POSTGRADUATE PROGRAMME IN MANAGEMENT

2022-24 | TERM 3

Written Analysis and Communication

Ratnagiri Alphonso Orchard case

REPORT SUBMISSION TO

Prof. Chandreie Mukherjee

IIM Visakhapatnam

Submitted by:
Group 3
Section A

Aruna Bir (2210014)

Khush Lodaya (2210027)

Livingston L (2210031)

Souvik Chakraborty (2210057)

Srishti Jain (2210058)

Situation Analysis

As per the current scenario, Nirmal Pansare is in dilemma of whether to buy the report from the
climatology firm or not. He has been provided with the probabilities of the outcome and based on that
he must make a calculative decision considering the financial conditions. The climate condition has
become unpredictable. So, the climatology report might improve the predictability of the outcomes of
leasing the land and holding the land. But there is also a chance that the report might go wrong, by
which in that case the entire decision taken by Nirmal based on the report might go wrong which
could incur him a loss. In this case we are considering an assumption that as of now Nirmal have no
option other than the mentioned climatology firm to procure the report. Also, Nirmal, being a farmer,
he doesn’t have any fixed income. He relies on the orchard only. Every decision he make would have
an impact in his income. And he can’t afford any loss. So, he is in a position to analyze everything
before spending, even to spend on the climatology report.

Problem Statement
Considering the above situation, we might come into conclusion that the decision must be made on
two things:

1. Decision must be made on whether to buy the climatology report or not.

2. Decision must be made on whether to lease the land or to hold the land.

Problem Analysis (Objectives)

Short term goal: We could infer out of the current situation that the short-term goal of the firm
should be avoid incurring loss to the firm and to maximize the profit. As stated earlier, we assume that
the firm is not in a position to handle any loss. So, avoiding losses at any cost should be the priority
for the firm. Even achieving break even would do good to the firm. And secondly the firm should
maximize the profit in order to continue the business in further upcoming period. Being a capital-
intensive sector, which requires continuous inflow of cash, profit is one of the determining the factor
in running the business.

Long term goal: We could comment that sustainability is the long-term goal of the business. As per
the case we could assume that farmland is the only asset/source of the firm. To sustain in the business,
the land should remain fertile. When it comes to either leasing the land or doing the harvest on their
own, fertility is one of the crucial factor which could impact the outcome. So, fertility of the land
should be preserved and protected at any cost in order to achieve its sustainability goal.

Criteria and Constraints

Constraints:

Three primary constraints have been identified here. The first constraint is the time constraint. The
lease offer, which would generate a return of $4000 on Pansare’s initial investment without incurring
a risk of a loss of $10,000, was quite tempting. But the lease offer had to be accepted or rejected soon.
So, time was one of the significant constraints which Pansare was facing.

Another constraint that Pansare was facing was the financial constraint. He had made an initial
investment of $60000 in the orchard. So, he wanted the maximum return on investment. And did not
want to face losses.
 The other constraint which Pansare had was the report accuracy of the climatology firm. The firm had
predicted correctly in 70% of the cases. And for optimal profit generation report’s accuracy needs to
be more than 70%.
Criteria:

The essential criterion for Pansare was profitability. For any business, profitability is the principal
criterion. Without profit, any business is not sustainable. So, Pansare had to get the maximum profit
for the business, the Ratnagiri Alphonso Orchard. Additionally, the profit made should be greater than
$4000, because that is what he receives if the land is leased immediately (i.e. at zero risk)

While trying to make a profit, Pansare had to ensure he minimized the risk. Subjecting the orchard to
maximum risk to maximize profit can backfire as well. So, Pansare had to calculate the risk to obtain
the maximum returns with minimum risk.

Generating Options
To generate options, a decision tree is given in figure 1 of annexure 1. There are two main options:
first is to purchase the report and second is to not purchase the report.

From the first option, two possible outcomes could be expected so two options are created i.e., the
report could be positive that rainfall could occur, or the report could be negative that the rainfall
couldn’t occur. Then further the two options are created on both the positive and negative report
which is leasing the land and not leasing the land. The do not lease option again would lead to two
possible options, the actual outcomes, it would rain and it wouldn’t rain.

From the second option, two possible options could be created i.e., leasing the land, and not leasing
the land. Further the do not lease the land would create another two options the actual outcomes, it
would rain and it wouldn’t rain.

Evaluating Options
For evaluating the options, a decision tree analysis has been applied. The decision tree, available in
figure 1 of Appendix 1 will be evaluated in the following manner: Each square is a decision, and each
circle is an event. Each event is having a certain probability of occurrence. The expected value of the
event will be the sum of the probability of the event multiplied by the revenue, which is generated, in
case that event occurs. The decision in which the branch having a higher expected value will be given
priority.
Lease $64,000 Rain=0.78 $90,000

Positive Do not
1 Report = C Lease. 2
Purchase 0.45 Do not Rain
Lease =0.22 $50,000
Report $64,000
Negative Rain=
Report= 0.55 D $90,000
A 0.27
Do not
Lease. 3
Lease $64,000 Do not Rain
Do not
Rain = 0.73 $50,000
Purchase
Report =0.5 $90,000
B
Do not
Lease. 4 Do not Rain = 0.5 $50,000
Figure a: Decision Tree of various options
 The probability numbers have been calculated by applying the Bayes’ Theorem. It is given in the case
that there is a 50-50 chance of it raining or not. It is also given that in 70% of the cases, it rained in
Ratnagiri and the firm also predicted rain. Also, when the report predicted rain, there was a 20%
chance that rain did not come. A summary of all the probabilities of various events has been given in
table 1.1. Detailed probability calculations using Bayes’ theorem are given in appendix 1.

