Unformatted text preview: Question#1 Consider oil-wildcatting Problem. You have mineral rights on a piece of land that you believe may have oil underground. There is only a 20% chances you will get favorable outcome i.e. that you will strike oil if you drill, but the payoff is $, It costs $10, to drill. The alternative is not to drill at all, in which case your profit is zero. a. What is the optimal decision strategy without consulting Geologist? Why? b. What is the expected value of perfect information? Or How much maximum you will pay for the certain information? c. Before you drill you might consult a geologist who can assess the promise of piece of land. She can tell you whether your prospects are “Good” or “Poor”. But she is not a perfect predictor. If there is oil, there is 95% probability that she will say prospects are good. If there is no oil, there is 85% probability that she will say poor. Draw a decision tree that includes the “Consult Geologist” alternative. Finally calculate EVII for this geologist. If she charges $, what should do? SOLUTION: a . The expected value of drilling is $30,, versus $0 for not drilling, so choose to drill . b. EV(with help of Perfect Information) = x + x 0 = EVPI = EV(with help of Perfect Information) - EV(No help) = $38, - $30, = $8, c. We have: P(“good” | oil) = P(oil) = P(“poor” | no oil) = P(no oil) = G = Good State of Prior Conditional Joint Posterior Nature Probabilities Probabilities Probabilities Probablities Sj P(Sj) P(G|Sj) P(G and Sj) P(Sj|G) Oil No oil P(G) = 1 P = Poor State of Prior Conditional Joint Posterior Nature Probabilities Probabilities Probabilities Probablities Sj P(Sj) P(P|Sj) P(G and Sj) P(Sj|P) Oil No Oil P(G) = 1 EVII = EV(with help of Consult Geologist) - EV(Help) = $34, - $30, = $4, Because EVII is less than $, which the geologist would charge, this is a case where the expected value of the geologist’s information is less than what it would cost. Don’t consult her. STEP BY STEP APPROACH Question#1 Consider oil-wildcatting Problem. You have mineral rights on a piece of land that you Consider oil-wildcatting Problem
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MINI-CASE ASSIGNMENT #1 – THE 3M ORGANIZATION Question #1: Chester Barnard: He specifies his approach with three systems. The first system is the social system which companies should be able to satisfy the motive of the workers similarly to calling it as a “cooperative arrangement”. The second element connects with first element because it aids with the organization’s objective. Basically, if a company satisfies the motives of its participants and attains its main and common goal/s, the cooperative arrangement among them will last. The third element is the communication system which managers must establish and maintain an effective relationship with employees. Following all three elements, it portrays how 3M’s team leaders perform effective communication by bringing everyone together [all from different expertise] to discuss any problems and together, they can generate solutions. Also, the management at 3M provides bonuses to teams who create a winning product. This allows all employees to work together and feel their actions will be consistent with the needs and desires of the other employees. Mary Parker Follett: Unlike Charles’s approach, the 3M’s organization links closer to Follett’s approach only because it emphasizes on her practice of management. Fallot defined management as “getting things through others”. 3M uses that technique to encourage employees to maximize the production not by force, but through the involvement in coordination and harmonizing group effects. Also, Fallot’s self-management is involved when 3M’s employees get to choose [15 percent of their time] what they want to without the management’s approval. Fallot stress this element along with coordination because the decisions regarding how work should be done is to be made by those performing the tasks not the managers who are not familiar with the task. She emphasizes on the theory of “creative conflict resolution”. This theory connects to 3M’s innovate culture to which both managers and employees are happy as any problems has been resolved per their own desires. Question #2: Today, any businesses are affected by the external forces in the environment due to their competitors. Globally, a change in the business can not only attract customers, but allow business to stay current with industry trends. The ability to change can help any employees in a company by creating opportunities. With the leader-employee relationship, the employee may take imitative of the leadership role by taking additional responsibilities for future promotions. Companies that are proficient at handling change can help in an environment that encourages innovation (ex. 3M’s organization) At the 3M’s organization, the employees who feel that their ideas will be looked at by their manager may be more “willing” to think creatively which can help a company prosper. Looking at the technological effects, companies are updated with the advanced technology. Technology allows companies to do everything so it can get the work done faster and efficiently. Another strength with the technology in companies is the flexibility. With the benefit of technology, most employees are able to work at home with the aid of the advanced technology connected to their company. References Karakowsky, L., & Guriel, N. (). The Context of Business: Understanding the Canadian Business Environment. Toronto: Pearson.