SYS6001- Car Buying Decision Analysis Problem Setup and Teaching Notes

7/27/2019 SYS6001- Car Buying Decision Analysis Problem Setup and Teaching Notes

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FraserD_SYS6001_final


Douglas Fraser

SYS6001Individual Final Exam: Design Your Own Case

6 June 2012On my honor, I pledge that I have neither given nor received help on this assignment.


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To buy or not to buy?

The client, a 28 year man, is looking for an alternative vehicle for his daily commute. He currently drivesapproximately 40 miles every day from Albany to downtown Schenectady, NY and generally goes rockclimbing on the weekends in New Paltz. Currently, he owns a 1996 GMC SUV with low fuel efficiency,

poor city handling, and a broken air conditioning system. He prefers crossover SUVs with manualtransmission, and does not want to spend more than $25,000 on a new vehicle. Beyond sticker price, histop priorities are:

1. Fuel economy of at least 20mpg2. Off road and winter driving capability, since Albany averages about 60 inches of snow per year

and average temperatures below freezing between December and March.

Develop and rank viable alternatives that meet the client's criteria. Should the client buy a new car?

Possible Online Resources:

www.edmunds.com

www.cars.com

www.iihc.org


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Teaching notes:

1. Logistics of the case:Timing of Case: during the Decision Analysis phase of SYS6001Duration: 60-90min

Most likely time breakdown (assuming linear; total time may be shorter if worked concurrently)Storming and Norming: about 15-20 minutes (may be longer depending on group dynamics)Research and alternative development 15-20 minutesUtility and Value model: 10-15 minutesCost analysis and other options: 10-20Resources: at least on laptop per team, working knowledge of Excel, access to internet

2. Case goals:This case allows the teams to research, develop, and rank alternatives given a real worldsituation. The team can use the various methods used in decision analysis (simple dominance,

rate and weight, etc.) to develop a recommendation to the client. Additionally, the problem isopen ended enough that other options beyond a new car solution should be considered, such asmoving closer to work and renting a car for long trips. Therefore, the team should also considercost, such as cost to own or cost factors in their analysis. Although the case problem wasdesigned with a short deadline, it could be given as a homework problem in which more analysiswas expected.

3. Partial solution:The following charts provide a partial solution. The criteria are restrictive enough that arelatively small set of viable new car alternatives meet all priorities. A quick filtered search on

www.edmunds.com produced eight viable alternatives, five with manual transmission options.


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The entire model took about 30 minutes to create, starting with the search of alternativesonline, filtering based on the client's criteria, and developing the simple metric value model withlinear utility functions. Assuming that the team has a member with at least average Excel skills,the team should be able to produce this in about the same time. Possible pitfalls include

debating the problem or researching specific data for too long and not pushing through all thesteps in the allotted amount of time.

city hwy price rating AWDJeep Liberty SUV 16 22 23395 4.3 0Toyota RAV4 SUV 22 28 22650 4.1 0Dodge Nitro SUV 16 22 22245 4.4 0Jeep Wrangler SUV 17 21 22045 4.4 1Suzuki Grand Vitara SUV 19 26 19499 4.4 1Jeep Compass SUV 23 29 19295 4.7 1Mitsubishi Outlander Sport SUV 24 31 18795 4.7 1 jeep patriot 23 29 15995 4.5 1

high 24 31 23395 4.7 1low 16 21 15995 4.1 0

linear utility function

utility functions city hwy price rating AWDJeep Liberty SUV 0 0.1 0 0.333333 0Toyota RAV4 SUV 0.75 0.7 0.100676 0 0Dodge Nitro SUV 0 0.1 0.155405 0.5 0Jeep Wrangler SUV 0.125 0 0.182432 0.5 1Suzuki Grand Vitara SUV 0.375 0.5 0.526486 0.5 1