Event Probability
A1 = Rain Comes 0.5
A2 = Rain does not come 0.5
B = Firm predicts rain 0.45
B’ = Firm does not predict rain 0.55
B|A1 = Firm predicted rain, given that it 0.7
rains
B|A2 = Firm predicted rain, given that it 0.2
does not rain
A1|B = It will rain, given that firm predicts rain 0.778

A2|B = It will not rain, given that firm predicts 0.222

rain
Table 1.1: Summary of all probabilities
Hence, simplifying the nodes (starting from the end), we get :
Lease
$64,000

Positive Do not =0.78*90,000+0.22*50,000

1 Report = C Lease. 2 = $81,200
Purchase 0.45
Report Lease
Negative $64,000
Report= D
A 0.55
Do not =0.27*90,000+0.73*50,000
Lease. 3
Lease $64,000 = $60,8000
Do not
Purchase
Report
B
Do not
= 0.5*50,000+0.5*90,000
Lease. 4
=70000

Figure b: Simplifying nodes using decision tree analysis.

As observed, at node C, the option of do not lease leads to a higher expected value of $81,200 and
hence is given priority. Similarly, at node D the option of leasing leads to a higher expected value of $
64,000 and hence is given priority. At node B the option of do not lease leads to a higher expected
value of $70,000 and hence is given priority
 Positive Do not Lease =
1 Report = C $81,200
Purchase 0.45
Report
Negative Lease =
Report= D
A 0.55
$64,000

Do not
Purchase
Report
Do not Lease = $70000
B
Figure c: Further simplification of decision tree

The final expected value at node 1 comes out to be 0.45*81200 + 0.55*64000 = $71,740. Given that
purchasing the report needs an investment of $1000, we subtract this from the final expected value to
get an estimated revenue of $70,740 if the report is purchased and $70,000 if the report is not
purchased.

Hence, applying the criteria of maximum returns and minimum returns, Pansare should purchase the
report and purchase insurance for the crops.

Choosing the best option

From the above analysis, it is evident that purchasing the report leads to the highest amount of profit.
Hence, we recommend that Pansare should purchase the report and take action according to the
prediction of the report. Additionally, to minimize the risk of losing crops, Pansare should buy
insurance of his crops.

Plan of Action
After the evaluation of all the options that we generated, we can come to the conclusion that Nirmal
Pansare as the wise owner of Ratnagiri Alphonso Orchard should definitely choose to buy the
climatology firm's services and based on the results of the report, he should choose to harvest the crop
for optimal revenue generation and have least amount of loss possible.

 Pansare should use the climatology firm's service to assess the probability of rain in the
Ratnagiri Orchard region.
 Pansare should implement protection equipment and ways like erecting thatches, irrigating
the alphonso mango trees, and burning dry grass and weeds if the firm predicts a high
probability of rain in the report.
 Pansare should strictly monitor the weather conditions in the region and take necessary
precautions to protect the orchard from heavy rain.
  Harvest the Alphonso mangoes from the orchard after they have ripened in June and July.
 Grading the mangoes according to their weight and segregating them as premium and lesser
premium and charging accordingly.
 Selling the mangoes at the right time after harvesting is done to the various merchants and
distributors of the Ratnagiri region and earning a profit .

Contingency Plan
Nirmal Pansare should have a contingency Plan B in case his plan of action does not work out as
thought out that it would. So, for the same, he could go for the following option:

 First, Pansare could have his mango crops insured to prevent losses caused by inevitable natural
disasters and calamities for the year.
 Nirmal Pansare could also lease the land to another merchant who would be flexible in
negotiating the terms of the lease, he could negotiate a greater price for the lease apart from the
fixed proportion, if the profit generated by the merchant on selling the Alphonso mangoes is
higher than the usual and if no natural calamities strike the Ratnagiri region.
 Diversifying what is being grown in the Ratnagiri Orchard is also an option. Fruits that are not
likely to be affected by heavy rain can also be grown along with mangoes so that the profit margin
does not go down despite heavy rain ruining the mango crops .
 Annexure 1

Lease
Rain=0.78
$64000
Positive Do not
1 Report = C Lease. 2
Purchase 0.45 Do not Rain
Lease =0.22 $50,000
Report $64,000
Negative Rain=
Report= 0.55 D $90,000
A 0.27
Do not
Lease. 3
Lease $64,000 Do not Rain
Do not
Rain = 0.73 $50,000
Purchase
Report =0.5 $90,000
B
Do not
Lease. 4 Do not Rain = 0.5 $50,000

Figure 1: Options available for Pansari

Detailed Probability calculations:

Let A1 = P (rain comes)
A2 = P (rain does not come)
B = P (firm predicts rain)
B’ = P (firm does not predict rain)
Then, P(B|A1) = 0.7
P(B|A2) = 0.2
Hence, from Bayes’ theorem,
P(A1|B) = Probability that it will rain, given that firm predicts rain
P(A1|B) =(P(A1) *P(B|A1))/ (P(A1)*P(B/A1)+(P(A2)P(B/A2)) = (0.5*0.7)/(0.5*0.7+0.5*0.2) =
0.35/0.45 = 0.778
P(A2|B) = Probability that it will not rain, given that firm predicts rain =
 =(P(A2) *P(B|A2))/ (P(A1)*P(B/A1)+(P(A2)P(B/A2)) = (0.5*0.2)/(0.5*0.7+0.5*0.2) = 0.1/0.45 =
0.222
P(A1|B’) = 1-P(A1|B) = 1-0.778 = 0.272 = Probability of rain, given that firm does not predict rain
P(A2|B’) = 1-P(A2|B) = 1-0.222 = 0.7272 = Probability of no rain, given that firm does not predict
rain
P(B) = Probability of firm predicting rain = 0.45
P(B’) = Probability of firm not predicting rain = 0.55