Capacity Expansion: Build vs. Expand
A fictitious company named Acme Corp needs to expand their widget manufacturing capacity. The two alternatives on the table are to expand an established manufacturing plant within an already developed market or build a new widget plant in an emerging market. Acme also needs to decide the optimal level of expansion capacity. There is a cash flow spreadsheet that is set up to evaluate all of the possible scenarios in the model given expansion location, capacity and demand levels, and various cost uncertainties. The DPL Decision Tree built and linked to the cash flow model will be the driver that runs the Excel spreadsheet through all of the scenarios. DPL calculates the expected value and identifies the set of decision alternatives, both initially and downstream, that will maximize the value of the output metric, which in this case is a single financial metric, NPV.
Check out our DPL Tutorial Video Series in which we go through the steps of building out this Excel spreadsheet and model: DPL Tutorial Video Series: Build vs. Expand