AL-MAZRAA Co. Objectives: To invest amount of money during one year and widening the company activities To get the maximum possible profits To improve the image of company in the local market Participation as private sector in rebuilding efforts after the civil war

1. PhD Candidate: Azdeen Najah Asst.Prof.Dr. Altan Ozkil
ATILIM UNIVERSIY
MODES-654 Decision Making Analysis

2. Problem Definition
Elements of Decısıon Problems
oValues and Objectives
oUncertain Events
oConsequences
oDecisions
Problem Decision Tree
Probability Estimation of Decision Tree
Possible Strategies
Risk and Cumulative Risk Profile
Sensitivity Analysis
Making Choice (Result)

3. AL-MAZRAA company insisting to
invest amount of money during one
year, The company have three
investment opportunities:
Growth
50%Recessıon
30%
Inflatıon
20%
Expected Ecconomical Situation
for The next Year
The expected company profits for each activity and situation
New Beverages
Factory
Buy Shares in Libyan NOC
Saving Money
in Bank
Expected
Ecconomical
Situation
Political situation “Oil port crisis”
Oil ports Crisis to
be continued
Oil ports Crisis to
be solved
Oil ports Crisis will
become more worse
Grouth 0.53 0.64 0.562
Recessıon 0.29 0.29 0.279
Inflatıon 0.18 0.07 0.159

4. •To invest amount of money during one year and widening
the company activities
•To get the maximum possible profits
•To improve the image of company in the local market
•Participation as private sector in rebuilding efforts after
the civil war

5. Otherwise, we have other uncertainty
related to the political situation and the
oil port crisis during the next year:
The Oil ports Crisis to be continued.
Or, the Oil ports Crisis to be solved.
Or, the Oil ports Crisis will become
worse Uncertainty
Reason
New Beverage
Factory
Buy Shares in
Libyan NOC
Saving Money
in Bank
Economical √ √ √ √ √ √ X X X
Political X X X √ √ √ X X X
In this case we will face uncertainties according to the political situation
and the economical situation, The economical situation in the country
during the next year will be:
Growth or,
Recession or,
Inflation?

6. Immediate
Decision
Second
Decision
Final
Decision
Resolved before
second decision
Resolved before
final decision
Resolved before
last decision
What are the outcomes of each alternative?
At each economical and/or political situation?
Which alternative to be choiced?
New Beverages Factory, Buy Shares or Saving money in Bank
Cosequences
Time Line
Now Planning Horizons
Planning Horizon = Time when decision maker finds out the results

7. Save in Bank 3.00 $ Million
Oil Ports Crisis Continued
(0.30)
Oil Ports Crisis Solved
(0.50)
Oil Ports Crisis More Worse
(0.20)
(0.53) Growth 3.60 $ Million
(0.29) Recession 2.40 $ Million
(0.18) Inflation 2.10 $ Million
(0.64) Growth 7.50 $ Million
(0.29) Recession 3.00 $ Million
(0.07) Inflation -0.60 $ Million
(0.562) Growth 5.040 $ Million
(0.279) Recession 2.55 $ Million
(0.159) Inflation 1.95 $ Million
(0.45) Growth 6.50 $ Million
(0.18) Recession 3.00 $ Million
(0.37) Inflation - 1.00 $ Million
New beverage Factory

8. Probability Calculus: Law of Total Probability
Pr(C) Pr(S) Pr(W)
0.30 0.50 0.20
Outcome Pr(Outcome|C) Outcome Pr(Outcome|S) Outcome Pr(Outcome|W)
G 0.53 G 0.64 G 0.562
R 0.29 R 0.29 R 0.279
I 0.18 I 0.07 I 0.159
Pr(G) = Pr(G | C) Pr(C) + Pr(G | S) Pr(S) + Pr(G| W) Pr(W)
= 0.53*0.30 + 0.64*0.50 + 0.562*0.20= 0.5914
Pr(R) = Pr(R | C) Pr(C) + Pr(R | S) Pr(S) + Pr(R| W) Pr(W)
= 0.29*0.30 + 0.29*0.50 + 0.279*0.20= 0.2878
Pr(I) = Pr(I | C) Pr(C) + Pr(I | S) Pr(S) + Pr(I| W) Pr(W)
= 0.18*0.30 + 0.07*0.50 + 0.159*0.20= 0.1208
Growth (0.53*0.30 + 0.64*0.50 + 0.562*0.20= 0.5914)
Recession (0.29*0.30 + 0.29*0.50 + 0.279*0.20= 0.2878)
Inflation (0.18*0.30 + 0.07*0.50 + 0.159*0.20= 0.1208)
When we apply
LOTP we are
collapsing
probability Tree

