Aog Airlines DMD case

Topics: Decision theory, Info-gap decision theory, Petroleum Pages: 2 (389 words) Published: October 12, 2013
Case Study of Time-Critical Management
of AOG at Latin Airlines

Fig. EMV Analysis of the AOG options for Latin Airlines.
As per the EMV analysis done above, The EMV of buying new component is $ 1,403,274 (Node B), The EMV of getting the component from BCS is $1,346,556 (Node F), The EMV of getting the component from ARC Solution and transporting it by Air is $ 1,336,704 and EMV of getting the component and transporting it by Land is $ 1,329,045.

Based on the EMV done above, the optimum decision strategy based on the cost alone is to get the component from ARC solution and transport it via Land route.

Consider the calculations attached in Memo 1 to draw the conclusion in the above analysis

Sensitivity Analysis
Resale of new thrust reverser .
Considering the ‘Y’ as the number of years after which we are able to sell the newly purchased Thrust Reverser (Node B). As seen from Memo 2, the optimum decision strategy remains the same as long as ‘Y’ is equal or more than 2 years.

Probability of whether BCS component is fit or not
Consider the probability that the BCS component will fit is ‘p’ and then the probability that BCS component will not fit is (1-p) As seen from calculation done from Memo 3, The optimum decision strategy remains the same as long as p < 51.7 %. Since its mention that the probability that BCS component fits is 35% to 50%, the optimum decision remains the same.

Based on the sensitivity analysis done above, our optimum decision strategy doesn’t change unless the variables take unreasonable values.

However this optimum decision strategy is calculated based on cost alone, If we consider the reputation loss along with revenue for the Latin Airlines, then transporting the ARS solution component by land has a 20% chance of delaying the aircraft by 3 more days leading to significant loss in reputation of the Airlines.

Whereas transporting the ARS solution component by Air doesn’t have such of extending the delay and is...
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