ABSTRACT
A specialist contractor in Hong Kong is trying to evaluate the risks associated with different strategies that could be adopted in a volatile market. Goh Kee Construction Co. specializes in concrete works and is, at the time of the analysis, operating at near capacity. The marketing director of the company anticipates that the market for concrete works will increase by 15% during the next 12 months. The board must decide how to react to this change in demand. Three strategies are being considered by the board:
S1 Purchase new plant S2 Institute overtime working S3 Continue to work at capacity and let rivals or new firms
satisfy the increased demand
The contribution that each strategy will make to profits over the next 12 months is estimated to be as follows: • Purchasing new plant will lead to an increase in profits of
HK$2m • Overti me working will lead to a profit increase of HK$1.2m • Continuing to work at capacity will yield HK$0.8m over the
period These values are estimated under the assumption that the market grows by 15%. However, the marketing director admits that two other outcomes are also possible: (1) demand may fall if there is an increase in the use of steel frame construction; (2) demand will remain unchanged. A decision matrix can be constructed to show this information (Figure 6.1). The options are shown in rows and the factors or states of the market are shown in columns.
