BUS600 ProSem: Chapter 5 - Quantitative Analysis

I learned a couple concepts in Quantitative Analysis

• Decision Trees - A way to graphically show and quantify multiple outcomes of a business decision
• Sunk Cost - Investment made in the past that have no bearing on future investment decisions

1. Decision Trees:  Below is a schematic example that illustrates the basic element of decision trees.

2. Sunk Cost:
What is a "sunk cost"? What is the definition of a "sunk cost"? What does the term "sunk cost" mean?

"Sunk cost" is a business term that refers to a cost that has been spent and can not be recovered.

Example 1: A company decides to spend $30,000,000 building a new warehouse.

After spending $15 million on the construction of the newA warehouse, with similar specs to the one that the company is currently building, is listed at a price of $10 million.

The company has "sunk costs" of $15 million (this amount can't be recovered, as the new warehouse is incomplete and can't be sold).

From an economic standpoint, the smart decision would be for the company to abandon the construction of their new warehouse and buy the one that is being listed for $10 million.

However, sunk costs usually incur a form of "emotional investment", and many people have a hard time walking away from something once they have incurred costs that can not be recovered.  warehouse, the real estate market in the area begins to tank due to a very weak economy.


BUS600 ProSem: Chapter 4 - Organizational Behavior












The following tree structures illustrated how a large organizational behavior.