Assessment Task: Apply decision analysis techniques
Format: Report
Word length: 3000-3500
Task description: – Complete your assessment based on the Catanza Technologies Case Study provided below.
Question 1
You have been engaged as a consultant to Catanza executive to consider
the information presented. You are asked to apply decision analysis techniques to the
decision problem facing Catanza Technologies and advise the company on
their outcome options and recommended course/s of action. Clearly state any assumptions
you have made.
**Your discussion should include: –
- A brief overview of the key facts and your approach to the problem.
- A clear statement of assumptions about the information provided and your analysis.
- A decision tree of potential decision paths and events including Probabilities, Net Present Value calculations and Expected Values.
- The application of at least one other decision-making technique,
for example, SMART Analysis.
- Recommended course of action.
Question 2
Discuss in detail the strengths and limitations of your analysis in the context of the problem faced by Catanza Technologies. Your discussion of limitations should include consideration of potential biases, heuristics or other considerations that may have been used or applied by Catanza and its staff.
**This question constitutes: –
- Strengths of analysis
- Limitations of analysis
- Additional information (which would have helped)
- Make specific recommendations for other information or investigations that would be needed to improve your analysis.
***Assessment Submission Requirements: –
Produce a report addressing the 2 questions – text, illustrations, diagrams and calculations –
supported by reference to the sources of information and theoretical frameworks of
understanding. The main steps: –
- Prepare a Decision Tree
- Populate the Decision tree with the probabilities
- Set up an Excel spreadsheet for the cash flows for the options.
There are 8 options, 4 for Electric wire (EW) model and 4 for the GPS model
4 options EW model
Production ready by Jul 2020 – Good Market
Production ready by Jul 2020 – Poor Market
Production ready by Jan 2021 – Good Market
Production ready by Jan 2021 – Poor Market
4 options GPS MODEL
Production ready by Jan 2021 – Good Market
Production ready by Jan 2021 – Poor Market
Production ready by Jan 2022 – Good Market
Production ready by Jan 2022- Poor Market
The Assessment structure must be as follows: –
Title Page
Executive Summary
Table of Contents
Introduction
Background
Environment Overview
Products and Markets
Past Performance
Comments on current strategies
Methodology
- Decision Trees
- Net Present Value
- Rollback method
- The application of at decision-
making technique: – SMART Analysis
- Scenario Planning
- List your Assumptions
Findings and Analysis of Results
Alternatives available and respective payoffs
Recommended option/s
Strengths of analysis
Limitations of analysis
Conclusion
Recommendations
References
Appendices
1.Decision Tree
2.NPV Calculations
3.SMART Analysis
- etc
Catanza Technologies Case Study
(Written as at January 2019)
Read the case study which follows and answer the 2 questions at the conclusion.
Catanza Technologies was founded in Brisbane in 2002 at Eagle Farm as a specialist in
industrial sensor technology. In 2008, they expanded into industrial robots, however this
sector fell into decline leading-up to the departure of automotive manufacturers from
Australia by 2017. In 2014 they launched a commercial grade robotic floor cleaner which has
had a steady growth in revenues and market share.
The company’s turnover by product type is shown below:
| Product |
2014
|
2015
|
2016
|
2017
|
2018 |
| Industrial
Sensors |
16.2 |
12.8 |
19.4
|
16.9
|
17.2
|
| Industrial
Robots |
8.2 |
6.4
|
4.9
|
4.7
|
5.1
|
| Robotic Floor
Cleaner |
0.4 |
0.8
|
1.3
|
1.9
|
2.6
|
The company is now (January 2019) considering the development of commercial robotic lawn management tools and equipment and, as a first step, a detailed plan has been put forward to produce a commercial grade robotic lawnmower (code named the RLM19). Market research was conducted in 2015-2016 and this revealed that commercial customers make their decisions in this market on the basis of mowing area per day based on running time per charge and battery charging time, maximum height of cut, precision of navigation, ease of programming, adaptability to uneven surfaces, hill-climbing ability, obstacle sensing and avoidance, price, safety and anti-theft.
