Case: Bio-imaging
development
strategies
1
1. Background analysis
2
Background
• Who: James, Scott and Michael
• When: 2004
• Where: Boston
• What: develop + produce & market
3
Why:
• Medtech (large, +150k, no risk)
• Self-development ( -200k, risk, 6 months)
• Successful
• SBIR (+300k, risk, no return)
• Nugrowth (+1000k, no risk, 80% as return)
• Fail
• 2D (-100k) + SBIR (+300k, risk , no return)
• Abandon
How: decision tree
4
投票
最多可选1项
What is your decision for Bio-Imaging?
(the first time)
A
Accept Medtech
B
Self-development
C
No idea
提交
5
2. Constructing a decision tree
-construct a tree
-pickup unknown information
-optimal solution
-sensitivity analysis
6
Win
E
SBIR
C
3D Successful
continue
A
B
Nugrowth
Not Successful
D
Medtech
Lose
Abandon
SBIR
F
Win
Lose
7
Unknown info.
Sensitivity analysis
• Probability of self-development
• Probability of SBIR successful
• 3D
• 2D
• Revenue analysis
70%
60%
Historical data
20%
• 3D
• Invest 300k
• Invest 1000K
Marketing expert
• 2D
8
scenario
Probability
Revenues
High
20%
3000k
Medium
40%
500k
Low
40%
0
scenario
Probability
Revenues
High
20%
10,000k
Medium
40%
3000k
Low
40%
0
scenario
Probability
Revenues
High
25%
1,500k
Low
75%
0
3D: invest 300k
3D: invest 1000k
2D: invest 300k
9
2,800k=3,000k-200k
G
Win
0.70
E
3D Successful
continue
A
B
Nugrowth
0.60
H
Medtech
150k
D
0.40
SBIR
-200k
F
1,800k=10,000k*0.20-200k
400k
Low
-200k
0.40
Abandon
-200k
-200k
High
0.20
Medium
Not Successful
0.40
0.40
Lose
0.30
SBIR
C
High 0.20
Medium 300k
0.40
Low
Win
0.20
I
0.25
Low
0.75
Lose
0.80
High
1,200k=1,500k-200k100k
-300k
-300k
10
600k
360k
Win
E
440k SBIR
C
3D Successful
184k
continue
184k
A
B
Nugrowth 440k
H
0.60
-200k
Not Successful
0.40
Medtech
D
High 0.20
Medium 300k
0.40
Low
0.70
0.40
Lose
0.30
-200k
-200k
High
0.20
Medium
0.40
1,800k=10,000k*0.20-200k
400k
Low
-200k
0.40
Abandon
-200k
-225k
SBIR
Win
0.20
F
150k
G
2,800k=3,000k-200k
75k
I
0.25
Low
0.75
Lose
0.80
High
1,200k=1,500k-200k100k
-300k
-300k
p = 0.547
11
投票
最多可选1项
What is your decision for Bio-Imaging?
（the second time）
A
Accept Medtech
B
Self-development
C
No idea
提交
12
3. Some further considerations
13
Some different alternatives
• Accept Medtech’s offer
• I: From the view of Medtech, the expected revenue from 3D  150k
• II: Do research on 2D: could you earn money from 2D ?
 If Bio-Imaging were to accept Medtech’s offer, how to arrange their future
of Bio-Imaging? Do research on 2D or dissolution?
• Self-development
• III: From the view of Nugrowth, the expected revenue from 3D  80%
• IV: any other option?
14
Medtech: the expected revenue from 3D
10,000k-150k-200k-1,000k=8,650k
High
1,850k
Successful
0.60
970k
B
Buying
A
Medium
0.40
3,000k-150k-200k-1,000k=1,650k
Low
0.40
0-150k-200k-1,000k=-1,350k
Not Successful
0.40
970k
C
0.20
-150k-200k=-350k
Not Buying
0
15
Bio-Imaging: How to earn money from 2D
directly?
1500k - 100k = 1400k
High
275k
Successful
0.20
35k
B
SBIR
35k
A
0
Low
0.75
- 100k
Not Successful
0.80
abandon
C
0.25
SelfInvestment
-25k
C
High
1500k - 100k - 300k = 1100k
0.25
Low
0.75
- 100k - 300k = - 400k
16
Nugrowth: the expected revenue from 3D
10,000k*0.80-1,000k=7,000k
High
1,560k
B
0.20
Medium
0.40
3,000k*0.8-1,000k=1,400k
offer
1,560k
Low
0.40
A
-1,000k
No offer
0
17
主观题
10分
If Bio-Imaging thinks that the cost of the
Nugrowth investment (80% of future profits
as return）might be too high relative to the
future revenue, which percentage is possible
to become the return rate to Nugrowth after
communicating with them?
正常使用主观题需2.0以上版本雨课堂
作答
18
主观题
10分
Suppose that Nugrowth agree to give up part of future
profits (80%  75%).
Q: Calculate the new expected revenue of Bio-imaging
when the return rate to Nugrowth reduced by 5%?
