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Unit 3: Capacity Planning




               Expand, Strong growth = 150 × 5 – 80 = 670                                       Notes
               Expand, Weak growth = 90 × 5 – 80 = 370
               Wait, strong, expand = 60 +150 × 4 – 90 = 570
               Wait, weak, expand = 60 + 90 × 4 – 90 = 330
               Wait, lie low, do nothing = 60 × 5 = 300
                            Figure 3.4:  Decision  Configuration  of  Decision  Tree


                               Move               Strong Growth      750
                               592.5              0.55


                                                   Weak Growth       400
                                                  0.45

                                                 Strong Growth
                                                                     670
                                Expand             0.55
                Mehta           535.0
                Store                              Weak Growth
                                                                     370
                                                   0.45

                                                             Expand           570

                               Wait &
                                        Strong Growth
                               See                           Do nothing
                               448.5     0.55                                 300



                                        Weak Growth
                                         0.45                300


          After examining  the decision tree and identifying the best options at each branch, the final

          values  are calculated.  Multiply, along  each branch, the benefits  with the  probability of the
          outcome. Complete the set of calculations on each node and record the result.

               Move = 750 × 0.55 + 400 × 0.45 = 592.5

               Expand = 670 × 0.55 + 370 × 0.45 = 535.0
                    F
               Wait = 570 × 0.55 + 300 × 0.45 = 448.5
          From the calculated decision benefits, the option that has  the largest benefit represents  the
          decision. By applying this technique, we can see that the best option is for Mr. Rajkumar Mehta
          to move to his store to Lajpat Nagar. If Mr. Mehta has an aversion to risk taking, he could also
          choose on the basis of the highest downside. This would not change his decision in this case as
          the highest downside is also for the option to move.



              Task    Visit any one businessman in your locality and find out how he determines
                      capacity for his business to meet customer demands.

          3.5 Calculating Processing Requirements

          The calculation of the processing requirement by a firm can be explained through this example
          given in Table 3.5.






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