Jeep Compass SUV 0.875 0.8 0.554054 1 1Mitsubishi Outlander Sport SUV 1 1 0.621622 1 1 jeep patriot 0.875 0.8 1 0.666667 1

metric priorities 3 3 5 1 2 14weights 0.214285714 0.214286 0.357143 0.071429 0.142857

city hwy price rating AWDJeep Liberty SUV 0 0.021429 0 0.02381 0 0.045238Toyota RAV4 SUV 0.160714286 0.15 0.035956 0 0 0.34667Dodge Nitro SUV 0 0.021429 0.055502 0.035714 0 0.112645Jeep Wrangler SUV 0.026785714 0 0.065154 0.035714 0.142857 0.270512

Suzuki Grand Vitara SUV 0.080357143 0.107143 0.188031 0.035714 0.142857 0.554102Jeep Compass SUV 0.1875 0.171429 0.197876 0.071429 0.142857 0.771091Mitsubishi Outlander Sport SUV 0.214285714 0.214286 0.222008 0.071429 0.142857 0.864865 jeep patriot 0.1875 0.171429 0.357143 0.047619 0.142857 0.906548


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Given the metric utility functions, the team should be able to quickly see that there is no singledominant alternative - although the Mitsubishi alternative is almost dominant in all chosencategories. Overall, given equal metric weighting, there are three close front runners that couldbe recommended to the client.

If sensitivity analysis is an additional learning objective, a simple Monte Carlo analysis could beset up varying the metric weights to find the associated sensitivities.

Time permitting, the team could also conduct a simple cost analysis to determine if buying anew car is the most cost effective solution. Given another 15 minutes, the team could figure outthat a "total cost to own" metric is available for each alternative. If total cost is substituted for

price as a metric, the alternative rank order isunchanged.

Ultimately, the team should compare theoverall costs of the baseline with thealternative set. The client's current car,

although in need of repairs, does meet his cargo and winter driving criteria, and has significantlylower insurance costs (mostly due to the age and low value of the truck). The chart below givesa quick comparison between a rough estimate on the likely maintenance costs (triangle

probability distributions based on www.edmunds.com baseline vehicle data) of keeping thebaseline versus the new car cost.

Cos t to Own (5yr) Pri ce 5 year cosJeep Liberty SUV 41795 23395 65190Toyota RAV4 SUV 37769 22650 60419Dodge Nitro SUV 48626 22245 70871Jeep Wrangler SUV 41795 22045 63840Suzuki Grand Vitara SUV 38909 19499 58408Jeep Compass SUV 37876 19295 57171Mitsubishi Outlander Sport SUV 40863 18795 59658 jeep patriot 35855 15995 51850


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Given the disparity in the on the costs to own, the team should recommend that the clientreconsider his option to buying a new car if cost is to be minimized. Additionally, there are other

possible solutions to the client's commuting problem, such as moving closer to his work locationand walk or bike to work, or buying a small reliable used car and carpool with other climbers forroad trips. The team could quickly find online that there are a number of locations andapartment/condo options that are significantly closer than the client's current residence inAlbany. The list below represents a small fraction of the apartments near the client's worksitedeveloped from a quick apartment search near the client's workplace. If the client is open to theidea of moving, he could live within a leisurely ten minute walk from work.

Lastly, there are significant risks involved inkeeping the baseline beyond costs. The baselinecar is old and catastrophic failure is much morelikely than with a new car. The maintenancecosts of the baseline could easily exceed theoverall value of the vehicle itself in five years,whereas the new car will still retain some resalevalue (although the depreciation rates vary bymake and model).

4. Resources

Excel_Basic Tips_Tricks.pdf, UVA Collab resourcesExcel-quick-reference-2010.pdf, UVA Collab resourcesBooks:How to Conduct Systems Analysis, Chapters, 4, 5 and 6 (Gibson, Scherer, Gibson), 2007 Lecture Notes:Marginal Rates Car-Buying Example, WT Scherer, SYS 6001Decision Analysis/Tradeoff Analysis, WT Scherer, SYS 6001