9. Probability Calculus: Bayes Theorem
Pr(C) Pr(S) Pr(W)
0,30 0,50 0,20
X Pr(X|C) Pr(X|S) Pr(X|W) Pr(X C) Pr(X S) Pr(X W) Pr(X) Pr(C|X) Pr(S|X) Pr(W|X) Check
G 0,53 0,64 0,562 0,159 0,320 0,112 0,300 0,269 0,541 0,190 1,000
R 0,29 0,29 0,279 0,087 0,145 0,056 0,500 0,302 0,504 0,194 1,000
I 0,18 0,07 0,159 0,054 0,035 0,032 0,200 0,447 0,290 0,263 1,000
Check 1,00 1,00 1,00 0,300 0,500 0,200 1,000
Growth
(0.3)
Recession
(0.5)
Inflation
(0.2)
(0.269) Oil Ports Crisis Continued 3.60 $ Million
(0.541) Oil Ports Crisis Solved 2.40 $ Million
(0.190) Oil Ports Crisis More Worse 2.10 $ Million
(0.302) Oil Ports Crisis Continued 7.50 $ Million
(0.504) Oil Ports Crisis Solved 3.00 $ Million
(0.194) Oil Ports Crisis More Worse -0.60 $ Million
(0.447) Oil Ports Crisis Continued 5.040 $ Million
(0.290) Oil Ports Crisis Solved 2.55 $ Million
(0.263) Oil Ports Crisis More Worse 1.95 $ Million
AL-MAZRAA Co. Problem
After Bayes Theorem

10. New beverage Factory
Save in Bank 3.00 $ Million
(0.53) Growth 3.60 $ Million
(0.29) Recession 2.40 $ Million
(0.18) Inflation 2.10 $ Million
(0.64) Growth 7.50 $ Million
(0.29) Recession 3.00 $ Million
(0.07) Inflation -0.60 $ Million
(0.562) Growth 5.040 $ Million
(0.279) Recession 2.55 $ Million
(0.159) Inflation 1.95 $ Million
(0.45) Growth 6.50 $ Million
(0.18) Recession 3.00 $ Million
(0.37) Inflation - 1.00 $ Million
1st. Strategy
2nd. Strategy
3dh. Strategy
Oil Ports Crisis Continued
(0.30)
Oil Ports Crisis More Worse
(0.20)
Oil Ports Crisis Solved
(0.50)

11. Risk Profile for 1st. strategy:
“New Beverages Factory”
Risk Profile for 2nd. strategy:
“Buy Chares in Libyan Oil
Co.”
Risk Profile for 3rd. strategy:
“Saving money in Bank”

12. Analysis of Profit Objective
EMV (Strategy 1) =0.45 * 6.50 + 0.18 * 3.00 + 0.37 (-1.00) = 3.09 $Million
EMV (Strategy 2)=0.30[ 0.53{ (3.60) + 0.290 (2.40) + 0.180 (2.10) } ] + 0.50 [0.64 {
(7.50) + 0.290 (3) + 0.0.07 (-0.60) }] +0.20[ 0.562 (5.04) + {0.279 (2.55) + 0.159 (1.95)
}]= 0.3* 2.982 + 0.50 * 5.628 + 0.20 * 3.85 = 3.29 $Million
EMV (Strategy 3) = 2.65 Million
D= Max.{ 3.09 $Million, 3.29 $Million, 2.65 $Million} = 3.29 $Million
Conclusion:
• Buy Shares is preferred Over New
Beverages Factory and Saving money in Bank
• CRP’s cross. Hence,
No Stochastic Dominance

13. Two-Way Sensitivity Analysis: “AL-MAZRAA Co.”
EMV(A) > EMV(B) ↔
0.38 – 0.39 q > p → (1)
EMV(A) > EMV(C) ↔
0.49 – 0.53 q > p → (2)
EMV(B) > EMV(C) ↔
0.72 – 0.84 q > p → (3)
The shaded area in the figure represents those points
for which p > 0.45 and q > 0.40.
• Note that all of these points fall in the “Choose B”
region.
• Thus, chaireman of AL-MAZRAA Co. Should adopt
strategy B : Buy Shares in Libyan NOC

14. After studying all decision Problem sides and elements of Decision
Problem, objectives, uncertain events, consequences, and drawing
problem decision tree, estimating the probability of decision tree, the
possible Strategies, the risk and cumulative risk profile and finally the
sensitivity analysis, we strongly reccommending AL-MAZRAA Co.
To apopt the strategy B (Buy Shares in Libyan NOC) as preferred
alternative.