MGTS5120 1.

5
Assignment

Instructions:

(1) This assignment may be done in pairs.

(2) You are provided with three consultations. For each, you are to provide a one-page
Executive Summary (or Letter of Transmittal addressed to the decision-maker) explaining
your recommendations. This Summary should address all the questions outlined in the
consultations. An executive summary is a one-page, double-spaced document that
summarizes the important points about the study or analysis that you have done. It is a
document that a senior executive would read, leaving the rest of the report of study to be read
and critiqued by a staff member. A Letter of Transmittal contains essentially the same
information, but is written as a letter, and is formatted in letter style with single-spacing.

(3) Each question in the consultation should appear as a well-explained or self-explanatory

appendix to the Summary.

Consultation #1

In the fourth Austin Powers movie – Austin Powers: Decisions Are Forever – the film opens with
the notorious Dr. Evil is trying to decide how to extort thousands out of the world’s major powers.
He has three plans:

D1: Take control of the world’s radio stations and play nothing but Christina Aguilera,
Madonna, and Brittany Spears to mask his subliminal “PAY ME” messages.

D2: Seize all the television relay satellites and broadcast only Chum/City shows like
FashionTV, MusicTV, TVTV, MyTV, YourTV, MushTV, MiniTV, EvilTV, etc, turning the
mass viewing audiences’ minds to mush.

D3: Hypnotizing Oprah so that she puts Dr. Evil’s “My Plan for World Domination” on
Oprah’s Book List.

Success of these plans depends on the skills of Austin Powers’ assistant assigned to the case:

S1: Ilene Dover – normally competent, but too prone to falling off high places.

S2: Sharon Secrets – clever, but too prone to thinking out loud.

S3: Karen Hope – thorough, but too concerned about whether the other guy – the enemy,
and bad guy – gets hurt.

Number Two has analyzed the potential payoffs (in thousands of dollars) of the three plans in
each state:

Payoff States of Nature

Table S1 S2 S3
Decision

D1 150 100 80
D2 100 125 110
D3 140 110 90
Dr. Evil has called a meeting of his Supreme Council – his son, Scott; his miniscule alter ego,
Mini-Me; his new love, Lacy Laplace; and his trusted Number Two – for advice.

“My fine young son, Scott, what do you think we should do?”

“You guys are all so incompetent! It’s embarrassing having you for a father! The kids at school
ridicule me: ‘You father’s the most inept bad guy in the world’. I’m very pessimistic about what
you can do. I’d play it conservative.”

“Very well. When I want your advice, I’ll ask for it.”

“You just did, you moron!” shot back Scott.

“Never mind. What about you, Lacy?”

“It is obvious that I would use the Laplace criteria,” she purred.

“And Mini-Me?”

Mini-Me gestures a big sweeping upward motion.

“Yes, of course, you are so wonderfully aggressive. You want us to go for the big win. I like that
in us!”

“But with all due respect, Dr. Evil, I think we should look at what might go wrong. I’d hate to look
back and think we made the wrong decision. We should analyze how much we lose by making
the wrong choice,” counseled Number Two.

Required:

(a) What criteria are suggested by each of Dr. Evil’s advisors, and which decision would each
suggest? Support your answers with the appropriate supporting analysis.

(b) Suppose that Dr. Evil has determined that the probability of Austin Power’s assistants are
P(S1 – Ilene Dover) = 0.25; P(S2 – Sharon Secrets) = 0.45; and P(S3 – Karen Hope) = 0.30.
What would be the optimal decision for the risk neutral decision-maker?

(c) Subsequent to this analysis, Dr. Evil gets a report back from his spy, Chubby Scotsman,
who knows the choice of agent will be assigned to the Dr. Evil file. How much would Dr. Evil
be willing to pay Chubby Scotsman to know exactly which agent will be assigned to the Dr.
Evil file?

Note: Your appropriately supported answers to the individual parts will appear appended to the
one-page Executive Summary. The Executive Summary should address all the points
raised in the questions.

Consultation #2

Henry Hypster is in charge of an advertising campaign for a new product, with a budget of $1
million. He can advertise on TV, radio or in magazines. The units for radio and TV are 30-second
“spots”. One spot of TV costs $20,000 and reaches 1.8 million potential customers; a magazine
page costs $10,000 and reaches 1 million; radio advertising reaches a quarter million people per
spot and costs $2,000 per spot. It takes creative talent to create effective advertising; in your
organization it takes three person-weeks to create a magazine page, one person-week to create
a TV spot and one person-day to create a radio advertisement. Henry has only 100 person-weeks
available. A person-week is 5 days.

(1) Henry is concerned about how to spend his budget to maximize his audience.

(2) He also wonders how this would change if he has to sign up for at least two magazine pages,
a maximum of 120 radio spots and at least 10 TV ads.

(3) He has also heard the VP of Marketing say that his idea of a well-balanced campaign would
be to spend at least 25% and no more than 50% in each of the three media.

Treat these as sequential questions, that is, (1), then (1) & (2), and than all three.

Consultation #3

The M. Danno Book Company (MDBC) must consider two products in its planning for the next
production period. As always, MDBC considers the option to manufacture in-house or outsource
the production. Each product has a 2-step manufacturing process: Printing and Finishing.
Product A is a medium quality limited-colour book, which is saddle-stitched. Product B is a high
quality process colour book, which features a much higher quality finish.

The requirements for the next production period for Product A are 2,300,000 books and Product B
are 1,200,000 books.

MDBC can manufacture or outsource the printing and/or finishing for either products A and B. The
printing and finishing costs of manufacturing in-house versus outsourcing for Product A and B are
as follows:

Production Costs
Printing Finishing
In-house Outsource In-house Outsource
($/Book) ($/Book) ($/Book) ($/Book)
Product A 6 15 3 6
Product B 17 25 7 12

Productivity rates for manufacturing at MDBC are as follows:

Production Rates at MDBC (in books per hour)

Print Finishing
Product A 5000 8000
Product B 4000 5000

MDBC has only 200 hours available for Printing and 100 hours available in-house for Finishing for
the next production period. MDBC has also agreed that at least half of these in-house hours will
be utilized.

MDBC management requires that the at least 25% of the books be printed in-house as well as
25% of the books be finished in-house.

Management is interested in the optimal production plan for the up-coming period. Management
would also like to know how much:
(1) the commitment to use at least half of the in-house hours
(2) the requirement that 25% of the books be printed in-house, and
(3) the requirement that 25% of the books be finished in-house
is costing the firm.