Case Logic Tree Leading to Decision Making

The logic tree (decision tree) depicted in Figure 4-7-9 shows a case where Company A has options for producing a system -- whether to produce the system in the company by purchasing relevant software or outsourcing the production to a contractor. In this case, decision is made by predicting probabilities of favorable and unfavorable future scenarios of the market, amounts of results (profit) for each scenario excluding software purchase and outsourcing costs, and calculating EMV._

Figure Rcm Decision Logic Tree

Notes:

1) The amount of result means profit (except software purchase cost)

3) Estimate ¥20,000 mil. as the difference in cost between outsourcing and software purchase

Selection of an event Outsourcing to a contractor ¥41,000 m

Outsourcing software development to a contractor

Notes:

1) The amount of result means profit (except software purchase cost)

3) Estimate ¥20,000 mil. as the difference in cost between outsourcing and software purchase

Selection of an event Outsourcing to a contractor ¥41,000 m

Outsourcing software development to a contractor

Unfavorable turn of the market

Amount of result: ¥20,000 m, EMV = ¥4,000 m Amount of result: ¥60,000 m, EMV = ¥48,000 m

Unfavorable turn of market

(Expected monetary value : EMV)

Understanding Outsourcing

Understanding Outsourcing

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