A chemical plant is due for a major overhaul and the manager has to make an assessment of a number of uncertainties associated with the project.

A chemical plant is due for a major overhaul and the manager has to make an assessment of a number of uncertainties associated with the project. These include the time the overhaul will take to complete (after 35 days the losses of production caused by the overhaul could have serious consequences for the company) and the risks that there will be leakage of dangerous chemicals into local watercourses during the cleaning process. The following extracts have been taken from the manager’s draft report which details plans for the overhaul:

(i) ‘I assessed the most likely duration of the overhaul to be 30 days. I then tried to take an optimistic view and assumed that, if all goes well, we could finish the work 5 days earlier than this (i.e. in 25 days). I then took a pessimistic perspective and estimated that the longest the project will take is 34 days. I am therefore certain that we should complete the overhaul within 35 days.’

(ii) ‘Essentially the overhaul will be split into eight independent phases. I think the chances of us completing each phase without a pollution problem are high, say 90%. Overall, I therefore estimate that we have almost a 90% chance of avoiding a pollution problem during the project.’

(iii) ‘There must be a high chance that there will be no serious corrosion in the main pump. The last five pumps we’ve inspected at other plants were all corroded and the chances of getting six corroded pumps in a row must be very low indeed.’

(iv) ‘I’m mindful of the theft of equipment we had last week at our Briston plant. If we don’t take appropriate security precautions I am virtually certain that we will lose important equipment in this way during the overhaul, with possible disastrous effects on our ability to complete the project within 35 days.’

(v) ‘I estimated the probability of the West boiler requiring repair to be about 10%.’ (On a later page:) ‘Given the likelihood of seepage into the pipe feeding the West boiler, there must be a high chance of this boiler being corroded. I therefore reckon that there is a 50:50 chance that we will have to repair this boiler as a result of the seepage and corrosion.’ Comment on these extracts from the report in the light of Tversky and Kahneman’s work on heuristics and biases.

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Strategic Management Project

Assignment Content Review the Strategic Management Project Background and your strategic management research journal entries from Weeks 1–4. Create a 10-slide presentation for Caterpillar Inc. leadership in which you summarize your key findings, propose….

Case Problem Investment Strategy

Case Problem Investment Strategy J. D. Williams, Inc. is an investment advisory firm that manages more than $120 million in funds for its numerous clients. The company uses an asset allocation model that recommends the portion of each client’s portfolio to be invested in a growth stock fund, an income fund and a money market fund. To maintain diversity in each client’s portfolio, the firm places limits on the percentage of each portfolio that may be invested in each of the three funds. General guidelines indicate that the amount invested in the growth fund must be between 20% to 40% of the total portfolio value. Similar percentages for the other two funds stipulate that between 20% to 50% of the total portfolio must be in the income fund and at least 30% of the total portfolio value must be in the money market fund.   In addition, the company attempts to assess the risk tolerance of each client and adjust the portfolio to meet the needs of the individual investor. For example, Williams just contracted with a new client who has $800,000 to invest. Based on an evaluation of the client’s risk tolerance, Williams assigned a maximum risk index of 0.05 for the client. The firm’s risk indicators show the risk of the growth fund at 0.10, the income fund at 0.07 and the money market fund at 0.01. An overall portfolio risk index is computed as a weighted average of the risk rating for the three funds where the weights are the fraction of the client’s portfolio invested in each of the funds. Additionally, William’s is currently forecasting annual yields of 18% for the growth fund, 12.5% for the income fund and 7.5% fir the money market fund. Based on the information provided, how should the new client be advised to allocate $800,000 among the growth, income and money market funds? Develop a linear programming model that will provide the maximum yield for the portfolio. Use your model to develop a managerial report.   Managerial Report: a.Recommend how much of the $800,000 should be invested in each of the three funds. What is the annual yield you anticipate for the investment recommendation change? b.Assume that the client’s risk index could be increased to 0.055. How much would the yield increase and how would the investment recommendation change? c.Refer again to the original situation where the client’s risk index was assessed to be 0.05. How would your investment recommendation change if the annual yield for the growth fund were revised downward to 16% or even to 14%? d.Assume that the client expressed some concern about having too much money in the growth fund. How would the original recommendation change if the amount invested in the growth fund is not allowed to exceed the amount invested in the income fund? e.The asset allocation model you developed may be useful in modifying the portfolios for all the firm’s clients whenever the anticipated yields for the three funds are periodically revised. What is your recommendation as to whether use of this model is possible?  

Case Analysis

You can view the article (the case), “The Man Who Got Honeywell’s Groove Backt”, by linking to the course EReserves  Follow the Case Analysis Outline given in your syllabus. This is….