37345 - Quantitative Management Practice 

Assignment Task

Scenario

You are to undertake a study to find out whether the company Clean & Brite needs to market a new brand of toothpaste.

Case Study

A product manager at Clean & Brite wants to determine whether her company should market a new brand of toothpaste. If this new product succeeds in the marketplace, C&B estimates that it could earn in future profits from the sale of the new toothpaste. If this new product fails, however, the company expects that it could lose approximately. If C&B chooses not to market this new brand, the product manager believes that there would be little, if any, impact on the profits earned through sales of C&B’s other products. The manager has estimated that the new toothpaste brand will succeed with probability Before making her decision regarding this toothpaste product, the manager can spend on a market research study. Based on similar studies with past products, C&B believes that the study will predict a successful product, given that the product would actually be a success, with probability It also believes that the study will predict a failure, given that the product would actually be a failure, with probability.

1. To maximise expected profit, what strategy should the C&B product manager follow? 

2. Risk analysis.

• Discuss the risk profile of adopting the strategy in.

• Discuss the trade-off between expected profit and risk (hint: consider the Pareto front of all possible strategies on the decision tree. You may need to define a measure for risk)

3. Sensitivity analysis for EVSI.

Use a two-way data table to find EVSI for  to in increments of  and chart EVSI versus.

Use a two-way data table to find EVSI for from  to and  from to  in increments of  and chart EVSI versus.  

• Use a two-way data table to find EVSI for from and  from in increments of and chart EVSI versus.

• calculate and interpret the EVPI when.

• Construct decision tree models in Excel spreadsheets.

• Find solutions to the questions above using the spreadsheet model. 

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