The Charles River Jazz Festival is faced with the challenge of deciding whether to press a compact disk (CD) of the jazz performance on Friday to be sold on Saturday and Sunday. It takes into consideration the novelty of pressing CDs and how the customers would look at such an endeavor. This case study shows the various quantitative techniques, such as decision analysis, regression, and simulation, which may be applied in decision-making in dilemmas faced by managerial officers.
Harvard Business Review (893004-PDF-ENG)
October 29, 1992
Case questions answered:
- Create a spreadsheet that will enable you to calculate the Profit/Loss associated with any quantity of CDs made, Attendance, and % who buy. Assuming you make 4,000 CDs, 51,824 people attend the Charles River Jazz Festival on Saturday/Sunday, and 8% of the attendees would like to buy a CD, what would be your profit?
- Where is there uncertainty in your spreadsheet? How would you determine the distribution(s) to use to characterize this uncertainty?
- What information (i.e., the output from a simulation model) would you like to have to help make your decision regarding how many CDs to press? Which of these factors can you learn from a Crystal Ball simulation? How might you obtain some of the information that you can’t learn from Crystal Ball?
- Assume you are restricted to CD production quantities that are a multiple of 1000 (i.e., you could choose to press 4,000 CDs, but you could not choose to produce 4,200 CDs). How many would you produce? Why?
- What additional information would you like to gather in order to make a better decision? How could you gather such information?
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Case answers for Charles River Jazz Festival
This case solution includes an Excel file with calculations.
Problem Definition – Charles River Jazz Festival
The task at hand was to decide how many CDs would Charles River Jazz Festival have to press to maximize profits. The assumption variables were – the total no. of people who are going to turn up for the Saturday and Sunday shows and how many of those would eventually end up buying the CDs for Friday night performances. The forecast variable was total profit – (shown in blue in Illustration 1 below).
There are two levels of uncertainty here: First, finding out the number of people who are going to come to the Charles River Jazz Festival on Saturday and Sunday given the data for Friday.
In the case, the regression estimate has been given based on historical data and we have been given an estimate which has a normal distribution with standard dev as 51,824 and a mean of 5,962. We are going to use that for our first assumption variable. Second, the percentage of people attending who are going to buy CDs. For this factor, since in the case it’s given that is equally likely for any probability between 4 and 12 %, we would use uniform probability distribution.
Lastly, the estimate for the CDs sold can be found out by multiplying the above two estimates – which although approximate, gives a good estimate when simulated 500 times for each value of CDs to be pressed. Out of the 2500 scenarios run, for one particular scenario – assuming we make 4,000 CDs, 51,824 people attend the Charles River Jazz Festival on Saturday/Sunday, and 8% of the attendees would like to buy a CD, – the profit came out to be…