Asked by Fitri Hj Ahmad on Jul 23, 2024
Verified
Describe how EMV might be used to analyse a capacity decision.
EMV
Expected Monetary Value, a concept in decision making and risk management that calculates the average outcome when the future includes scenarios that may or may not happen.
Capacity Decision
Decisions related to the amount of resources needed by an organization to meet changing demands for its products.
- Acquire knowledge of net present value principles and apply them in investment decision evaluation.
Verified Answer
RA
Rebeca AlvarezJul 25, 2024
Final Answer :
The EMV for each capacity decision (perhaps large, medium, and small plants) can be evaluated for unknown costs/revenue/other conditions. Each possible scenario (perhaps low, medium, and high demand) is given a payoff value and a probability. The weighted results of these various states of nature sum to the EMV for each capacity decision. An operations manager can then choose the highest EMV to maximize profit or the lowest EMV to minimize costs.
Learning Objectives
- Acquire knowledge of net present value principles and apply them in investment decision evaluation.