Requirements: Everyone will be given the same case study but with different data, which you
will write a management report on. The report will be based on your Excel analysis. The report
has to be understandable as a standalone piece of work without referring to the Excel file. You
need to provide tables and figures from the Excel analysis to support your report.
The deadline for group assignment is 23:59 Friday 18th December 2020. Both the report and
the Excel file need to be submitted to Blackboard.
Word limit of the report is 1500 words. The data for each individual is posted in the Excel
spreadsheet along with the assignment brief.
The Russo Manufacturing company
The Russo Manufacturing Company must decide whether to manufacture a component part at
its Milan plant or purchase the component part from a supplier. The resulting profit is
dependent upon the demand for the product. If the demand for the finished product is low,
Russo will incur a loss of [i.] if it decided to manufacture the component part. On the other
hand, if Russo purchases the component part, it will not incur any production cost and the profit
is estimated to be [ii.] when the demand of the finished product is low. In a better scenario
when demand for the finished product is high, Russo will earn [iii.] if it manufactures the
component part in house, or [iv.] if it purchases the part. Finally, when demand for the finished
product is at medium level, Russo will earn [v.] profit if it manufactures the component part,
or [vi.] if the part is purchased from a supplier.
Originally the management estimate the probability of weak demand to be [vii.] and of strong
demand to be [viii.]. However, the management is concerned about the accuracy of this
estimation and is contemplating of conducting extra market research to determine the
likelihood of different states of demand. The cost of the research is [ix.] and the research can
indicate if market condition is favourable or unfavourable. The research is fairly reliable,
meaning it is more likely to obtain a favourable result if the demand for the finished product is
truly high. On the other hand, the report will be less likely to generate a favourable result if the
demand for the finished product is truly low. The probabilities of obtaining a favourable report
given a certain market condition are:
P (F | low demand) = [x.]
P (F | medium demand) [xi.]
P (F | high demand) = [xii.]
Perform an analysis of the problem facing Allied Insurance and prepare a report that
summarizes your findings and recommendations. Be sure to address the following issues:
1. The payoff table of Russo Manufacturing, ignoring all the probabilities.
(5 marks)
2. Recommendations regarding which decision the management should take if they ignore
the probabilities and decide to apply the following decision criteria:
a. Optimistic Approach
(5 marks)
b. Conservative Approach
(5 marks)
c. Minimax Regret Approach
(5 marks)
3. Computation of the posterior probabilities of weak demand, medium demand and
strong demand given the market research is conducted. Briefly explain the meaning of
these probabilities.
(5 marks)
4. A decision tree illustrating the decisions and events that Russo is facing. All the payoffs,
probabilities and decision at each step need to be labelled carefully on the tree.
(25 marks)
5. A recommendation whether the market research should be undertaken. Explain clearly
the reasons for your recommendation.
(10 marks)
6. A decision strategy that Russo should follow if they take the recommended action in 5.
(10 marks)
7. A sensitivity analysis to illustrate how different decisions change if the prior probability
of [xiii.] change by 0.1 at a time.
(20 marks)
Presentation (10 marks)
The report must be written in a clear manner and including the required items. There is no need
to restate the questions in your report. Your report must have the following structure:
I. Executive summary
Give an overview of the problem, the solutions and the recommendation
II. Introduction
Introduce the case study and the objectives of the report
III. Main body
This section addresses all the questions associated with the case study.
IV. Conclusion
Conclude the case study and present your recommendations to the board of directors
based on the analysis.