Base li ne mai nte nance CostLikelihood within

5 years Remarks Sourcenew A/C $1,500 1.00 needs complete A/C repair Client

transmission repair $400 0.54

Occasional problems on this vehicle are failures of the Transmission Valve Body (automatictransmission only), the Front Axle Actuator (4WDmodels only) and the Transfer Case Encoder MotorAssembly (4WD models only). Assumed 50%probabi li ty based on mi leage and age Edmunds.com

transmission replace $2,000 0.31assume 30% failure rate based on "occasional"problems Edmunds.com

brakes $400 0.24 brakes have @ 20K miles; Edmunds.com

fuel pump/fuel injectors $500 0.36

Common problems on this vehicle are failures of the Fuel Pump, Fuel Injectors, Fuel PressureRegulator and the Exhaust Gas Recirculation (EGR)Valve Passages. Edmunds.com

Insurance $4,000 1.00 $800 per year for 5 years Client

fuel cost $4,000Assume 15K miles (estimate based on commuteand road trips ), 15mpg, and $4/gal

5 year likely cost $10,621 Min cost $9,932Average cost $10,470

New Car cost $43,367 Max cost $10,983based on price and cost to own

Name Cost Distance from WorkBarney Square Apartments Bedrooms: Studio/Eff - 2 0.3 miles

$525 - $875

Stockade Vi ew Apartments Bedrooms: 1-2 0.4 mi les$650 - $925Sheridan Village Bedrooms: 1-2 1.6 miles

$805 - $880Hampshire Apartments Bedrooms: Studio/Eff - 2 1.9 miles

$725 - $990Court Royale 2 Bedroom 3.2 miles

$885 - $885Graystone Apartments 2 Bedroom 3.2 miles

$895 - $910Serafini Apartments Bedrooms: 1-3 6.0 miles

$585 - $1,665Niskayuna Gardens Bedrooms: 1-2 2.0 miles

$844 - $1,069Hillcrest Village Bedrooms: 1-3 2.3 miles

$795 - $1,035

Schenectady apartments


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Additional Teaching Notes:

1. Determine Goals of System.The goal of the system is to transport the passengers and cargo efficiently, safely, and withincost constraints. There are a variety of possible solutions, and "crossover" SUVs are part of one

solution set. Within this tradespace, the goal is to maximize the cost, performance, and payloadof the vehicle.

2. Assumptions Job location, residency, and income (Albany, NY, 20 mile commute, and ~70K) are

steady No injuries to preclude lifestyle (will continue rockclimbing) Upper cost bound is inflexible Initial metric utility functions are linear Can only keep one vehicle (no extra storage). Will trade-in if possible

Telecommuting is not possible Plans to keep vehicle for at least five years Plan on traveling with one passenger for climbing trips, requiring approximately double

the cargo space (30 ft^3)

3. Establish Initial Screening Criteria for Alternative Candidates.In order to reduce the number of candidates, a pre-screening assessment was conducted. Thefollowing subfactors were used to screen for viable candidates:

Minimum Storage capacity greater than 30 cu ft Hwy Fuel economy greater than 25 Cost less than 26K Working Air Conditioning Minimum of "good" Safety Rating by Insurance Institute for Highway Safety

(www.IIHC.org) Minimum of 5 passengers MP3 player and Bluetooth

4. Develop Alternative Solutions.

The following alternative list was developed using the pre-screening criteria. The criteria filtered

out the majority of large SUVs, four-wheel drive, as well as the baseline option (both due to thelow MPG as well as lack of a working A/C). Within the list, it also guaranteed the clientsminimum criteria were met.


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In order to determine the best set of solutions, we developed the following Goals Hierarchybased on client input into his lifestyle and priorities. Since all viable alternatives met theminimum criteria (high safety rating, MP3 player, etc.) we are able to simplify the GoalsHierarchy and omit these since they would not differentiate between the alternatives.

Figure 1: Recommended Vehicle Goals Hierarchy

2012 Jeep Compass 2012 Volkswagen Jetta SE 2.5L2012 Toyota Matrix S 2013 Mitsubishi Outlander SE

2012 Dodge Grand Caravan SE/AVP 2012 Chevrolet Equinox 1LT2013 Ford Escape 2012 Volkswagen Tiguan

2012 Nissan Rogue 2012 Ford Flex SE2012 Mitsubishi Outlander ES 2012 Kia Sportage

2012 Toyota RAV4 Base 2012 Hyundai Tuscon2012 Honda CR-V LX 2012 Hyundai Tuscon2012 Kia Sorento LX 2012 Jeep Patriot

2012 Dodge Journey SXT 2012 GMC Terrain2012 Suburu outback 2.5i wagon


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The client's initial priorities were as follows:Price > cargo space > fuel economy = performance

