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170 Decision trees and influence diagrams
If the modification has still not led to completion after the further
2 years a decision would then have to be made between switching
to the HMP acid approach or persevering with zylogen for a further
7 years, by which time it is assumed that successful development is
certain to have been achieved.
Assuming that the objective of Bonsante’s directors is to minimize
the expected development time of the drug, determine their
optimum policy.
(7) The Casti engineering company manufactures specialized components
for agricultural machinery. The moving parts of one of these
components needs to be protected by applying a waterproof seal to
its surface. Recently two new technologies have become available,
which it is thought could replace the existing method and yield
cost savings which would give Casti a significant advantage over
competitors. The company now has to decide which technology,
if any, it should develop (resource constraints mean that only one
technology can be developed at any one time).
The first technology is a patented method called KVG electrosealing.
It is thought that there is a 0.8 probability that this
technology could successfully be applied to the sealing process.
The cost of developing this technology is estimated to be $8 million
and a successful development would lead to gross savings (i.e.
savings before development costs have been taken into account)
of $19 million with a probability of 0.1, $12 million with a probability
of 0.5 and $9 million with a probability of 0.4. If the process
could not be made to work successfully then the company would
abandon the project and continue with the existing method of
sealing.
The second technology would involve dipping the components
in a solution of TCX. Developing this technology would cost an
estimated $2 million, but it is thought that there is only a 0.65
probability that the process could be designed to meet EC pollution
standards. If pollution standards can be met then the process
will lead to gross savings estimated to be worth $8 million. If the
standards cannot be met then the company would have three
options. Either it could abandon the entire project, or it could
attempt to modify the method or it could switch its resources in
an attempt to develop the KVG electro-sealing instead. Modifying
the TCX dipping procedure would be likely to cost a further
$2 million and it is thought that there would be a 50:50 chance
that the modification would succeed. In the event of modification