Expected Monetary Value of the Project – Assignment Example
The paper "Expected Monetary Value of the Project" is an excellent example of a business assignment. Using the data from the decision previously made, it can be concluded that the expected monetary value of the project is the measure of the desirability, and the swing weights from the project are the desirability ratings. The determination of the risk for the decision makers is done by considering the expected cost for each option in the decision tree, and once this is done, the swing weights can then be sued to calculate the risk. Assuming that each option has some probability of occurrence, this probability can be used to calculate the overall risk figures as follows:
From the preference curve constructed, it can be seen that the shareholders for the project are risk-averse since the graph is curved outwards. Risk averseness indicates that the shareholders prefer to take on projects that have a low risk. The preference for projects with a low risk indicates that the shareholders would prefer not to gain high returns at the expense of losing a lot of investment. The personal risk levels of each shareholder are reflected in the overall risk profile since the swing weights are calculated from their swing weights. To increase their risk tolerance, management can decide to make changes in the project that seem more favorable than the current risk profile, for example, the introduction of other options to reduce the uncertainty of the individual options. From the above preference curve, the following strategies should be implemented before any decision is made:
• Apart from the cost, the company should also consider the distance of the production from the consumers.
• The stakeholders identified should be given a chance to evaluate the various options and decide on the best option
• The decision situation should also consider the competitive factors in the environment.