Risk Management $-$ decision tree

Assignment: bufld out a decision tree, compute the EMV of each decistion, and answer the two questions

below. Upload the completed assignment for credit.

Scenario: supnose your organization is using a legacy software. Some influential stakeholders believe

that by upgrading this software your organization can save millions, while others feel that staying with

the legacy software is the safest option, even though it is not meeting the current company needs. The

stakeholders supporting the upgrade of the software are further split into two factionss those that

support buying the new software and those that support bullding the new software in$-$house. Confusion

reigns in the meeting room with stakeholders pointing out negative risks for each option.

By exploring all possibilities and consequences, you can quantify the decisions and convince

stakeholders. This is known as Decision Tree Analysis.

In this scenario, you can either:

Build the new software: To build the new software, the associated cost is $$500,000.$

Buy the new software: To buy the new software, the associated cost is $$750,000.$

Stay with the legacy software: If the company decides to stay with the legacy software, the

associated cost is maintenance and will amount to $$100,000.$

Build a decision tree using the $3$ scenarios above.

The Build the New Software and Buy the New Software options will lead to either a successful

deployment or an unsuccessful one. Add this detall to the decision tree.

If the deployment is successful then the impact is zero, because the risk will not

have materialized. Add this detail to the decision tree.$]$

However, if the deployment is unsuccessful, then the risk will materialize and the

impact is $$2$ million. Add this detail to the decision tree.

The Stay with the Legacy Software option will lead to only one impact, which is $$2$ million,

because the legacy software is not currently meeting the needs of the company, and it won't

meet the needs should there be growth $($in this example, we have assumed that the company

will have growth$).$ Add this detail to the decision tree.

At this point, you should have something that looks like this $($first one is done for you$)$: