Decision Making: Renew Office Lease or Expand to Include Additional Space
What decision does the organization need to make regarding its office lease?
The organization needs to decide whether to renew its current lease of the 2nd floor or expand the lease to include additional office space on the 3rd floor of the same building.
What factors should the organization consider in making this decision?
The organization should consider the cost of renewing the current lease versus expanding to include the additional space, the probability of needing the extra space, and the financial implications of renting extra space from another building if needed.
When deciding whether to renew the current lease or expand to include additional space, the organization should weigh the costs involved. Renewing the current lease of the 2nd floor would cost $70,000, while expanding to include the 3rd floor would cost $135,000. The organization should also consider the probability of needing the additional space, which stands at 75%.
If the organization chooses to expand and the extra space is not needed, it would lose the $135,000 expansion cost but save $80,000 in rental costs. On the other hand, if the organization renews the current lease and later finds out that the extra space is needed, it would have to incur an additional cost of $80,000 to rent extra space from another building.
By creating a decision tree to visualize the options, the organization can better understand the potential outcomes and costs associated with each decision path. This graphical representation can help in making an informed decision based on the organization's needs and financial considerations.