You are the operations assistant at a large bank. You have been put in charge of the loan department and have been asked to make some changes. You have been authorized to make one of the following changes to the loan department. You can reassign the staff, you can hire new staff or you can redesign the loan process. Demand can be either moderate, high or very high. If you reassign staff and demand is moderate the payoff is $50, 000, if demand is high the payoff is $60, 000 and if demand is very high the payoff is $85, 000. If you hire new staff and demand is moderate the payoff is $60, 000, if demand is high the payoff is $60, 000 and if demand is very high the payoff is $60, 000. If you decide to redesign the loan process and demand is moderate the payoff is $40, 000, if demand is high the payoff is $50, 000 and if demand is very high the payoff is $90, 000.

Question #1 : Based on the information above develop a decision table and make decisions under the followingmaximax, maximin and equally likely. Under which decision environment does this question fall?

Question #2 : Upon further investigation you believe the following probabilities existThere is a .1 probability that demand will be moderate, a .3 probability demand will be high and a .6 probability demand will be very high. Develop a decision tree for this question and calculate EMVs for the three decisions. Which decision should you make based on EMV? Under which decision environment does this question fall?

Question #3 : Calculate the EVPI and then compare the results to the EMV from question #2 above. What would be the cost of perfect information?