Part I
First and foremost, I love cases that are only a few pages. Easier to read and more fun to discuss. In this case, Carter Racing was faced with a decision to race or not to race. The dilemma is that their engine has been breaking at 29% rate. We believe that the engine failure is correlated to the temperature and we have a scatterplot to help visualize this.
Still, we have other pressing matters concerning our financial position. If we do not race, we lose out $85,000. If we decide to race, based on our record, we have a 50% chance of placing “in the money” and gaining a lucrative $2 million sponsorship. If we race and don’t win, there are two outcomes: just losing & engine blowout. Just losing is still a lucrative outcome since we will be keeping sponsorship, but blowing out an engine will cost us an $800,000 sponsorship.
As a business student, my inclination is to valuate this decision based on monetary value and had set up a decision tree. This tree showed that the value of winning well exceeded the cost of losing or not racing.
If I rely on the data, racing at 40 degrees, which is well below the temperatures my engine failures have occurred, I shouldn’t race. But in a business setting, not racing, I incur more costs and fail to take advantage of the opportunities presented to me.
Race time is in one hour.
Part II
I need help. So I decide to get a mechanic’s opinion on why I’m experiencing engine failure. The guy has been in the racing game since he was 16, after dropping out of high school. His opinion is that the gasket is breaking due to the turbo pressure and ambient outside temperature causing varying expansion rates. This is something I’ve heard over and over again, but the data doesn’t support this.
We have some varying data points that don’t fit this problem, because we experience failure at temperatures from 54 to 75 degrees.
Another revealing aspect of our racing advantage is our unique turbo-charging system. The design has allowed greater power while maintaining good fuel consumption. The alloy used is a high-strength aircraft alloy and while not as temperature sensitive as the engine block, it should be able to handle the different expansion rates.
The race is about to begin. Our team is excited in winning this race. We have a lot riding on this including prize money, sponsorships, and number one status. When asked about the gasket problem, my team says we are ready to go.
Part III
Ten minutes before race time, I asked the temperatures for the races we had no engine problems. Looking at the data, we have had no engine problems at a range of 65-85 degrees. Most of our successful races occurred at higher temperatures, but also we have experienced engine failures in higher temperatures.
Two minutes before race time. Is it time to pull the race in light of this data? Or am I not able to draw anything conclusive from the evidence? Finally, this race is the final race of the season and our last chance to finish on top, with a sponsor, and even set up for a better position the next season.
What to do?
Decision Time and the Result
I want to race. No one ever won a race while in the pits. No guts. No glory.
The data I have collected is vague. The correlation to temperature and engine performance is strong, but does this mean racing at 40 degrees is relatable to our collected data? The advice from the mechanic is based on opinion. Also, our chances of winning are too tempting. With this money we can invest in resolving all our engine problems plus even expand our presence in the racing circuit. If we don’t race, we lose out any way.
Still, these engine problems are still bothering me.
The race starts and we get off to a good start. During the race, we’ve built a good lead… then the engine blows out.
Challenger Relation
On January 28, 1986 the Space Shuttle Challenger faced a similar dilemma. Ultimately, the decision to launch cost the lives to seven astronauts, including one American teacher who perished in front of her class as they watched the launch in Florida.
This has lead to restructuring of ethical engineering decision making. The investigation followed shortly after the tragedy revealed that NASA did indeed have the facts to have addressed this complication. There were those who voiced out reason and skepticism, but sadly they were not the decision makers.
One can argue that if we did not have these overseeing decision makers America would not have been able to reach space at all, stemming all the way from the 1960s. They had a track record of success: entering space and placing a man on the moon. Who was to say they are wrong? How do you challenge that? Those skeptical engineers can even convince themselves that this is just a minor problem or one that is unlikely to occur. This is what ran through everyone’s mind.
Conclusion/Questions
Taken into context, you can argue that the circumstances are different. But I counter that the context has been toned down in degree, but the decision itself is exactly the same. The risk/reward outcome decision making is real.
At times, we as managers, can be blinded by the fervor of the team and the possibilities of attaining the reward. How do we manage this risk associated to business decision making? We have seen its damages in our financial crisis, but a lust for competition, machoism, and greed still drive our risky decision making. From day one, I have been taught reward is not without risk; and greater reward, greater the risk. These are the trade-offs in business; or is this really a trade-off?
Also, at times we see that skeptical members in a team are most often overlooked. We are fixed on majority or conformity, but these are the very things that stagnate innovation or in this case, overlook important evidence. I don’t think it is wrong, because at times it is needed for quick decision-making or to avoid unneeded conflict. Still, how do you recognize and acknowledge this skepticism? At what time is it appropriate/not appropriate?
After the fact, one can only look in hindsight as the result unfolds, then you reflect on what to do; and dwell on the “what-ifs”. The results never change and as a manager you’ll have to understand that. Your decisions have weight and its the recognition of this weight and responsibility that help guide good decision-making.
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In this case, Carter Racing has to make a decision under pressure about whether or not to race given they have experienced engine failure at a rate of 29%. Based on the opinion of the engine mechanic, temperature is a key driver in the cause of engine failure and Carter Racing has never raced in such a cold temperature (40 deg F). The data (only 7 data points) gathered by a more senior mechanic, who designed the turbo-charging system, does not demonstrate a correlation between temperature and gasket failures. There are three possible scenarios to consider. First, if they race and win, Carter Racing stands to gain a $1 million sponsorship from Goodstone and the team will feel an immense sense of pride. However, if luck allows them to win, Carter Racing also stands the chance of dismissing the engine failure issues in preparation for future races. Second, if they race and experience engine failure, Carter Racing will face their biggest blow up on national television at a major event; not to mention the loss of substantial new sponsorships from Goodstone and their existing $500k oil contract. Third, if Carter Racing chooses to withdraw, the team morale will be negatively impacted and their reputation with key sponsors may be in limbo. Withdrawal will also leave them $50k in the hole for the season. Based on the lack of additional corroborating data to disprove the temperature theory and the amount of financial incentive and reputation on the line, my recommendation is for Carter Racing to withdraw and keep their driver/car safe instead of hoping luck will be on their side. Carter Racing can use this as an opportunity to test and refine the turbo-charging system, get back on stable-footing and attract the attention of major sponsors next season.
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Carter Racing
Carter Racing is in a difficult situation with respect to determining whether to enter an upcoming race at Pocono. On the one hand, in the event of a favorable performance Carter Racing stands to gain a $1 million sponsorship with Goodstone Tires that could finance Carter Racing to add another car next season. On the other hand, in the event of a poor performance Carter Racing risks losing an existing oil sponsorship worth $500,000 that is critical to next year’s race season. After careful analysis, however, I believe that Carter Racing should enter the Pocono race because it stands to gain more by doing so than it stands to lose.

Temperature is the main factor that comes into play. Low ambient temperatures wreak havoc on the car’s gasket and force Carter Racing to abandon races early. This becomes readily apparent when temperatures below 60° are plotted against gasket failures, as in the figure below. Variance in this case is calculated as .6447, which means that the independent variable (temperature) has a 65% effect on the dependent variable (gasket failure). Note that temperatures above 60° are ignored from this analysis because cool temperatures are forecast for race day; consequently, an analysis of high temperatures is irrelevant.

Using the information calculated above (R2 = 0.6447), one can build a decision tree to determine algebraically the optimal course of action. Carter Racing faces a 65% chance of not completing a race in cool temperatures; and by extension it only has a 35% chance of finishing a race under such conditions. However, the payoff associated with completing a race ($1.5 million consisting of the tire contract and the oil contract) exceeds the prospective loss of retiring from the event ($500K associated with the oil contract). When one combines the weighted probabilities of both events occurring to the associated dollar amounts, the end result of $200K exceeds the $50K loss attributed to skipping the event. As a result, Carter...

