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CASE STUDY #1: DECISION ANALYSIS AT SAN ANTONIO LAWN EQUIPMENT San Antonio Lawn Equipment (SALE), headquartered in San Antonio, Texas, is a privately owned designer and producer of traditional lawn mowers used by homeowners. SALE provides most of the products to dealerships, which in turn, sell directly to end users. In the United States, the focus of sales is on the eastern seaboard, California, the Southeast, and the south central states, which have the greatest concentration of customers. Outside the United States, SALE's sales include a European market, a growing South American market, and developing markets in the Pacific Rim and China. The market is cyclical, but the different products and regions balance some of this, with just less than 55% of total sales in the spring and summer (in the United States), about 30% in the fall, and about 15% in the winter. Annual sales are approximately $180 million SALE has developed a prototype for a new snow blower for the consumer market. This can exploit the company's expertise in small-gasoline engine technology and also balance seasonal demand cycles in the North American and European markets to provide additional revenues during the winter months. Initially, SALE faces two possible decisions: introduce the product globally at a cost of $800,000 or evaluate it in a North American test market at a cost of $300,000. If it introduces the product globally, SALE might find either a high or low response to the product. Probabilities of these events are estimated to be 0.6 and 0.4, respectively. With a high response, gross revenues of $1,500,000 are expected with a low response, the figure is $500,000 If it starts with a North American test market, it might find a high response or a low response with probabilities 0.5 and 0.5, respectively. This may or may not reflect the global market potential. In any case, after conducting the marketing research, SALE next needs to decide whether to keep sales only in North America, market globally, or drop the product. If the North American response is high and SALE stays only in North America, the expected revenue is $1,000,000. If it markets globally (at an additional cost of $300,000), the probability of a high global response is 0.8 with revenues of $1,550,000 ($500,000 if the global response is low). If the North American response is low and it remains in North America, the expected revenue is $350,000 If it markets globally (at an additional cost of $500,000), the probability of a high global response is 0.25, with revenues of $1,450,000 (5500,000 if the global response is low). Your consulting team needs to perform the following tasks: 1. Construct a decision tree, compute the relevant expected values, and determine the optimal decision strategy. (A hand-drawn tree is fine, but make sure that it is neat.) Make sure that you specify a complete sequence of decisions. 2. Evaluate the sensitivity of the optimal strategy to changes in the probability estimate of the response in the North American test market (currently estimated to be 0.5 for both high and low). 3. Summarize all of your results, including your recommendation and justification for it, in a formal abil: thp vith global response is low). If the North American response is low and it remains in North America, the expected revenue is $350,000. If it markets globally (at an additional cost of $500,000), the probability of a high global response is 0.25, with revenues of $1,450,000 ($500,000 if the global response is low). Your consulting team needs to perform the following tasks: 1. Construct a decision tree, compute the relevant expected values, and determine the optimal decision strategy. (A hand-drawn tree is fine, but make sure that it is neat.) Make sure that you specify a complete sequence of decisions 2. Evaluate the sensitivity of the optimal strategy to changes in the probability estimate of the response in the North American test market (currently estimated to be 0.5 for both high and low). 3. Summarize all of your results, including your recommendation and justification for it, in a formal memo to the SALE's executive committee. In addition to the "correctness" of your answers, your write-up will also be evaluated on how well you communicate the responses, including arly assumptions that you need to make. You do not need to repeat background material in your write-up - assume that the reader is familiar with the basic facts of the case. The write-ups will be evaluated on their content and presentation, including logic, organization, grammar, and spelling lorth $38 erna the esear go balm Case write-ups must be done in groups of two (2) or three (3) students; write-ups from individuals will not be accepted. You may form your own groups or, upon request from individual students, I will assign students to groups. Please turn in one write-up per group, and list the names of all group members on the write-up. Write-ups usually range in length from two to three pages (not including supporting documentation, Excel spreadsheets, etc.). In addition to answering the questions, please submit an Excel workbook to support your answers and analyses. If you draw your decision tree by hand, be sure to include an image in the Excel workbook. The explanation and documentation matter as much as, or more than than the actual numbers. Note that reports submitted on Blackboard are checked for originality using SafeAssign. Make sure that you review your originality report and revise your write-up as necessary AUMB