Project engineer. A project engineer has assumed responsibility for a construction project in a country unfamiliar to her. She has just learned that an important permit must be obtained from one of the country’s federal agencies before the project can proceed. She has no idea whether this permit will be approved or not, but she is assured that the decision will be made in three months or less. She is also aware that the sponsor will pay a 5 million bonus if the project is finished one month early, 7 million if two months early, and 8 million if three months early. The normal start date is three months away, and the first activity is to order materials and equipment which will take one month to arrive, at the earliest. The engineer decides to investigate whether it would be worthwhile ordering the materials and equipment before the permit is obtained, so that the project could be finished early. Her buyers inform her that if the materials arrive at the project site, she will have to pay for them at that time, and if the materials are not used right away, interest charges of 1 million per month will be lost. Further, if the order must be canceled after arrival there will be a penalty of 5 million. If an order is canceled one month before arrival, the penalty is 2 million, and if two months before arrival, the penalty is 1 million. To speed up a previous order, an additional cost of 1 million is incurred.
Verify the payoff matrix, check for dominance, and determine the best ranking of actions using the following criteria:
(a) Laplace (d) Hurwicz (show graph)
(b) maximin (e) minimax regret
Based on your results, what do you suggest that the engineer do?
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