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The main stages of the analysis 341
Benefits
100
90
80
70
60
50
40
30
20
10
Efficient frontier
C
1
0 20 40 60 80 100 120
Costs ($m)
Figure 13.5 – Identifying the efficient frontier for the furniture company problem
B
a continuous straight line or it will have the ‘convex’ shape shown in
Figure 13.5, so that packages 1 and 2 will be excluded.
It can be seen from Figure 13.5 that the proposed package (represented
by P) did not lie on the efficient frontier. When this is the case, the
EQUITY package highlights two alternative packages. Package B is a
package which will offer the ‘best’ level of benefits for a cost which is
close to that of the proposed package, while package C is a package
which will offer roughly the same level of benefits as the proposed
package, but at the ‘cheapest’ level of costs.
Not surprisingly, the group of managers were interested in finding out
about package B and the EQUITY program revealed that this involved
the following strategies:
In the North: Maintain the status quo
In the West: Expand to six outlets
In the East: Maintain the status quo
In the South: Expand to 16 outlets
This package would cost $71 million, which was less than the proposed
package but would lead to benefits which had a value of 84.7, which
P
2
3