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334 Resource allocation and negotiation problems
adopted. Each combination of strategies is referred to as a package,sothat
one example of a package would be: reduce the outlets operated in the
North to three, expand the West’s operation to six outlets and maintain
the status quo in the other two regions. Since one of the two strategies
in the North could be combined with one of the three strategies in the
West and one of the three strategies in the East, and so on, the number
of packages that were available was 2 × 3 × 3 × 3, which equals 54. In
many problems this number is much higher. For example, Phillips 1
quotes an application where there were over 100 000 possible packages.
Assessing the costs and benefits of each strategy
The next stage in the formulation of the model was the assessment of the
costs and benefits which were associated with each strategy. Table 13.1
shows the figures which were elicited from the group after much
discussion. Note that, with the exception of the monetary values, all the
values in the analysis are measured on interval scales (see Chapter 3).
The first figures elicited from the group were the estimated costs over
the next 5 years of carrying out each strategy. Note that closing down
the operation in the West would be expected to save about $14 million.
Table 13.1 – Values of the strategies in the individual regions
Strategies
Costs
($m)
Profits
($m)
Benefits
Market
share Risk
NORTH REGION
(1) Reduce to three outlets 12 (6) 100 0 100
(2) Status quo
WEST REGION
28 (−3) 0 100 0
(1) Close down operation −14 (4) 100 0 100
(2) Status quo 7 (−2) 54 30 60
(3) Expand to six outlets
EAST REGION
16 (−9) 0 100 0
(1) Status quo 2 (3) 100 0 100
(2) Expand to four outlets 25 (0) 91 25 70
(3) Expand to 10 outlets
SOUTH REGION
40 (−30) 0 100 0
(1) Status quo 20 (65) 100 0 100
(2) Expand to 16 outlets 25 (50) 50 80 40
(3) Add three town center outlets 45 (35) 0 100 0