Business Statistics Assignment: Expansion Decision Making Analysis

This business statistics assignment focuses on a saloon business considering expansion. The analysis explores three expansion alternatives: hiring three new employees, hiring one new employee, or maintaining the status quo. The assignment presents a decision table based on potential profits and losses under different demand scenarios (high, moderate, and low). It utilizes the Optimistic (Maximax) and Criteria of Realism (Hurwicz) strategies to determine the optimal expansion strategy. The Optimistic strategy suggests expanding with three employees. The Hurwicz criteria, with a coefficient of realism of 0.80, also leads to the same conclusion, projecting a net profit of $480 per day with three new employees. The assignment demonstrates the application of statistical decision-making techniques in a business context, evaluating profitability and risk associated with different expansion choices.

Business Statistics Quantitative
Student name:
Student number:
Lecturer name:
Date: 1st November 2018

1. I deal with selling saloon business and the business name goes by “Anyango’s Beauty
Salon”. I have branches in various locations within the town and am now considering to
expand the business to a neighboring town.
2. I have three alternatives to choose from:
i) I can decide to expand to the neighboring town with three employees.
ii) I also have a choice of piloting the expansion with just one employee
iii) The other option that I have is to maintain the status quo, that is, I don’t expand
(get ways of making customers come to my location)
Three states of nature that I would be facing are:
i) Serious demand for executive beauty services
ii) Moderate demand for executive beauty services
iv) Nobody cares about executive beauty services
3. On a typical “awesome” day, each employee would generate $350 and it costs about
$150 for electricity and staffing. This leaves us with a net profit of $200 per day. On a
typical “moderate” day, each employee would generate $200 and costs about $150 for
electricity and staffing. This leaves us with a net profit of $50 per day. Lastly on a typical
“poor” day, each employee would generate $50 and it costs about $150 for electricity and
staffing. This leaves us with a net loss of $100 per day. I will then set up my decision
table based on the above profit/losses per new employee as follows;
4. Typical decision table
Awesome
Executive
demand
Moderate
Executive
demand
Poor
Executive
demand
3 new
employees
600 150 -300

1 new
employee
200 50 -100
0 new
employee
0 0 0
5. Based on the maximization problem and choosing to use the Optimistic and Criteria of
Realism strategies, the Optimistic (Maximax) decision is to build 3 new employees with a
possibly payoff of $600 per day
Awesome
Executive
demand
Moderate
Executive
demand
Poor
Executive
demand
Alternat
ive
value
3 new
employees
600 150 -300 600
1 new
employee
200 50 -100 200
0 new
employee
0 0 0 0
Maximiz
e
450
For the Criteria of Realism (Hurwicz), I will use a coefficient of realism of α = 0.80. As a
reminder, this means that I will be 80% optimistic and 20% pessimistic – a compromise
between the optimistic and pessimistic strategies. The Criteria of Realism decision is still
to build 3 new employees with a possibly payoff of $480.00 per day.
α= 0.80
Awesome
Executive
demand
Moderate
Executive
demand
Poor
Executive
demand
Alternat
ive
value
3 new
employees
600 150 -300 600
1 new
employee
200 50 -100 200
0 new
employee
0 0 0 0
Hurwicz

Criteria
480
Clearly as can be seen, the above decision will bring about a net profit of $480 per day
with three new employees.