Part A:
In this case, BJ Carter has to make a decision under pressure about whether or not to race given they have experienced engine failure at a rate of 29%. Based on the opinion of the engine mechanic, temperature is a key driver in the cause of engine failure and Carter Racing has never raced in such a cold temperature (40 deg F).
On the one hand, in the event of a favorable performance Carter Racing stands to gain a $1 million sponsorship with Goodstone Tires that could finance Carter Racing to add another car next season. On the other hand, in the event of a poor performance Carter Racing risks losing an existing oil sponsorship worth $500,000 that is critical to next year’s race season. After careful analysis, however, I believe that BJ Carter should enter the Pocono race because it stands to gain more by doing so than it stands to lose.
Robin Burns, the chief mechanic didn’t agree with Pat Edwards ( Engine Mechanic ) guessing the engine problem related to ambient air temperature since the data (Exhibit 1 ) gathered by Robin , who designed the turbo-charging system, does not demonstrate a correlation between temperature and gasket failures.
Based on my working experience and my decision based on monetary value and had set up a decision tree. This tree showed that the value of winning well exceeded the cost of losing or not racing. In a business setting, not racing, I incur more costs and fail to take advantage of the opportunities given to me.
Part B:
BJ need help. So he decide to get a mechanic’s opinion on why they experiencing engine failure. Pad Edwards since 16years, after dropping out of high school been around the professional circuit. BJ opinion is that the gasket is breaking due to the turbo pressure and ambient outside temperature causing varying expansion rates. This is something BJ heard over and over again, but the data from Robin doesn’t support Pat Edwards’s opinion.
Another revealing aspect of Carter racing advantage is the unique turbo-charging system. The design has allowed greater power while maintaining good fuel consumption. The alloy used is a high-strength aircraft alloy and while not as temperature sensitive as the engine block, it should be able to handle the different expansion rates.
The race is about to begin. The team is excited in winning this race. They have a lot riding on this including prize money, sponsorships, and number one status. When asked about the gasket problem, the team says they are ready to go.

Part C:
Just ten minutes before race time, BJ asked the temperatures at starting time of each races and they didn’t have any gasket problems. From the data given by Robin, there is no engine problem at a range of 65-85 degrees. Most of our successful races occurred at higher temperatures, but also we have experienced engine failures in higher temperatures.
Conclusion:
Taken into context, you can argue that the circumstances are different. But I counter that the context has been toned down in degree, but the decision itself is exactly the same. The risk/reward outcome decision making is real.
At times, we as managers, can be blinded by the fervor of the team and the possibilities of attaining the reward. How do we manage this risk associated to business decision making? We have seen its damages in our financial crisis, but a lust for competition, machoism, and greed still drive our risky decision making. From day one, I have been taught reward is not without risk; and greater reward, greater the risk. These are the trade-offs in business; or is this really a trade-off?
Also, at times we see that skeptical members in a team are most often overlooked. We are fixed on majority or conformity, but these are the very things that stagnate innovation or in this case, overlook important evidence. I don’t think it is wrong, because at times it is needed for quick decision-making or to avoid unneeded conflict. Still, how do you recognize and acknowledge this skepticism? At what time is it appropriate/not appropriate?
After the fact, one can only look in hindsight as the result unfolds, then you reflect on what to do; and dwell on the “what-ifs”. The results never change and as a manager you’ll have to understand that. Your decisions have weight and its the recognition of this weight and responsibility that help guide good decision-making.
Carter Racing faces a 65% chance of not completing a race in cool temperatures; and by extension it only has a 35% chance of finishing a race under such conditions. I believe that BJ Carter should enter the Pocono race because it stands to gain more by doing so than it stands to lose. We can related Carter Racing to Risk-Return Tradeoff principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns. The return will be Goodstone sponsorship, and the risk would be lose $80,000 and a blown engine.ontract.