BUS336 A2 Spring 2024

BUS336, D100 SPRING 2024
Assignment #2
Instructor: Negar Ganjouhaghighi
Question Mark Maximum

1 30
2 35
3 35
Total 100
Due: February 18th, 2024 by 11:59 pm on Canvas

Submit one pdf file, which includes answers to all 3 questions (solutions and
screenshots) and the excel file of the question 3, solved and completed.
Group Number:
(mandatory)
(group #)
Last Name First Name

(in alphabetical order)
The names and group number information in the grid above must be filled in correctly or marks
will be deducted. Group information is posted online.
BUS336 (Spring 2024)
Data Analytics and Visualization
ASSIGNMENT #2
Decisions
1. Firing the informer [30 marks]

The CEO of a branch of KPMG consulting firm believes that one of her key employees is
providing confidential information to the competition. She is 85% certain that this informer
is the Operations Manager, whose knowledge has been extremely valuable in their data
analysis. Assume that he would certainly lie about this when confronted if he is indeed the
informer (in other words the probability that he would lie is the same as the CEO’s
suspicion probability). If she decides to fire this Operations Manager (OM) and he is the
informer, she estimates that the company will gain $7.5 million. If she decides to fire this
OM but he is not the informer, the company will lose his expertise and he might sue them;
as well she will still have an informer on staff; the CEO estimates that this outcome would
cost her company about $10.5 million. If she decides not to fire this OM, she estimates that
the firm will lose $4.8 million regardless of whether he actually is the informer (because in
either case the informer is still within the company).
Before deciding whether to fire the OM, the CEO could order one of two different lie
detector tests. To avoid possible lawsuits, the lie detector tests would have to be
administered to all company employees, at a total cost of $210,000 for Lie Detector Test 1
and $880,000 for Lie Detector Test 2. Lie Detector Test 1 is not perfectly reliable: if a
person is lying, this test will reveal that the person is lying 96% of the time and, if a person
is not lying, this test will indicate that the person is not lying 90% of the time. Lie Detector
Test 2 can perform better but still is not perfectly reliable: if a person is lying, this test will
reveal that the person is lying 99% of the time and, if a person is not lying, this test will
indicate that the person is not lying 98% of the time.
a. Fill the table below based on the information from the question (1 marks)
Savings: Fire and he is the informer

Cost: Fire and he is not the informer
Cost: do not fire VP
Cost: lie detector 1
Cost: lie detector 2
BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 2

Use Bayes theorem (where needed) to find the following probabilities: (Inf: is informer,
NI, is Non informer)
P(Inf) and P(NI)
For Lie Detectors 1 and 2:
P(+|Inf), P(-|Inf), P(+|NI), P(-|NI)
P(+) and P(-)
P(Inf|+)
P(NI|-)
b. Draw the decision tree of this problem and find the best strategy
i. Calculate the values at each node . Put the probabilities on top of the branch
description. Use full numbers. Write the terminal payoffs at the very right of the tree after
the terminal nodes.
ii. Prune all of the branches that are not needed.
iii. Highlight and state the entire optimal strategy (including the EMV).

2. Made-for-TV Movie [35 marks]
Netflix is deciding about making a movie. Based on their historical data, there is a 65%
chance that the movie will be a hit and they will earn $13M. If the movie is a flop, instead
of hit, then they will lose all the $7.7M cost of producing the movie.
a) Obviously, they do not know how successful the movie will be when they are making
the decision, but assume that hypothetically, someone will give you that information
before making the decision. In this case, What is the EVPI (show calculation)? (Draw
two small trees with the probabilities and values at each node to show logic; label
them as Perfect Information and Without Perfect Information to differentiate the two
trees. Ensure to highlight and prune the trees. Use the choices “Make Movie” or
“Don’t Make Movie”.)
At a cost of $825,000, a market research firm will analyze the TV show and issue a report
predicting whether it will be a hit. If the TV show is actually going to be a hit, there is a 96%
chance that the market researchers will predict the TV show to be a hit. If the TV show is
actually going to be a flop, there is a 10% chance that the market researchers will predict
the TV show to be a hit.
b) Draw a decision tree:

i. Include calculations for the Bayes probabilities below; written neatly by hand is fine.
Use the notation:
AH for actually hit, AF for actually flop
PH for predict hit, PF for predict flop
Show notation, values and solution (to four decimal places) for P(PF), P(AF|PF) and
P(AH|PH).
ii. Put all probabilities and terminal values on the tree. Calculate the values at each node
and write them directly on the tree by the node (just $, no cents). Prune all of the branches
that are not needed.
iii. Identify the strategy (in words) that maximizes Netflix’s expected value for profit in
responding to a newly proposed Made-for-TV movie.

3. Excel Data Table [35 marks]
Excel File: BUS336 Spring 2024 A1
Pauline’s Painting is considering whether to bid for renovations of a condo in Calgary.
Naturally, the condo owner may ask a competitor to bid for the project. The bids are
delivered independently so no company knows what the others are bidding. Pauline’s
Painting is considering bidding $5,800, $6,400, or $7,000 (or perhaps not bidding at all) on
this job. The condo owner will choose the lowest bid. Pauline’s Painting estimates that it
will cost $330 to prepare a bid and labour and material costs of $4,100 if she wins the
contract. Based on past contracts of this type, Pauline’s Painting believes the possible low
bids from the competition, if there is any competition, and the associated probabilities are
those shown in the table below. In addition, Pauline’s Painting believes there is a 15%
chance that there will be no competing bids.
Competitors’ Bid Amount (if any) Probability

Less than $5,800 0.24
Greater than or equal to $5,800 but less than 0.18
$6,400
Greater than or equal to $6,400 but less than 0.32
$7,000
Greater than or equal to $7,000 0.26
To calculate the values in the “blue cells” use logic to determine the profit for Pauline’s
Painting in each cell. Don’t use “if” statements.
submit both your solution & formula spreadsheets for each part (a,b,c and d). For the
formula sheets, ensure that you resize them appropriately so that all of the formula can be
seen. Take a screenshot of both and ensure that they are readable.
Use Excel and efficient cell formulas (SUMPRODUCT, MAX and VLOOKUP would be
examples). No statement is necessary for the choice in each case. You should start with
the first sheet which is for MAXIMAX calculations. Once you fill the blue cells on this sheet,
the other sheets will be updated accordingly.
a. Calculate the MAXIMAX value and determine the bid decision (fill in the template).
Briefly state the monetary risk in this approach.
b. Calculate the MAXIMIN value and determine the bid decision (fill in the template).
Briefly state the monetary opportunity cost in this approach.
c. Calculate the MINMAX Regret value and determine the bid decision (fill in the
template). Briefly state the monetary opportunity cost in this approach.
d. Calculate the EMV by calculating the joint probabilities with the information given
above and determine the bid decision (fill in the template).
e. Sensitivity Analysis:
i. Change the probability of no bid by competitors (Cell B15) (currently
0.15), from 0.1 to 0.9 in 0.05 increments. Find out when your best bids

value changes by changing that probability. Submit a screenshot of the
data table only.
ii. Change the cost to prepare bid (Cell B3) from 300 to 1600 in 100
increments and find the bid decision in each case. Submit a screenshot
of the data table only.
Save and submit the excel file for Question 3 with the pdf file of your assignment.

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BUS336, D100 SPRING 2024

Question Mark Maximum

Due: February 18th, 2024 by 11:59 pm on Canvas

Last Name First Name

1. Firing the informer [30 marks]

Savings: Fire and he is the informer

BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 2

BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 3

b) Draw a decision tree:

BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 4

Competitors’ Bid Amount (if any) Probability

BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 5

BUS 336 (Spring 2024) Ass’t #1, Negar Ganjouhaghighi Page 6

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