What’s Brewin’

Ernie Makin is part owner and president of Liberty Brewing Company, which is a microbrewery producing specialty ales. He first started by brewing and bottling beer at home, mostly ale. With the financial backing of some friends and using his own assets, he went into business. The venture became a success. During the last several years, sales expanded more rapidly than he ever imagined. At several recent meetings, one of the specific agenda items that he and his financial backers had discussed was reducing costs by investing in automated bottling. A financial analysis shows that they were sure to save at least $10,000 per year over the next five years on a $30,000 investment in the new bottling equipment. Other available bottling
equipment investments of the same amount would save $8,000 over the same time period. Another agenda item concerned expanding sales to other retail outlets outside their current regional market. Even though they decided to go ahead, the alternatives and the future events that could affect this objective were difficult to project. Perhaps more


pressing was the fact that several batches of ale didn’t meet quality specifications. Ernie was most immediately concerned with finding the cause of this problem.
If Ernie Makin and his financial backers invest $30,000 and choose the bottling equipment that saves them $10,000 rather than $8,000 per year, the decision situation is best characterized as one of

A. ambiguity.
B. risk.
C. certainty
D. uncertainty
It definitely isn’t C or D

B. Risk

They don’t know what would happen, which could point to uncertainty. However, the fact that they would lose money if the ale no longer met quality standards characterizes it as a risk because they stand to lose something.

Episode 002 - Basic Beer Brewing Equipment - Part Two