Exotic Adventures Inc. The Amazon River Voyage Executive Summary Exotic Adventures Inc. is a company dedicated to provide customers with expedition style voyages. Their primary products are trips to the Polar Regions but because these are done just in the summer time, they also offer trips to the Amazon River during other times of the year. Voyages go from Brazil to Peru and are done during high water season. Suggestions from naturalists plus extensive research made them include trips to the Amazon during the low water season.
Problems arouse when the company got informed by their Brazilian agents that the water level was too low to navigate while their Peruvian agents were stating everything was ok. At this point 52 passengers had already booked their trips and now EAI has to decide based on bias information to either cancel the trip or continue with it. In order to reach to the most cost effective alternative, a decision tree was performed using the information gathered from all sources including costs and probabilities. Along with it, a sensitivity analysis was completed which helped me determine the effect a change in costs would have on the final decision.
With these two decision tools, I was able to conclude that if the trip gets cancelled the company will have a guaranteed loss of $ 184,000 while if they continue with the trip the estimated loss will be less at $172,400, and they will still have a high probability of making it all the way to its destination with out incurring in any additional costs. Based on this analysis I can recommend to EAI that the best alternative is to continue with the trip as planned. Background Exotic Adventures Inc. operates expedition style voyages mainly to the Polar Regions during the summer and austral summer.
To offset costs they also offered expedition trips to the Amazon River from Belem, Brazil to Iquitos, Peru during the high water season in March. Some experts have suggested that the voyages would be more interesting if done during the low water season in October. After some research, it was learned that even in the low water season the water levels were never below 18 ft providing enough room for the 14 ft vessel to navigate the river, based on this information EAI decided to offer the new voyage and by August 52 passengers had booked the trip that was schedule to depart in October.
The problem began when in early September the company received information from their agents in Brazil that the water levels were unusually low making it impossible to navigate the river, but on the other hand their Peruvian agents were saying that the water levels were high enough to navigate. It was in the best interest of both countries to keep the voyages in their waters, hence unfortunately EAI had to make a decision to either cancel the trip or continue with it based on this biased information. Problem Statement Exotic Adventures Inc. s facing the dilemma of determining what would be the most cost effective alternative, to either cancel the trip to Iquitos or to continue with it. Case Questions 1. Should Exotic Adventures Inc. cancel the Amazon Voyage to take place in October 1998? Exotic Adventures should not cancel the voyage to the Amazon because based on the analysis made; the costs for continuing with the trip are lower than canceling it and also probabilities of getting to the final destination are high enough to make the risk worth it. [pic] |Sensitivity Data | |Input |Output | | |Value |Change (%) |Value |Change (%) | |#1 | |-25. 00% | |0. 00% | | |(230. 00) | |(172. 40) | | |#2 | |-19. 44% | |0. 00% | | |(219. 78) | |(172. 40) | | |#3 | |-13. 89% | |0. 00% | | |(209. 56) | |(172. 40) | | |#4 | |-8. 33% | |0. 00% | | |(199. 33) | |(172. 40) | | |#5 | |-2. 8% | |0. 00% | | |(189. 11) | |(172. 40) | | |#6 | |2. 78% | |0. 00% | | |(178. 89) | |(172. 40) | | |#7 | |8. 33% | |2. 17% | | |(168. 67) | |(168. 67) | | |#8 | |13. 89% | |8. 09% | | |(158. 44) | |(158. 44) | | |#9 | |19. 44% | |14. 02% | | |(148. 22) | |(148. 22) | | |#10 | |25. 0% | |19. 95% | | |(138. 00) | |(138. 00) | | 2. Run a sensitivity analysis if the trip is cancelled at October 8th, cancelled at Manaus, or turn back before Iquitos. Interpret the results for the sensitivity Graph and the Strategy Region. If the trip is cancelled at Oct 8th [pic] [pic][pic] Based on the sensitivity chart it can be concluded that if the costs of canceling the trip on Oct 8th increase it will not impact the final decision but if otherwise they decrease it will impact the final decision. If the trip gets cancelled at Manaus pic][pic] [pic][pic] Based on the sensitivity analysis made for option two which is cancelling the trip at Manaus it can be concluded that the final decision will be impacted just if the costs increase by more than 25% any change lower than 25% will not impact the final decision. If the ship turns back before Iquitos [pic][pic] [pic][pic] According to the sensitivity analysis performed, if Exotic Adventures does not make it to the end of the trip and it is forced to turn back before getting to Iquitos the expected monetary value will be impacted if the cost increase by more than 13. 9% otherwise the final decision will not be impacted. Analysis A decision tree and a sensitivity analysis were done in order to be able to determine the best cost effective alternative for Exotic Adventures. The first decision Exotic Adventures has to make is either to cancel the trip or continue it as planned. If they cancel the trip before Oct 8th they will incur in losses adding up to $184,000. If on the other hand they decide to continue with the trip, they will face three different scenarios: 1.
Cut the trip short at Manaus: If level of the water keeps dropping, which has a 20% chance of happening, EAI will have to cancel the trip at that point and incur in additional expenses for a total of $282,000. 2. Turn back before Iquitos: There is an 80% probability that the water levels are high enough and the vessel can continue to its destination, but on the way to Iquitos there is a 50% chance that the water’s level is too low and the voyage will have to turn back before getting to Iquitos costing he company $290,000 in additional costs. The combination of these two probabilities gives us a 40% chance of having to turn back before Iquitos. 3. Getting to Iquitos: If the Company can continue with the trip which as explained above has an 80% probability, there is an estimated 50% chance of being successful and making it to the final destination with no additional costs for the company. These two probabilities combined give us an estimated 40% chance of making it to Iquitos.
This table provides a quick snapshot of the different alternatives, its costs, probabilities and outcome. |Scenario |Costs |Probability |Outcome | |Cancel at Oct 8th |$184,000 | |$0 | |Cancel at Manaus |$282,000 |20% |$56,400 | |Turn back before Iquitos |$290,000 |40% |$116,000 | |Getting to Iquitos |$0 |40% |$0 |
When combining the outcome of the different scenarios we can obtain the expected monetary value of continuing with the trip, which gives us $172,400 in losses this amount is less than the loss of $184,000 if the trip is canceled at Oct 8th, making it a more effective option to continue with the trip. A sensitivity analysis was also used as a tool to determine the best decision.
According to it, if the cost of canceling the trip at Oct 8th increases, the expected monetary value of the decision will not be impacted but if these costs decrease the final decision will be impacted. When analyzing the second scenario, if the costs of canceling the trip at Manaus increase by more than 25% the final decision will be impacted but if the change is any lower the final decision will have no impact.
In the case with turning back before getting to Iquitos, the expected monetary value of the final decision will be impacted just if the costs of this scenario increase by more than 13. 89%. Conclusion & Recommendation With the results of the analysis made it can be concluded that the most cost effective decision is to continue with the trip as the expected loss is lower than the loss incurred if the trip is cancelled before its departure.
Also there is a high probability for the trip of being successful and be able to get to the final destination without any additional costs. It is important to note that it will be the best decision if the costs do not vary, but if for any reason the costs of any of the possible scenarios change, the decision of continuing with the trip will have to be re analyzed as it may not be the most effective for the company. References Shaw, P. (1999). Exotic Adventures Inc. : The Amazon River Voyage. Ivey Management Services. Version: (A) 1999-09-01