Taking this market research information into account, the company is now seeking to develop a production prototype based on one of two different approaches. Electric wire (EW) perimeter or GPS and sensing navigation (GPS). For the EW model, a wire is placed around the perimeter of the area to be mown and then connected to an electrical source. This mower is programmed not to cross the wire. Because of the need to lay wire and the battery life the EW model will have a mowing area of about 3000 square metres per day. The GPS model would use sensors to detect garden edges and also GPS and mapping data to navigate without use of the wire. This enables them to be more versatile and suited to larger areas of up to 12000 square metres per day.
The market research and development of the designs so far have already cost $1.65 million.
If a decision to continue is made, it is hoped that a successful prototype can be developed by December 2019.
For the EW prototype, the company’s chief engineer, Scott Shorten, has estimated that there is a 75% chance that the December target could be achieved for the EW model with a further investment of $1.75m. If the target is not achieved, the company will review the situation in January 2020.
It could decide to abandon the entire project or to allow further work on the
prototype. Shorten estimates that modification of an unsuccessful prototype would cost
around $0.8 million and the modifications would take an additional six months to implement. He is, however, sure that all problems would be overcome by end June 2020.
For the GPS prototype, Shorten estimates that there is a 60% chance that the December
target could be achieved for the GPS model with a further investment of $3.3m. If the target
is not achieved, the company will review the situation in January 2020. It could decide to
abandon the entire project or to allow further work on the prototype. Shorten estimates that modification of an unsuccessful prototype would cost around $1.9 million and the
modifications would take an additional year to implement. He is, however, sure that all
problems would be overcome by end December 2020.
Following the development of a successful prototype, manufacturing would be conducted in
partner facilities in China. The manufacturing facilities require a six-month lead-time for
retooling and component sourcing for the EW and twelve months for the GPS solution.
If a successful EW prototype was developed by Dec 2019, production could commence in
July 2020. However, if the prototype development for the EW solution took until June 2020,
then production could commence in Jan 2021. Shorten estimates the retooling and
production line set-up costs for the EW solution to be $1.25m. EW units are expected to sell
for between $3500 and $4500.
If a successful GPS prototype was developed by Dec 2019, production could commence in
Jan 2021. However, if the prototype development for the GPS solution took until December
2020, then production would not commence until Jan 2022. Shorten estimates the retooling
and production line set-up costs for the GPS solution to be $2.7m. GPS units are expected to
sell for between $14000 and $16000.
Sales of the RLM19 would be supported by a major advertising and marketing campaign at
trade shows, direct to grounds maintenance contractors, councils and other owners of golf
courses, airfields and playing fields. This would be conducted especially in the first few
months after its launch, demonstrating the major cost saving benefits. In order to estimate
the sales that would result, extensive use has been made of market research, economic and
industry-wide data. A key threat is the development of competitive products by leading
mower manufacturers and new entrants with robotics and electric motor technologies.
To simplify the problem, the management team has decided to estimate sales under two
different market conditions: Good, and Poor. These conditions can be assumed to prevail
through the entire life of the product. The probabilities of these conditions prevailing are
thought to depend to some extent on how quickly the product can be launched since an early launch will give Catanza an edge over potential competitors.
The Marketing Department has estimated the following probabilities:
| Market Conditions Prevailing |
Good |
Poor |
| Month Production Commences
|
|
|
| July 2020
|
0.8 |
0.2 |
| January 2021
|
0.65 |
0.35 |
| January 2022
|
0.5
|
0.5 |
| |
|
|
It has been decided to use a 6-year planning horizon (i.e. up to December 2025) since
technological developments would probably mean that a new model would be required for
the market for later years. The tables below show the estimated net cash flows which will
occur during the years of the product’s life.
| |
EW – Good |
EW – Poor
|
GPS – Good
|
GPS – Poor
|
| 1st Year
|
$6m |
$2m |
$10m |
$4m |
| 2nd Year
|
$9m
|
$4m
|
$16m
|
$7m
|
| 3rd Year
|
$12m |
$6m
|
$18m
|
$9m
|
| 4th Year
|
$16m |
$7m
|
$22m |
$11m |
| 5th Year **
|
$18m |
$9m
|
$26m
|
$13m
|
** If required
In the event of the either prototype development being cancelled it can be expected that the intellectual property associated with the research output will have no residual value.
The company’s cost of capital is estimated to be 8%. For simplicity, it can be assumed that all cash flows occur at the end of the year. Also, the effect of factors like taxation and
development grants should be ignored.
