George Tshirt Decision
In George T-shirt case, George Lassiter faces a decision about the number of shirts to produce for the rock concert staged in two months. He is faced with two uncertain events. First he does not know the number of people attending the concert and secondly he does not know the percentage of attendees who will buy the shirt. Tickets for standing area of 20,000 are sure to be sold. However, the number of seat tickets to be sold is uncertain. It can range from high, medium to low sales which could be 80,000, 50,000 to 20,000, respectively. Thus in total we can expect attendees to be around 40,000, 70,000 or 100,000. Although, it is hard to determine the number of people attending the concert, the concert is certain to be a huge success (as mentioned in case). Hence, it is a possibility that more people will attend. So probability of high to medium sales is larger than that of low sales. Furthermore, he expects the volume of sales to be proportional to the number of attendees. This proportion can range from 5 to 15%.
Influence Diagram
George is currently facing a decision of how many shirts to order. The possible alternatives are 10,000, 7,500 and 5,000 shirts. The decision will affect the costs and revenues generated from the sale of the number of shirts. The revenue will be affected by the sale price and sales volume. The sales volume is in turn affected by the number of attendees at the concert. Finally, the profit is a consequence of costs and revenues.
Expected Monetary Value
This EMV is calculated using all the probabilities, figures and outcome considerations. We calculated this by considering the fact that if the demand is greater than the shirts produced then all the shirts will be sold otherwise the excess shirts will be sold for a lesser price. The shirts, while in demand, are sold for $8.3333 but the excess shirts will be sold for $1.5. Using the Expected monetary value (EMV) criterion, we expect George to decide on the strategy leading to the highest EMV which is producing 10,000 units. The decision tree in Exhibit 1 clearly depicts that the EMV of the decision to produce 10,000 units is the highest.
Sensitivity Analysis