business profitability

Topics: Decision theory, Economics, Costs Pages: 9 (572 words) Published: October 7, 2013
Freeport Indonesia
1. Please analyze the situations that are faces by Freeport Indonesia using Situation Analysis (SA) approach. 2. One of the situations faced by Freeport Indonesia was tailings deposition. Golder Associates, an international engineering-consulting firm, were engaged by Freeport Indonesia to study this problem. Eight possible options to solve tailings deposition problem were provided (see Exhibit 7), then Freeport Indonesia were given recommendation to select Option 3. a. If you were a consultant for Freeport Indonesia, would you give the same recommendation? Why? b. Among those 8 options, are there any other option(s) that could be considered as alternative solution(s) to solve the tailings problem? (e.g. Options that are in ‘efficient frontier’). In what condition(s), these options could be considered?

Please base your answer on SMART analysis.
Answer
1.
Problem
Impact
Timing
Trend
Priority
Effects on the glaciers
M
M
H
PA, DA, PPA
Overburden storage
H
H
M
DA, PPA
Tailings
H
H
M
DA, PPA
Effects on the culture of local people
M
M
M
PA, DA, PPA

2.
Simple Multiple-Attributes Rating Technique

Stage 1
Decision maker :

Stage 2
No
Option
Alternatives
1
Option 1
Run-of-River Deposition as Presently Employed
2
Option 2
Channel Across Ajkwa Sheetflow Area
3
Option 3
Levee and Spillway Containtment in Lower Ajkwa Area
4
Option 4
Mining from the Ajkwa River with Deposition in the Lower Ajkwa 5
Option 5
Mining from the Ajkwa River with Subaqueos Deposition in the Western Minajerwi Estuary 6
Option 6
Diversion of Otomona River at Mile 50, with Controlled Deposition by Earthen Dam 7
Option 7
Diversion of Otomona River with Pipeline to a Controlled Deposition Area 8
Option 8
Diversion of Otomona River at Mile 36 with Controlled Deposition

Stage 3

Stage 4
Option 1 and Option 2 are unacceptable, so I exclude those options. So the cost will be No
Alternatives
Capital Cost
Operating Cost
Affected Area
1
Option 3
85
13
49
2
Option 4
139
35
77
3
Option 5
154
33
52
4
Option 6
202
20
58
5
Option 7
224
43
58
6
Option 8
155
33
79

Cost of each option,
No
Alternatives
Lasting economic activity
Long term management
Longterm monitoring
Met Indonesian standards
1
Option 3

2
Option 4

3
Option 5

4
Option 6

5
Option 7

6
Option 8

Stage 5
Cost
Original Weight
Normalized Weight
Capital Cost
70

Operating Cost
90

Affected Area
100

Total

Stage 6
No
Alternatives
Capital Cost
Operating Cost
Deposition Area
Aggregate of Weighted Value
1
Option 3

2
Option 4

3
Option 5

4
Option 6

5
Option 7

6
Option 8

Intermodular Semiconductor System
3. Which choice should the company choose? How much will it cost? Given this probability of production cost

Probability
Cost
0.25
$2,000
0.5
$4,000
0.25
$6,000

In the case also mentioned about the probability of General Electrodevice bid.

Price
General electrodevice
0.35
$4,000
0.5
$6,000
0.15
$8,000

There are two option that ISS (Intermodular Semiconductor System) can take. 2. Doing experiment to know the right material to use, but it cost $7000 3. Not doing experiment
We need to look for the path probability of each production cost branch if ISS use the first option (experiment). First, we have to find the probability of each path.

Cost
Prob
Test result
Prob
Path Prob
$2,000
0.25
Expensive
0.2

Inexpensive
0.8

$4,000
0.5
Expensive
0.4

Inexpensive
0.6

$6,000
0.25
Expensive
0.9

Inexpensive
0.1

Then, we need to look for posterior probability for “expensive”, and “inexpensive” result for each production cost.

Prob
Test Result
Path probability
Costs (Material)
Prob
0.475
Expensive
0.050
$2,000
0.105

0.200
$4,000
0.421

0.225
$6,000
0.474
0.525...
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