Decision Support System and Analysis - Assignment

Running Head: DECISION SUPPORT SYSTEM
Decision Support System
Name of the Student
Name of the University
Author Note

DECISION SUPPORT SYSTEM1
Table of Contents
Problem 1.........................................................................................................................................2
Problem 2.........................................................................................................................................5
Problem 3.........................................................................................................................................7
Problem 4.........................................................................................................................................8
Part 1............................................................................................................................................8
Part 2..........................................................................................................................................13
Problem 5.......................................................................................................................................21
Problem 6.......................................................................................................................................22
Task 1.........................................................................................................................................22
Task 2.........................................................................................................................................24
Conclusion.................................................................................................................................26

DECISION SUPPORT SYSTEM2
Problem 1
Two friends, Gregor and Ilya have completed their studies recently on IT and business
respectively. They are interested to open a part time business in consultancy. Thus, to start their
business, they need to rent an office space which is very costly and they think that this cost will
affect the success they will receive from their project.
Tus, to avoid that, they have identified three different strategies with the help of which
they can set up the business. In the first strategy, they will rent a location which will be fairly
expensive in the district where they will start their business and where the potential customers of
their business will be located. Despite of the expensive office space, they are expecting a good
profit from their business when the market is favorable. On the other hand, in an unfavorable
market, when the business will be less, they are expecting to have a loss from the business. Their
second strategy is to rent an office in the neighboring suburb, where the office will be available
at a cheaper rate. The third strategy thought by them is not to set up a business at all.
According to the estimates made by Gregor and Ilya, the profits and the losses that they
can make in a favorable and an unfavorable market for the three types of strategies are expressed
in the following table:
Table 1.1: Estimated Profit or Loss
Favourable Unfavourable
Strategy 1 $20,000 $16,000
Strategy 2 $15,000 $6,000
Strategy 3 $0 $0
(a) Ilya is the kind of person who likes to take risks and is optimistic in nature. Thus,
Ilya’s approach will be to maximize the maximum profit that can be earned from the

DECISION SUPPORT SYSTEM3
three strategies. Thus, it can be seen from table 1.2 that Ilya would choose strategy 1 to
set up the business.
Table 1.2: Approach by Ilya
Favourable Unfavourable Best Profit / Loss
Strategy 1 $20,000 $16,000 $20,000
Strategy 2 $15,000 $6,000 $15,000
Strategy 3 $0 $0 $0
(b) Gregor is the kind of person who is conservative and has an adverse nature
towards risk taking. Thus, Gregor’s approach will be to minimize the minimum profit
that can be earned from the three strategies. Thus, it can be seen from table 1.3 that
Gregor would choose strategy 3 and will not be interested in setting up the business at all.
Table 1.3: Approach by Gregor
Favourable Unfavourable Least Profit / Loss
Strategy 1 $20,000 $16,000 $16,000
Strategy 2 $15,000 $6,000 $6,000
Strategy 3 $0 $0 $0
(c) It has been observed that the the chance of having a favorable market is 55
percent. Thus, from table 1.4, it can be seen clearly that considering the greatest expected
values that can be earned from the business, they will be choosing strategy 2 to set up the
business.
Table 1.4: Expected Value
Favourable Unfavourable Expected Value
Strategy 1 $11,000 $7,200 $3,800
Strategy 2 $8,250 $2,700 $5,550
Strategy 3 $0 $0 $0

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(d) The plot showing the expected values of returns from strategy 1 and strategy 2 is
given in figure 1.1 when the probability of favorable market varies from 0 to 1.
0.00 0.20 0.40 0.60 0.80 1.00 1.20
$20,000
$15,000
$10,000
$5,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Expected Returns of Strategy 1 and Strategy 2
Strategy 1
Strategy 2
Probability
Expected Values
Figure 1.1: Expected returns from Strategy 1 and Strategy 2
(e) i) It can be seen from the graph that expected returns from strategy 1 is higher than
strategy 2 and strategy 3 when the probability of favorable market is more than 0.66.
Thus, Strategy 1 will be selected when 0.67 ≤ P ≤ 1
ii) It can be seen from the graph that expected returns from strategy 2 is higher than
strategy 1 and strategy 3 when the probability of favorable market is between 0.29 and
0.66. Thus, Strategy 2 will be selected when 0.29 ≤ P ≤ 0.66
iii) It can be seen from the graph that both strategy 1 and strategy 2 face loses in the
expected returns when the probability of favorable market is less than 0.28. Thus,
Strategy 3 will be selected. Thus, Strategy 3 will be selected when 0 ≤ P ≤ 0.28

DECISION SUPPORT SYSTEM5
Problem 2
Let the number of TV ads be x1, radio ads be x2, billboard ads be x3 and newspaper ads be
x4.
Minimize Z = 960 x1 + 480 x2 + 600 x3 + 120 x4
Subject to the constraints:
x1 ≤ 10
x2 ≤ 10
x3 ≤ 10
x4 ≤ 10
x1 ≥ 10
x2 ≥ 10
x1 + x2 ≥ 6
960 x1 – 600 x3 – 120 x4 ≥ 0
And the non-negativity constraints x1 ≥ 0, x2 ≥ 0, x3 ≥ 0, x4 ≥ 0