With the client's priorities as input, the following initial metric weights were developed andnormalized:

Weighting Rationale

FWD/AWD 0.10 Performance is fourth priorityTotal List Price 0.17 Cost is most important metric

ave (50/50) fuel econ 0.12 Fuel economy is third priorityRoof rails 0.03 After market add-ons available

Engine block heater 0.03Important in winter, but after market add-onavailable

0-60mph (estimated) 0.10 Performance is fourth priorityLuggage volume (max) 0.14 Cargo space is second priority

turning radius 0.07 Driving is mostly on highways

Safety 0.07Safety is lower priority si nce every alternative hashigh safety rating

"cost to own" (5yr total) 0.16 Sl ightl y l ess i mportant that i ni ti al cost


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5. Rank Alternative Candidates.

Based on the model's results, the three best alternatives for the client are the Honda CR-V AWD, KiaSportage AWD, and the Jeep Patriot.

6. Sensitivity analysis

A Monte Carlo analysis was also conducted on the metric sensitivities. A 1000 event sample set was run,varying all ten of the metrics.


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The following chart displays the top sensitivities. Based on the analysis, turning radius and list price hadthe largest influence on the alternative scores. If the client


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7. Cost analysisAnother factor the client must make is the decision to buy or continue using the current vehicle. Thereare a number of hidden costs that the client must consider, including additional insurance costs (currentinsurance: $790/yr, new car ave: ~1300/year), depreciation, and taxes. Furthermore, the clients currentvehicle meets his needs with respect to winter driving (AWD) and cargo space (>70 cubic feet). If the

client is most concerned about gas mileage, it will take approximately

Baseline economic cost: despite the initial elimination of the baseline optionBuy used? Initial research into local used car market shows most used versions of this SUV set are pricedwell above the blue book value.

Hidden costs Sales tax (immediate devalue) (max: 1300, min:1107 average 1200) cost of insurance (current - 790 versus new - 1300) insurance is generally based on cost new, age, cost to repair resale value

Additional considerations Does having an older car prevent you from doing something? Older cars are more risky in long trips Transmission and other engine maintenance on GMC in future

Value in return? Maintenance doesnt improve value of car

Honda accord - repair parts need to be imported (same with Mercedes and most other foreigncars).Knowledge of own car's historyDecision point


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Insurance company cost to repair -Nat'l hwy safety administrationCounterpart insurance org (safety reports and damage assess

Other Options

Move closer to work and bike/walk, rent a car for long tripsConsidering the disparity between the baseline and new car total five year costs, other options beyond a"buy/don't buy" decision could be entertained. For example, the client could move closer to his worklocation and walk or bike to work.

There are a number of locations and apartment/condo options that are significantly closer than theclient's current residence. The list below represent a small fraction of the apartments near the client'sworksite.

Name Cost Distance from WorkBarney Square Apartments Bedrooms: Studio/Eff - 2 0.3 miles

$525 - $875Stockade View Apartments Bedrooms: 1-2 0.4 mil es

$650 - $925Sheridan Village Bedrooms: 1-2 1.6 miles

$805 - $880Hampshire Apartments Bedrooms: Studio/Eff - 2 1.9 miles

$725 - $990Court Royale 2 Bedroom 3.2 miles

$885 - $885Graystone Apartments 2 Bedroom 3.2 miles

$895 - $910Serafini Apartments Bedrooms: 1-3 6.0 miles

$585 - $1,665Niskayuna Gardens Bedrooms: 1-2 2.0 miles

$844 - $1,069Hillcrest Village Bedrooms: 1-3 2.3 miles

$795 - $1,035Van Antwerp Vil lage ApartmeBedrooms: 1-2 2.5 miles

$969 - $1,144105 Long Pond Road Bedrooms: 1-2 2.6 miles

$905 - $1,370

Schenectady apartments

Documents

SYS6001- Car Buying Decision Analysis Problem Setup and Teaching Notes