Decision Theory and Phase

 Decision Theory and Stage Essay

Professional Summary (Farzan's Part)

‍Introduction To Business and Difficulty (Farzan)


The decision analysis that we would encompassed a variety of aspects. Initially we had to describe what the optimal decision would be based on the possibilities and the payoffs. For this, all of us designed a decision tree model to reflect the decisions that we being made at each step, furthermore, the events which can be out of control with the company will be represented simply by chance nodes. After completing the outline with the model, we proceeded to " foldback” the tree to find out which will decision would give us the highest Expected Monetary Value (EMV) computed using the pursuing formula: EMV = PAMA + PBMB (Dont bother about the formatting yet... all of us will do that section later)


PA = Possibility of celebration A

PB = Probability of celebration B

MA = Compensation of celebration A

MEGABYTES = Compensation of event B

Depending on this evaluation, we have can produce a decision that may maximize the long term expected monetary value. Even more, the decision shrub allows the user to visualize the choice outcomes as well as the associated most likely hoods associated with each decision.

(Added the next Section)

The concept of risk was an important conclusion of the decision tree. Following discussion, we all contacted the consulting company of Foresight Consulting to aid manage this risk. They informed all of us that they have a means to determine the end result of Phase I and Stage II before actually conducting these kinds of expriements, nevertheless , they did not really quote a price. To further improve this examination, we computed the Expected Value of Perfect Details (EVPI). This kind of figure explains to Merck the maximum they should be prepared for Foresight's services.

Another method of examination was to consider a sensitivity research. We utilized the existing decision tree unit and utilized a Mucchio Carlo simulation on some of the variables. The Monte Carlo simulation is used in stochastic and non-deterministic fields through a pseudorandom criteria to compute a forecast cell. An overall total of 3 simulations were run. In the first ruse we diverse costs linked of each Period and the payoffs of powerful drug release. For the 2nd simulation we varied the probabilities accompanying each successful result. And the third simulation was obviously a combination of the past two exactly where we different both the dollar amounts as well as the probabilities connected with each end result. For each in the simulations we were given a mean and common deviation intended for the prediction cell. Furthermore, we were capable to perform a awareness analysis that shows which in turn variable affects the forecast cell one of the most. Based on these types of sensitivity quantities we came up with ways in order that Merck can easily control their risks and prevent losing excessively.

‍Analysis and Key Studies

(Need a transition paragraph)

‍Decision Woods

Expected Monetary Value

Two possible alternatives were examined: to acquire the obvious for KL-798 or not to buy. In the event the drug is definitely purchased and Merck uses through with all the research then a Expected Monetary Value of this choice would be a loss in $ 260 000. 00. This Qualifying criterion is worked out using the decision tree in Appendix A choice Tree Diagram on page ZZ (When Referring to to the appendix we need to be sure we mention the webpage number).

The choice tree shows what decision should be manufactured given conditions. First, assuming that Merck will certainly proceed together with the purchase of KL-798, Merck must make a choice whether or not to complete Phase I, which usually only has 60% possibility of success and can cost 5Million dollars. If perhaps they complete phase I, according to the EMV qualifying criterion, it would be a good idea to continue on phase 2 which has a number of different outcomes. First of all, there is a chance that they can cure obesity only, lipid disorders only, or both bad cholesterol and unhealthy weight.

If phase II provides an indication that this cures obesity, then Merck should carry on with Phase III and seek FOOD AND DRUG ADMINISTRATION approval. If perhaps phase II gives a sign of cholesterol...


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