Question
Sassy
Sassy, a partnership between fashion designers, produces clothes for teenagers. Capacity utilization is very high.
The partners are considering some strategic changes. After conducting research, they presented three options and outlined the costs and expected revenue. They also predicted that the economy would either improve or stay the same. The probability of the economy staying the same is 0.3.
The options, costs and expected revenue are given below:
Table 1: Information relating to the three strategic options for change
a. Describe one disadvantage for an organization of operating at high capacity utilization.[2]
b. Construct a fully labelled decision tree and identify the best option for Sassy (show all your working).[6]
c. Explain one limitation for Sassy of using a decision tree as a planning tool.[2]
▶️Answer/Explanation
Ans:
Some of the disadvantages for an organisation of operating at high capacity:
Workers might feel the pressure / tiredness / mistakes / demotivation, which can reduce productivity.
Machinery is more likely to break down, so production may be halted.
Higher maintenance costs, due to constant use.
Inability to respond to a sudden increase in demand, so potential customers may be lost.
Accept any other relevant disadvantage.
Award [1] for a relevant disadvantage with appropriate description up to a maximum of [2].
For [2] marks responses must link the disadvantage to an outcome as in the examples above.
It is not expected that candidates explain the benefits to any stakeholder.
Application to the organization is not required.
Do not credit an example.
b.
Calculations:
EMV 1 = (300 000 × 0.7 + 250 000 × 0.3) − 2 00,000 = $85 000
EMV 2 = $150 000
EMV 3a = (220 000 × 0.7 + 170 000 × 0.3) − 150 000 = $55 000
EMV 3b = (550 000 × 0.7 + 450 000 × 0.3) − (170 000 + 150 000) = $200 000
Best option 3(b) should be followed.
[0]
The decision tree does not reach a standard described below.
[1–2]
The decision tree is not accurately constructed, and / or the calculations of each option are not presented or accurate. However, there is some evidence of a general understanding of the model.
[3–4]
The principal elements of the decision tree are constructed, but may not be entirely accurate. The calculations of each option are largely correct. Allow up to three mistakes in calculations and / or presentation for [3].
Allow for either two errors in calculation or two error in presentation [4].
For an accurately constructed decision tree with incorrect calculations, award up to a maximum of [3].
For an accurately constructed decision tree with EMV calculations, but no working [4].
[5-6]
The decision tree is accurately constructed. The calculations of each option are correct and well presented. A key is provided. Workings are shown. As well as the rejected options [6]. Full marks can be awarded even if the headings of expected return/forecast revenue and probabilities are not explicitly written.
Deduct [1] if a key is not provided.
Deduct [1] if the best option is not identified either on the diagram OR following the EMV calculations.
N.B. for only correct calculations of all options without a decision tree award a maximum of [2].
Essentially treat the lack of key or rejected options as presentation errors as errors. Hence three presentation/calculation errors = [3].
Apply candidate own figure rule (OFR) throughout this response.
c.
While a general limitation of the decision tree model is the nature of the predicted outcome, here the use of the model is even more limited as it has been done by the partners who are designers. Due to lack of experience/qualification, they ignored the possibility that the economy might deteriorate. The predicted financial returns for each option might be inaccurate, especially in the volatile, everchanging fashion industry. Hence, possible bias and different numerical outcomes.
N.B. Do not accept “worsening economy” if there is no other reference to the stimulus since this is often cited as a generic limitation.
Accept any other relevant limitation.
Candidates do not have to cover all of the applicable issue above. One is sufficient.
Award [1] for a relevant generic limitation identified or described and [1] for any additional explanation in context.
[2] cannot be awarded for the limitation if the response lacks either explanation and / or application.
For example:
For an identification or a description of the limitation with or without application [1].
For explanation of the limitation with no application [1].
For explanation of the limitation and application [2].