JB Blackshire

Decision Tree and Earned Value Analysis

Table of Contents
Problem Set 1 ...Provides a detailed explaination of a Business Level Strategy
Data Set 1 . Provides a list of costs and probability projections for the project
Analysis 1 . Contains all Decision Tree and Earned Value calculations
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Table of Contents .... Contents
Problem Set 2 ...Provides a detailed explaination of a Business Level Strategy
Data Set 2 . Provides a list of costs and probability projections for the project
Analysis 2 .... Contains all Decision Tree and Earned Value calculations
This workbook will be analyzing the decision support strategy for the Frito-Lay company in moving
to a local or regional marketing campaign as well as 2 Soldering Irons and their economic
feasibility of pursuing research and development of a pressure or a temperature sensor. The
costs, expected value, sales projections, value and overall strategy will be presented in this
workbook for management review.
There is sufficient production capacity to maintain the current profit margin for
at least 500K units.
Frito-Lay Advertising Campaign
Frito-Lay has a line of potato snacks named Spicy Curls. The snacks are sold in 10
ounce packages at a profit of $0.50 per package. Sales of Spicy Curls have been
stable at 100,000 per year and are expected to continue at this level in future
under present circumstances.
Marketing is considering two possible advertising campaigns: a local campaign
for $10,000 and a regional campaign for $100,000. Projections have been made
for sales under each campaign: 100K (probability local: 0.3, probability regional:
0.1), 200K (0.4, 0.2), 300K (0.1, 0.2), 400K (0.1, 0.2), and 500K (0.1, 0.3).
Sales Projection Probability Level
$100,000 0.1
0.4
0.1
$400,000
$500,000
$100,000
$200,000
$300,000
1. Local Campaign $10,000
Sales Projection Probability Level
$100,000 0.3
$500,000 0.3
Campaign Considerations
$200,000 0.2
$300,000 0.2
$400,000 0.2
0.1
0.1
2. Regional Campaign
Product Spicy Curls
Size 10 oz $35,000.00
Profit $0.5000
Possibility Local
Cost $10,000.00 Value EV
Units 100000 Prob 0.3 $50,000.00
Units 200000 Prob 0.4 $100,000.00
Units 300000 Prob 0.1 $150,000.00
Units 400000 Prob 0.1 $200,000.00
Units 500000 Prob 0.1 $250,000.00
$115,000.00 $105,000.00
Possibility Regional
Cost $100,000.00 Value EV
Units 100000 Prob 0.1 $50,000.00
Units 200000 Prob 0.2 $100,000.00
Units 300000 Prob 0.2 $150,000.00
Units 400000 Prob 0.2 $200,000.00
Units 500000 Prob 0.3 $250,000.00
$170,000.00 $70,000.00
Possibility Do Nothing
Cost $0.00 Value EV
Units 100000 Prob 1 $50,000.00
$50,000.00 $50,000.00
Possibility Current
Cost 0
Value 2750000
1250000
0.45 1,925,000.00 $ 1,925,000.00 $
Possibility Expansion 0.55
Cost 750000.00 $687,500.00
Value 6250000
1000000
3,362,500.00 $ 2,612,500.00 $
2solderingIrons.com Expansion
A small instrumentation company ("2solderingIrons.com") wants to expand their
business. The company has built pressure sensors and is considering the
possibility of building a temperature sensor. From experience, they expect the
development of a new pressure sensor to cost $10,000 (non-recurring expense
or NRE). As they have no experience building a temperature sensor they are
being conservative and estimating the development cost to be $100,000 (NRE).
They anticipate sales of a working temperature to total $1,000,000 in the first 12
months and the sales of a working pressure sensor to total $400,000 in the same
first 12 months. The company currently has resources to attempt only one
development project.
*NRE = Non-recurring Expense
Research and Devlopment
Temperature Sensor
Development Cost $100,000 *(NRE)
Sales Projection (x12 Months) $1,000,000
Pressure Sensor
Development Cost $10,000 *(NRE)
Sales Projection (x12 Months) $400,000
Value EV
R&D of Temperature $100,000.00
Temperature Sales (12mo) $1,000,000.00 $500,000.00 $400,000.00
Chance of Success 50.0000%
$90,000.00
R&D of Pressure $10,000.00
Pressure Sales (12mo) $400,000.00 $320,000.00 $310,000.00
Chance of Success 80.0000%