Case 21: Freemark Abbey Winery
Case 21: Freemark Abbey Winery
Executive Summary: Wine making is a process dependent upon many different variables. A lot of decisions are made which can affect the overall quality of the wine being produced. It is important that each decision is made to optimize the overall quality of the wine, thus optimizing the market price. In 1976, a business partner of Freemark Abbey Winery, William Jaeger, had to make an important decision that could affect the company’s bottom line. A storm was heading towards the vineyard. If the storm produced a heavy rain, it could potentially ruin the crops. However, if the storm produced a light rain, it could create a beneficial mold that would increase the value of the crops. A decision had to be made immediately to either harvest the Riesling grapes or leave them on the vines. Based on the local weather reports, Jaeger thought there was a fifty-fifty chance that the rainstorm would actually reach the crops at the vineyard. If the rainstorm did reach the crops, he thought there would be a forty percent chance the storm would produce a light rain, possibly helping to create the botrytis mold. This mold is very beneficial for this particular crop. More precipitation than a light rain however, could swell the berries. This would decrease their sugar concentration, making them less valuable, or worse, it could ruin them all together. All of these different variables would affect the selling price of the crops. It is important to note that Riesling wine makes up only four percent of the Winery’s total business. The following is an analysis if Jaeger should make the decision to harvest the crops or to leave them on the vines.
Decision Problem:
The ultimate decision is to either immediately harvest the crops or wait. The simplified assumptions are given:
Harvest or wait
Fifty percent chance it will storm
No storm – probabilities of different sugar concentrate levels in the grapes
Storm – probability of mold versus the
Executive Summary: Wine making is a process dependent upon many different variables. A lot of decisions are made which can affect the overall quality of the wine being produced. It is important that each decision is made to optimize the overall quality of the wine, thus optimizing the market price. In 1976, a business partner of Freemark Abbey Winery, William Jaeger, had to make an important decision that could affect the company’s bottom line. A storm was heading towards the vineyard. If the storm produced a heavy rain, it could potentially ruin the crops. However, if the storm produced a light rain, it could create a beneficial mold that would increase the value of the crops. A decision had to be made immediately to either harvest the Riesling grapes or leave them on the vines. Based on the local weather reports, Jaeger thought there was a fifty-fifty chance that the rainstorm would actually reach the crops at the vineyard. If the rainstorm did reach the crops, he thought there would be a forty percent chance the storm would produce a light rain, possibly helping to create the botrytis mold. This mold is very beneficial for this particular crop. More precipitation than a light rain however, could swell the berries. This would decrease their sugar concentration, making them less valuable, or worse, it could ruin them all together. All of these different variables would affect the selling price of the crops. It is important to note that Riesling wine makes up only four percent of the Winery’s total business. The following is an analysis if Jaeger should make the decision to harvest the crops or to leave them on the vines.
Decision Problem:
The ultimate decision is to either immediately harvest the crops or wait. The simplified assumptions are given:
Harvest or wait
Fifty percent chance it will storm
No storm – probabilities of different sugar concentrate levels in the grapes
Storm – probability of mold versus the