10,000k*0.80-1,000k=7,000k
High
1,560k
B
0.20
Medium
0.40
3,000k*0.8-1,000k=1,400k
offer
1,560k
Low
0.40
A
-1,000k
No offer
80%75%
0
正常使用主观题需2.0以上版本雨课堂
1560k1400k
作答
19
600k
360k
Win
E
+160k
440k SBIR
C
+96k
3D Successful
184k
+96k
continue
184k
A
B
Nugrowth 440k
H
-200k
Not Successful
Medtech
D
0.70
0.40
Lose
0.30
-200k
-200k
High
0.20
Medium
0.40
1,800k=10,000k*0.20-200k
400k
Low
-200k
0.40
Abandon
-200k
-225k
SBIR
Win
0.20
F
150k
High 0.20
Medium 300k
0.40
Low
+160k
0.60
0.40
G
2,800k=3,000k-200k
75k
I
0.25
Low
0.75
Lose
0.80
High
1,200k=1,500k-200k100k
-300k
-300k
20
600k
Any other opinion?
360k
Win
E
440k SBIR
C
3D Successful
184k
continue
184k
A
B
Nugrowth 440k
H
0.60
-200k
Not Successful
0.40
Medtech
D
High 0.20
Medium 300k
0.40
Low
0.70
0.40
Lose
0.30
-200k
-200k
High
0.20
Medium
0.40
1,800k=10,000k*0.20-200k
400k
Low
-200k
0.40
Abandon
-200k
-225k
SBIR
Win
0.20
F
150k
G
2,800k=3,000k-200k
75k
I
0.25
Low
0.75
Lose
0.80
High
1,200k=1,500k-200k100k
-300k
-300k
21
投票
最多可选1项
What is your decision for Bio-Imaging?
(the third time)
A
Accept Medtech
B
Self-development
C
No idea
提交
22
Case: Development of a
new consumer product
(p.55)
23
Development of a new consumer
product (p.55)
• Who: Caroline Janes
• What: whether to produce a new product and to
conduct a market survey
• Market: either Strong or Weak
• probability of strong market by Caroline: 30%
• Strong: make $18 million
• Weak: lose $8 million
• Cost of survey: $2.4 million
• Result of survey: Positive (Q) and Negative
• If market is weak, 10% for positive P(Q|W)
• If market is strong, 20% for negative P(N|S)
24
Decision analysis
$18 M
strong
B
0.3
A
C
abandon
0
F
-$8 M
0.7
Positive
Weak
P(W|Q)
Produce
D
Abandon
P(Q)
E
Produce
-$10.4 M
-$2.4 M
Negative
P(N)
$15.6 M
P(S|Q)
weak
Produce
survey
Strong
Strong
G
P(S|N)
$15.6 M
Weak
Abandon
P(W|N)
-$2.4 M
-$10.4 M
25
P(S|Q) = P(S and Q)/P(Q) = 0.24/0.31=0.774
P(W|Q) = 1 – P(S|Q) = 0.226
P(S|N) = P(S and N)/P(N) = 0.06/0.69=0.087
P(W|N) = 1 – P(S|N) = 0.913
Market
Survey
Positive
(Q)
Negative
(N)
Total
Strong
(S)
P(Q and S) =
P(Q|S)P(S) =
0.8*0.3=0.24
P(N and S) =
P(N|S)P(S) =
0.2*0.3=0.06
P(N and S) = P(S)
– P(Q and S)
0.3
Weak
(W)
Total
P(Q and W) =
P(Q|W)P(W) =
0.1*0.7 = 0.07
P(Q) =
P(Q and S) +
P(Q and W)
= 0.31
P(N and W) =
P(N|W)P(W) =
0.9*0.7 = 0.63
P(N) =
P(N and S) +
P(N and W)
= 0.69
0.7
1.0
26
Value of market survey
$18 M
strong
0.3
-$0.2 M
weak
B
Produce
$1.36 M
A
Negative
abandon 0.69
0
$9.73 M
D
Abandon
Weak
0.226
-$10.4 M
-$2.4 M
-$8.14 M
-$2.4 M
Strong
Produce
0.087
G
E
$15.6 M
0.774
F
-$8 M
0.7
$9.73 M Produce
$1.36 M Positive
survey
0.31
C
Strong
Weak
0.913
Abandon
-$2.4 M
$15.6 M
-$10.4 M
27
Individual homework
Exercise 1.6
28
Case: Buying a House
29
Understanding “emotional value”
• That is, whereas the fair market value of the house is
400,000, the house is worth 410,000 to George and
Debbie.
• Thus, if they were to be successful in purchasing the
house for 390,000, the value of this outcome would
be 20,000.
• Of course, if they were not successful in purchasing
the house, the value of this outcome is simply 0.
30
An “emotional value” of 10,000
No
Outcome
The value of outcome
1
Successful 390K
20K
2
Successful 395K
15K
3
Successful 400K
10K
4
Successful 405K
5K
5
Successful 410K
0
6
Fail
0
Emotional value = Highest offer – fair market value
31
主观题
10分
Do you think that purchasing this house
successfully is the objective?
What is the objective of this case: buying a
house?
正常使用主观题需2.0以上版本雨课堂
作答
32
E
one 0.3
B
390
A
400
C
405
D
multi
0.7
one
0.3
multi
0.7
Success
0.4
Failure
0.6
F
……
G
……
H
20,000
0
0
withdraw
same
M
Add 5000
one
0.3
multi
0.7
I
J
……
……
N
Success
0.5
Failure
0.5
Success
0.7
Failure
0.3
10,000
0
5,000
0
33
• The placement of the decision nodes and the event
nodes is logically consistent with the way events will
place out in reality.
• Any event and decision that must proceed certain
other events and decisions is appropriately placed
in the tree to reflect this logical dependence.
34