e lreemark Abbev`s reputation
- a reputation ·alue worth >15.000.
• Ií the acid le·el stavs abo·e 0.¯°. the grapes will either ripen to 20° or 25° sugar content.
with equal probabilitv.
• Ií the acid le·el drops below 0.¯°. the grapes must be har·ested immediatelv at a sugar
content oí 19°.
• In the íirst pass oí vour analvsis. vou mav assume that lreemark Abbev is risk-neutral:
howe·er. vou should also períorm some sensiti·itv analvsis on their risk tolerance.

L·aluate the decision tree:
• Roll back the tree
• Should Jaeger har·est now or wait·
MS&L 252 landout 41¯
Decision Analvsis I No·ember 9
. 2004

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5) Value of information and control
1. 1he Napa Vallev SuperStation rents its SuperDoppler weather detector to ·inevards throughout
the ·allev. 1he detector is portable and can be brought right to the ·inevard. 1his results in ·erv
accurate local íorecasts. 1he SuperStation charges >1.000 per use. Should Jaeger rent it·

2. Barnev the Botanist ga·e a call to lar·ev Borz oí Borz`s O·ernight Mold Spores. lar·ev sells
botrvtis spores and guarantees that ií vou use his spores and ií it rains. botrvtis mold will
de·elop. One application would be enough to treat lreemark Abbev`s Riesling grapes and would
cost >10.000. Ií he chooses to use lar·ev`s ser·ices. Jaeger must pav the >10.000 up íront
beíore the storm,. but ií he does that 24 hours beíore the predicted storm. the spores will arri·e
and can be applied just beíore the rain starts. therebv ensuring that botrvtis will íorm
immediatelv aíter the warm rain. Should Jaeger buv the spores· Barnev is stronglv in ía·or oí
buving the spores.

Final words
Ií vour decision basis is incomplete or vou need to make extra assumptions in addition to those
mentioned in the Issue raising and (ategorization` part abo·e, in order to make a
recommendation. make sure vou state this iníormation clearlv in the report. L·en though Jaeger did
not take anv time to ·eriív the qualitv oí the iníormation himselí. he generallv trusts his staíí to
pro·ide reliable estimates.
Also. while preparing vour report. please be aware oí a common mistake in technical writing: when
presenting their analvsis . manv people usuallv íocus on the steps thev took` instead oí
emphasizing the insights and conclusions thev reached.`
lreemark Abbev has high expectations oí vour consulting íirm not related to vour steep íee
structure. oí course,. 1hev expect vou to be experts in decision making and able to íill in anv gaps
in the decision basis speciíicallv related to this decision situation, that Mr. Jaeger mav ha·e leít

Good luck!

1he DA1 1eaching 1eam

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