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Chapter 2
Suitability of tool for organisation
Suitable if organisation does not want to make the wrong decision and miss
out.
An approach for a sore loser.
Risks making a lower profit.
3.6 Risk calculations
Test your understanding 1
Geoffrey Ramsbottom runs a kitchen that provides food for various canteens
throughout a large organisation. A particular salad generates a profit of $2
based on a selling price of $10 and a cost of $8. Salads must be prepared in
batches of 10 and daily demand is as follows:
Demand Probability
40 salads 0.10
50 salads 0.20
60 salads 0.40
70 salads 0.30
––––
1.00
Required:
Decide how many salads should be supplied per day using:
(a) expected values
(b) the maximax rule
(c) the maximin rule
(d) the minimax regret rule
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