Salmones Puyuhuapi Part Ii

2 Pages Posted: 2 Jun 2017

See all articles by Samuel E. Bodily

Samuel E. Bodily

University of Virginia - Darden School of Business

Abstract

This case series is appropriate for undergraduate, MBA, executive education, and MBA Exec audiences but is specifically designed for decision analysis, a first-year MBA core course. The Part II case affords the opportunity to examine downstream decisions and a real option regarding how fast to harvest the fish when the virus hits. Monte Carlo simulation would be used to incorporate uncertainties about when the virus hits, if it hits, and mortality, and to generate the risk profile of contribution for the option alternatives and to compare whether to use 1 or 2 squads to harvest the fish. Based on the simulation results, an evaluation will be made of what to pay for the option.

Excerpt

UVA-QA-0777

Sept. 15, 2011

Salmones Puyuhuapi PART II

CEO Osvaldo Correa, a leader with boundless energy, disliked limited choices. When his staff showed him the numbers comparing the alternatives of harvesting now or waiting two months until the salmon were fully grown, he asked for other alternatives. He wasn't convinced these were the only alternatives:

I have talked to Ace Services, who say that, for an extra up-front premium (to be negotiated), they could arrange for staff and equipment to be on call to harvest the salmon on a moment's notice at our option. They would charge the regular fee of $ 0.20 per live kilogram plus $ 50,000 at the time we choose to call up one squad of harvesters or $ 200,000 at the time we ask for two squads of harvesters. If we use two squads we could cut in half the number of fish who die from the virus while we are harvesting.

We could leave the salmon to grow at their 25% a month rate until the virus hits, if it hits. Señor Rivas has affirmed that the chance of the virus infecting our salmon at Jacaf Fjord is 0.65 in the next two months. And regardless of when it hits, we will know virtually immediately the virulence of the virus—whether it is mild, typical, or severe. These scenarios relate to the specific type of virus and how quickly it spreads. If the virulence is mild, 5% of the fish alive at the beginning of the harvest will die during harvest using one squad. If virulence is typical, 15% of the fish would die during harvest with one squad and if severe, 40%. Associated with the virulence outcomes are the probabilities 0.20, 0.40, and 0.40, respectively. Rivas will help us understand when the virus might hit, in the event that it does hit.

. . .

Keywords: decision analysis, decision diagrams, subjective probability, value of control, downstream decisions, real option, payoff matrix, competitive analysis

Suggested Citation

Bodily, Samuel E., Salmones Puyuhuapi Part Ii. Darden Case No. UVA-QA-0777. Available at SSRN: https://ssrn.com/abstract=2975144

Samuel E. Bodily (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4813 (Phone)
434-293-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/bodily.htm

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