SCSM 451: Operational Risk Management CA07 Draw a decision tree to solve the following problem: The Occupational Safety and Health Administration (OSHA) has recently announced it will award an $85,000 grant to the person or company submitting the best proposal for using wireless communications technology to enhance safety in the coal mining industry. Steve Hinton, the owner of COM-TECH, a small communications research firm located just outside of Raleigh North Carolina, is considering whether or not to apply for this grant. Steve estimates he would spend approximately $5,000 preparing his grant proposal and that he has about a 50-50 chance of actually receiving the grant. If he is awarded the grant, he would then need to decide whether to use microwave, cellular, or infrared communications technology. He has some experience in all three areas but would need to acquire some new equipment depending on which technology is used. The cost of equipment needed for each technology is summarized as: Technology Microwave Cellular Infrared Equipment Cost $4.000 $5,000 $4,000 In addition to the equipment cost, Steve knows he will spend money in research and development (R&D) to carry out the research proposal, but he does not know exactly what the R&D costs will be. For simplicity, Steve estimates the following best-case and worst-case R&D costs associated with using each technology, and he assigns probabilities to each outcome based on his degree of expertise in each area. Possible R&D Costs Best Case Worst Case Probability Cost Probability 0.4 $60.000 0.6 0.8 $70.000 0.2 0.9 $80.000 0.1 Cost $30,000 $40.000 $40.000 Microwave Cellular Infrared Submit: 1. What is the best course of decisions for Steve in this problem? 2- What is the expected profit for this best course of action? 3. What is the expected value of perfect information