QUESTION 5 Hudson Corporation is considering three options f

QUESTION 5 Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsoureing), or using a combination of its own staff and an outside vendor The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows Demand Staffing Options High Medium Low 650650600 900600300 800650500 Own Staff Outside Vendor Combination Denote the staffing options by numbers (1) Own Staff, (2) Outside Vendor and (3) Combination Suppose the demand probabilities are 0.2, 0.5 and 0.3 for High, Medium and Low respectively The decision alternative that minimizes the expected cost of the data processing operation is (input the number hare, without the parenthesis) The expected annual cost (in thousands of dollars) associated with that recommendation is Click Save and Submit to save and submit. Chick Save All Ansvers to save all answers

Solution

Outside Vendor reduces the expected cost

Expected cost of outside vendor = $ 570 (in thousands of $)

Demand

	Prob	Own Staff (1)	P*Cost1	Outside Vendor(2)	P*Cost2	Combination(3)	P*Cost3
High	0.2	650	130	900	180	800	160
Medium	0.5	650	325	600	300	650	325
Low	0.3	600	180	300	90	500	150
		EC1	635	EC2	570	EC3	635