Avion Chemicals has approached Artemis Controls regarding the purchase of an Artemis smart valve to manage the highly volatile phenol in its production process. Although an existing valve could be used, discussions lead to the possibility of designing a new and potentially much improved valve. Time, engineering, and software constraints make the valve-redesign project a risky endeavor. The tension between delivering the old valve and developing the new valve is centered on the marketing opportunity and financial risk. The A case decision can be structured with a basic decision diagram, but the analysis cannot be completed because likelihood statements are presented as "weasel words." In addition to the alternatives presented in the case, students might propose several risk-reducing possibilities: delivering the standard valve if the new valve is only moderately successful, delivering the standard valve if the software development is extended, reframing the price structure for the resultant new valve, and proposing a contingent contract with the software developer. The A case is a modification of "Orion Controls (A)" (UVA-QA-0480). The probability statements of Orion have been replaced by the weasel words of Artemis. This modification allows the discussion to be less "numbers" oriented, more structural, and more strategic.

This comprehensive technical note explains linear regression. It is intended for students with no prior knowlede of the topic. It is devided into nine sections, which may be assigned separately: 1. The simple linear model, 2. Fitting the model using least Squares, 3. Important properties of the least-squares regression line, 4. Summary regression statistics, 5. Assumptions behind the linear model, 6. Model-building Philosophy, 7. Forecasting using the linear model, 8. Using dummy variables to represent categorical variables, and 9. Useful data transformations. The sections correspond to stand-alone notes also available through Darden Business Publishing

For Douglas Peterson and his two 10-year-old golf partners, it had been a memorable round at a world-class course with a caddy who contributed greatly to their enjoyment. For caddy Donald Andrews, the round was among the most challenging, physically and mentally, in which he had participated. As the group walked up the 18th fairway, Peterson reflected on the size of an appropriate tip for the caddy while Andrews wondered how he might influence the size of the tip.

Avion is interested in a new valve to manage the highly volatile phenol in its production process. Avion and Orion strike a deal for Orion to try to produce these valves. There are time, engineering, and software constraints that make the valve-redesign project a risky endeavor. The A case uses the basic decision tree that has been used in an introductory case in decision analysis to the core material for an exam. The A case is a rewrite of two earlier cases (QA-0480 and QA-0481). In those cases, the key issues were scheduling of the projects, and in this case, the scheduling is fixed and the issues are less calculation-intensive and more interesting. Also in the A case, there are two options: one the students usually see and one they don't. This case also has a real option embedded in the problem around which an entire class can be built. Followed by the B case, QA-0603.

Supplement to case UV6118. This case complements the A case by providing the decision-maker's view on the key sources of risk and his probability assessment of the uncertainties that give rise to them. The case can be used as an introduction to simulation modeling.

Galaxy Micro Systems is negotiating with a vendor about the cost of service support for the warranty on Galaxy's new workstation. The vendor has offered Galaxy a choice between a fixed-price, lump-sum contract or a deferred-payment scheme based on the number of units installed. Uncertainty in the sales forecast complicates the choice. All uncertainties are expressed in terms of discrete probabilities.

This case describes the coal-procurement process of a small electric utility. The manager of the production fuel department must decide how much coal to purchase from each vendor and how to allocate the purchased coal among the utility's three coal-burning plants. The situation can be modeled and solved as a linear program. Sensitivity analysis can be used to help formulate a strategy for negotiating with the vendors and to address other special issues.

Peter Gordon, manager of a $1.6 billion investment in municipal securities at Price, has just received phone calls from the sales representatives of two investment banks, each offering attractive opportunities for the reinvestment of $50 million that will shortly become available. He may choose either but not both of the offers. The case can be used to review the contents of a "tombstone," to reinforce NPV and IRR concepts, to witness the inappropriateness of using IRR as a selection criterion among mutually exclusive projects, and to emphasize the reinvestment assumption of IRR.

Cummins, Epley, and Mayo, a U.S.-based construction firm, has been selected as the prime contractor for a road-reconstruction project in Saudi Arabia. Based on company cost estimates, the project provides a 15% return on costs, well below the required 18%. Because of a substantial advance payment and the specific timing of the payments, the project's IRR is 40%. This case can be used as an introduction to or a reinforcement of discounted-cash-flow techniques. It provides a dramatic portrayal of the time value of money, an opportunity for sensitivity analysis, and a possibility for using decision diagrams for structuring realistic contingencies.