Question
Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing
Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: Demand Staffing Options High Medium Low Own staff 625 500 400 Outside vendor 850 650 350 Combination 600 400 300 If the demand probabilities are 0.4, 0.25, and 0.35, which decision alternative will minimize the expected cost of the data processing operation? Combination What is the expected annual cost associated with that recommendation? If required, round your answer to the nearest thousand of dollars. Expected annual cost = $ fill in the blank 2 Construct a risk profile for the optimal decision in part (a). Cost Probability fill in the blank 3 0.4 fill in the blank 4 0.25 fill in the blank 5 0.35 1.0 A graphical representation of the risk profile is also shown
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