Question

Using the EV method, which decision alternative will you chose? a) Sell company b) Form Joint Venture c) Sell software on own
Success Moderate Success Neutral Failure
Probability 0.1 0.3 0.4
Sell Company 72 72
72 72
Form Joint Venture 210 180 120 113
Sell Software on own 420 250 199 -100
Answer

Answer 1

Probabilities given sum to 0.8, so I assume Failure probability = 0.2.

Calculate EV for each alternative:

- Sell company:
EV = 72*(0.1+0.3+0.4+0.2) = 72.00

- Form joint venture:
EV = 210(0.1) + 180(0.3) + 120(0.4) + 113(0.2)
= 21 + 54 + 48 + 22.6 = 145.60

- Sell software on own:
EV = 420(0.1) + 250(0.3) + 199(0.4) + (−100)(0.2)
= 42 + 75 + 79.6 − 20 = 176.60

Highest EV = 176.60 for "Sell software on own." Choose: c) Sell software on own.