solution

Strutledge (see Case Problem 1.3) is a small liberal arts college faced with rising costs and decreasing enrollments. It would like to increase revenues (including tuition, donations, and grants) by expanding its student base and building ties with businesses in the surrounding area. To do so, it is considering establishing a new graduate program—an MBA, a masters in computer science, a masters in information technology, a masters in nursing (affiliated with a major hospital in a nearby urban area), or a masters in health-care administration. In addition to generating additional enrollments within a new program, administrators also believe that a new graduate program could increase exposure and visibility for the school and enhance its reputation, as a whole, which could also result in increased enrollments and revenue sources. The cost to establish and maintain each new program differs according to faculty salaries, facilities, and the support necessary to attract new students, which, in turn, affects revenues. The degree of success that each new graduate program might achieve is affected by competition from other colleges and universities, and the ability of a program to attract new faculty and students. The following payoff table summarizes the possible gains (i.e., revenues less costs) the college might realize with each new program under different future success scenarios.

Determine the best decision for the college using the following criteria.

a. Maximax

b. Maximin

c. Equal likelihood

d. Hurwicz ( 

e. If Strutledge administrators use the Hurwicz criterion to make their decision, explain what this might mean about their decisionmaking strategy? f. Strutledge has estimated probabilities of occurrence for the different states of program success as shown in the following table. What is the best decision using expected value?

g. Based on these decision analysis results what would you recommend that Strutledge College’s decision be?

h. What decision would you recommend to Strutledge? Explain your reasons.