Book the same room again or take the bigger one?
Three options, one of which is doing nothing, and two live ones that are worth almost exactly the same. When the expected values tie, the risk profile is the answer, and the note shows how to read both sides of it.
Words on this sheet
- Venue: The place an event is held. A venue line is what hiring it costs, usually a fixed amount whatever the turnout.
Operations Intermediate Decision Tree Pro engine
After you install, this is the model to open.
Should We Run It Again Next Year?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Same venue, same size
- $44,250 expected value, the tree's pick
- The bigger room
- $43,000 a $1,250 gap that decides nothing on its own
- Chance of losing money
- 10% vs 55% same size against the bigger venue
- Worst case
- -$12K vs -$74K a calendar clash against an empty bigger room
Three choices: do it again the same size, take the bigger room, or do not do it. This year made $58,000 on 850 tickets in a room that holds 900. The larger venue holds 1,800, costs $96,000 more in hire and production and takes a $40,000 non refundable deposit twelve months out, which is why selling this year's numbers into it turns this year's $58,000 of margin into a $38,000 loss.
Open the Decision Tree tool and click Run. Running it again at the same size comes back at $44,250, the bigger room at $43,000, and stopping at zero. The same size wins, but by $1,250, which on a decision this size is nothing at all. Nudge the chance of filling the bigger room from 45% to a shade over 45.5%, scaling the other two outcomes back to match, and the two swap places.
So the expected value cannot separate these two options and you should stop trying to make it. What separates them is the risk profile, which is the table underneath. Running it again the same size never loses more than $12,000, and it does that in 10 of every 100 years. The bigger room takes a $38,000 loss in 35 of every 100 years and loses $74,000 in 20.
Two events with the same expected margin, one of which cannot really hurt you and one of which can take a year of surplus off the organization in a single evening. If you are a company with a marketing budget, the bigger room is a reasonable bet on a good upside. If you are a membership body whose reserves are one bad event deep, it is not, and the tree has now told you that in dollars rather than in temperament.
One thing to know about the report. The risk profile only follows the winning choice, so out of the box it shows the same-size outcomes and not the bigger-room ones. To see the bigger room profile on its own, delete the same-size chance row and the three outcome rows under it and run it again; the tree then compares the bigger room against doing nothing and prints its full distribution.
That is worth doing before any conversation about the deposit. What the tree cannot price is what a bigger event does to the year after: a room that is two thirds full reads as a decline to sponsors and speakers even when the margin is fine, and that cost lands in the following year rather than this one. To make it yours, put this year's actual margin on the sells-like-this-year outcome, get the larger venue hire and deposit from a real quote rather than an estimate, and set the fill probability from how quickly this year's tickets actually sold rather than from how the evening felt.
The model
It arrives on a tab called Template: Should We Run It Again Next Year, carrying these columns:
- ID
- Parent
- Type
- Label
- Probability
- Value ($k)
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Is a second supplier worth paying for?What If the Single Source Fails?
- Is your worst supplier really worse than the rest?Are These Three Suppliers Really Different?
- Does this delivery note match a supplier on file?Which Rows in Two Vendor Lists Are the Same Supplier?
- What does an unreliable supplier cost you in stock?Safety Stock for a Plant That Cannot Stop
- Is the line running on a cycle nobody scheduled?Does Our Output Repeat on a Cycle?
- Is a flat daily plan good enough?The Season Repeats: Forecast It
Every model like this one, and the method behind them: Decision trees.