The director of social services of a county has learned that the state has mandated additional information requirements. This will placean additional burden on the agency. The director has identified three acceptable alternatives to handle the increased workload. Onealternative is to reassign present staff members, the second is to hire and train two new workers, and the third is to redesign currentpractice so that workers can readily collect the information with little additional effort. An unknown factor is the caseload for thecoming year when the new data will be collected on a trial basis. The estimated costs for various options and caseloads are shown inthe following table:CASELOADE TOModerate High Very High$80*Reassign staff9095New staff707070Redesign908070collection*Cost in $ thousands.After contemplating the caseload question, the director of social services has decided that reasonable caseload probabilities are 0.30for moderate, 0.50 for high, and 0.20 for very high. b. Determine the expected value of perfect information using an opportunity loss table. (Round your answers to the nearest wholenumber. Leave no cells blank - be certain to enter "O" wherever required.)Opportunity loss tableModerate($)High($)Very High($)EOL($)Reassign1020New StaffRedesign201011(0.30)(0.50)(0.20)

Answered: b. Determine the expected value of…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

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The director of social services of a county has learned that the state has mandated additional information requirements. This will place
an additional burden on the agency. The director has identified three acceptable alternatives to handle the increased workload. One
alternative is to reassign present staff members, the second is to hire and train two new workers, and the third is to redesign current
practice so that workers can readily collect the information with little additional effort. An unknown factor is the caseload for the
coming year when the new data will be collected on a trial basis. The estimated costs for various options and caseloads are shown in
the following table:
CASELOAD
E TO
Moderate High Very High
$80*
Reassign staff
90
95
New staff
70
70
70
Redesign
90
80
70
collection
*Cost in $ thousands.
After contemplating the caseload question, the director of social services has decided that reasonable caseload probabilities are 0.30
for moderate, 0.50 for high, and 0.20 for very high.

b. Determine the expected value of perfect information using an opportunity loss table. (Round your answers to the nearest whole
number. Leave no cells blank - be certain to enter "O" wherever required.)
Opportunity loss table
Moderate($)
High($)
Very High($)
EOL($)
Reassign
10
20
New Staff
Redesign
20
10
11
(0.30)
(0.50)
(0.20)

Expert Solution

Step 1 Introduction:

Here, we could see the Cost matrix, we have a probability for each state of nature, and we have three alternatives, these are reassigned staff, new staff and redesign, three states of nature, which are moderate, high, and very high.

The decision alternative of the minimum EOL or expected opportunity loss would be the same as the decision alternative of the lowest Expected value, as it is cost matrix, again, in the case of pay off or profit matrix, The decision alternative of the minimum EOL or expected opportunity loss would be the same as the decision alternative of the highest Expected value.

Here, the EVPI would be the minimum EOL value.

The detailed steps are shown in the next section.