1Many realworld decision problems consist of a sequence of d

1.Many real-world decision problems consist of a sequence of dependent decisions. Develop a scenario that has a series/sequence of activities applicable to a “Decision Tree” type analysis. Explain why the scenario you selected is applicable. Also identify and explain critical factors that should be consider. Are there any risks in your scenario?

2.Many real-world decision problems consist of a sequence of dependent decisions. Develop a scenario that has a series/sequence of activities applicable to a “Decision Tree” type analysis. Explain why the scenario you selected is applicable. Also identify and explain critical factors that should be consider. Are there any risks in your scenario?

Solution

Lately, my family and I have been contemplating the decision as to whether we are going to buy a new truck or repair the old one. Well, our truck is almost ten years old and has almost 140K miles. We have been trying to decide if a new truck is the best financial decision or should we replace/repair the existing vehicle? I believe a Decision Tree will aide us in making the best decision for our family. Decision Analysis is a technique used in a decision-making process to persuade and support a decision maker to make rational decisions. It is a tool which helps a decision maker to choose the most desirable option from a variety of alternatives or courses of action in the decision-making process (Lawrence & Pasternack, 2002). Since my family and I are uncertain of the future of my truck, and are aware of the general probabilities associated with keeping an older vehicle versus the expenses of a new vehicle, we will use a Decision Tree to weigh the pros and cons, consider the risks, and factor in the economic choices to hopefully make an educated decision and not a gut call to own a new vehicle. Below are the things that need to be considered in the Decision Tree.

The price of a brand new truck can be too much especially if you are just a regular guy or leading a simple life. It will take several years before me and the family can save up and buy the truck at its full price. There is an option to have a truck loan but the problem here is that the monthly payments add up quick and you end up paying much more for the vehicle. Additionally you can buy a certified pre-owned vehicle that is lower in costs but has been driven for a few years. In either case, if you take a loan out on either the new or pre-owned vehicle, you will be required to pay the higher premiums of full-coverage insurance which adds to the over costs of a vehicle.

Now for the old truck, I know I have at least $2000 in repair costs to fix the transmission and other minor problems. I can fix this myself, and not pay any labor or I can take it to a mechanic and pay him to repair the vehicle. I either case, I can take a personal loan to cover the costs of the repairs or I can take out of savings and pay cash. Since the truck is paid for, I do not need to maintain full coverage on the vehicle and operate with the liability insurance.

The third option is to continue to drive the truck until which time it turns over on its back and throws its tires in the air and says I am done. This will initially not cost my family anything now but may make for a crisis at some point in the future. As I am a hands on learner, I played with the TreePlan tool provided on the disk accompanying the textbook and made a simple Decision Tree documenting this discussion which is attached.

Is my old truck still worthy to be driven? Yes it is, I feel if I spend a little bit of money, the probability that it will get me another four to five years is very high. In the mean time, I can put money away and save the interest by paying with cash when the time comes to buy a new truck. Obviously, this decision will depend on everyone’s own situation and the risks they wish to associate with driving an older vehicle in relation to the tipping point where they feel it is better to just take the plunge and drive off the dealership with a new vehicle. Another thing that has to be considered in these times of economic struggles and a Senate and Congress who does not seem to want to play well together is job security. I, as government contractor, am always concerned whether my contract will be renewed. This adds risk to obtaining a long term loan for a vehicle when I could be unemployed at the next contract renewal point.

Ultimately, a Decision Tree is a useful tool for representing and analyzing the decision-making process when decisions need to be made. It provides a visual illustration of a decision problem and facilitates people to make educated decisions