RISK AND UNCERTAINTY
Day 1
INTRODUCTION
Values for rates, weights, costs, etc. have been assumed certain so far
However, in reality these and other values are far from certain
Consequently, we do Sensitivity Analysis in order to deal with risk and
unc
MULTIATTRIBUTE DECISION ANALYSIS
INTRODUCTION
The technique known by various names
Multiattribute
Multiobjective
Multicriterion
Multifactor
Features of MDA
Extremely powerful
Easily understood
Comprehensive
Conveniently combines qualitative and
ECONOMIC ANALYSIS examples
Example 5:
Machine A
Machine B
First cost
$20,000
$30,000
Life
5 years 10 years
Salvage value
$4,000
0
Annual receipts
$10,000
$14,000
Annual disbursements $4,400 $8,600
MARR
15%
Note: Repeatedly assumption is made
Solution:
ECONOMIC ANALYSIS
Part 2
Example #3 (repeating cycle of payments): Suppose that a piece of equipment costing
$20,000 is expected to be replaced 3 times with identical equipment, making 4 life-cycles
of 5 years each. The salvage value of the equipment is
ECONOMIC ANALYSIS
Part 1
CASH FLOW IS RATE OF FLOW OF CURRENCY INTO AND OUT OF ACCOUNT
TIMING OF CASH FLOW IS TERMED TIME VALUE OF MONEY
PRECISE DEFINITION OF CASH FLOW INVOLVES
TIMING
AMOUNT
PRINCIPLE: TWO DIFFERENT CASH FLOWS AT DIFFERENT POINTS
ECONOMIC ANALYSIS 3
where
B Annual worth of benefits to user
CR annualized capital recovery, including any salvage value
O Equivalent uniform annualized operating cost
M Equivalent uniform annual maintenance cost
For a project to be viable B/C > 1.0
B/
Donzaleigh Holmes
MAN 4533
I.
MULTIATTRIBUTE DECISION ANALYSIS
A.
SELECTION OF ATTRIBUTES
A.1.
A.2.
B.
The number of attributes should be kept to a minimum
Attributes should be independent
GRAPHICAL TECHNIQUES
B.1.
Allow problem attributes to be easily vi
Homework #6: Reliability and Maintainability
1. A particular brand of light bulb fails according to an exponential
distribution, and has a failure rate of 0.002 bulbs/hour.
a) What is the probability of failure within 400 hours?
b) What is the reliability
HW#4: Multi-criteria Decision Analysis
1. a) Weight the relative importance of the four most important attributes that you would
consider in selecting an automobile. Assume that these are the only attributes that you will
quantitatively consider. Show how
MAN 3533 Homework #2: Economic analysis
For the following problems use an i of 15% where required. Show all work.
1. For a MARR of 15% and an amount of $100,000 at the beginning of a 10 year
period calculate
a)
An equivalent annual amount to the $100,000
MAN 3533 Homework #3: Risk and Uncertainty
Do the following problems using the EXCEL spreadsheet. Show all work.
1. A firm is investigating the purchase of a machining center. The following
information provides the most likely estimates for the machining