A decision tree is a schematic representation of the alternatives available to a decision maker and their possible consequences (Stevenson, 2021).
Dream Games is an organization dedicated to the creation of innovative video games and consoles. The CEO of the organization needs to determine if, for this year, they will produce and sell the same console they have been selling for the past 5 years, or if they will produce and sell a new console which is more energy efficient, faster, and the graphics are higher quality. The expected projected budget for the production department will be SAR 70,000,000. There is always the possibility of asking the organization to increase the budget, but it will have to be very well crafted, so it has the possibility of being approved. The CEO has been presented with the following numbers in relation to the two consoles:
Product, Investment, Production Price, Customer Price, Projected Sales
Old Console, 66,660.000.00, SAR 133.32 SAR 399.96, 875,000
New Console, 99,990,000.00, SAR 199.98, SAR 599.94, 1,100,000
After evaluating the data above and the gaming industry, do the following:
• Develop a decision tree for Dream Games in relation to the current and new console production (include the decision tree in an appendix showing chance nodes, probabilities, outcomes, expected values, and net expected value).
• Explain the process you used to develop your decision tree.
• Using your decision tree, which product should Dream Game select for this year? Why?
• Explain your reasoning for your recommendations to Dream Games in relation to the product they should produce and sell in the coming year