Question

In: Operations Management

Sam really liked working for his Dad, Richard. Richard owned a lawn and garden service business,...

Sam really liked working for his Dad, Richard. Richard owned a lawn and garden service business, Lawn Tech. The business has a good reputation and demand for the company services has risen steadily over the last decade.

Sam wanted to expand his business beyond chemical and synthetic lawn into organic and green products and services. Sam knew that his Dad would not be encouraging of this change because Lawn Tech’s reputation and client base were not asking or demanding organic lawn care. However, Sam’s vision for Lawn Tech differed from his Dad. The more he studied about organic lawn service and garden products, the more convinced he was that Lawn Tech’s future success would come from finding a balance between chemical and organic approaches. Expanding the business would require three new employees for marketing and sales, new training regimens, new manuals, and new marketing.

At heart, Sam wanted to run his own business. His Dad promised him ownership in Lawn Tech, but that discussion did not go any further.

Sam considered a few choices:

Leave Lawn Tech and work for another lawn service business
Leave Lawn Tech and start a new business, in competition with Lawn Tech
Stay with Lawn Tech, but demand ownership and executive decision making
Continue on the current course.



How should Sam decide on the alternatives? What data would he need to make a rational decision? What kind of spreadsheet should he create to compare the choices?

Solutions

Expert Solution

One of the most systematic way that Sam could decide between the alternatives is through decision matrix or a decision tree analysis. In order to do that, he would need to list down the common outcomes for each of the decisions. For example, the outcomes could be

Demand for the organic and green products increases

Demand for organic and green product remains the same

Demand for organic and green product reduces

Next, Sam should estimate a payoff for each of the decisions and their respective outcomes. He should consider the impact from all angles and then consider the payoff. For example, if he works with another lawn service business, then his own father’s business may face stiff competition. There should be a monetary cost/benefit associated with it. Basically, Sam should convert all the outcomes into a numerical and quantifiable values. With this he could create a decision tree or a decision matrix.

In case he uses a decision tree, he should calculate the expected monetary value (EMV) for each of the decisions. Based on the EMVs he should choose the best possible value.

Also if he wants to consider his own style of decision making then he could use the decision matrix to determine if he wants to take an optimistic (Maximax), or pessimistic (Maximin) approach to each of the decisions.

A simple spreadsheet model with decision matrix and the alternative calculation should suffice.

keosha answered 1 year ago
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