Julia’s manufacturing company has to decide whether to go ahead with the production of a new product. Her analysis indicates that the future profit will depend on a combination of the quality of the product and the market demand for it. Before the final decision is made, she has two other possible courses of action. One is to undertake further product development, to make the product quality better before it goes into production. The other is to do more market research to determine the likely demand. She could also choose to do both. Of course both product development and market research will cost money. And she has to be careful about delaying too long, as she knows that the first product of this kind that becomes available will corner the market.

Build a decision network to model this sequential decision problem.

1. Decide what chance nodes, decision nodes (hint: there should be three) and utility node(s) you need.

2. Add the main network links, then the information and precedence links. Note that you need to investigate two possible orderings for the pre-production decisions.

3. The problem description does not provide much in the way of quantitative information for parameterizing your model; so choose initial parameters that seem reasonable.

4. What is the expected benefit of additional marketing? And of further product development?