Problem 13-07 (Algorithmic) Hudson Corporation is considering three options for
ID: 463545 • Letter: P
Question
Problem 13-07 (Algorithmic) Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows Demand Medium Low Staffing options High Own staff 650 650 600 300 600 Outside vendor 900 800 Combination 650 500 a. If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation? What is the expected annual cost associated with tha recommendation? If rerequired, round your answer to the nearest dollar. Expected annual cost 3 b. Construct a risk profile for the optimal decision in part (a). Cost (in thousands of dollars Propability 0.2 0.5 0.3 1.0 What is the probability of the cost exceeding $700,000? If required, round your answer to two decimal places. ProbabilityExplanation / Answer
Expected annual cost = $570,000
cost probability
900 0.2
600 0.5
300 0.3