Vose SoftwareModelChoice decision tree · Water
Water Treatment Plant
A new membrane plant, an upgrade, local systems or a regional partnership: which costs least?
From the model’s decision tree
Lowest expected cost: Upgrade Existing Plant
The expected value of each first option when every later decision is also made well (the tree rolled back).
| First decision | Expected value | |
|---|---|---|
| New Membrane Plant | −$134,315,630 | |
| Upgrade Existing Plant | −$71,707,940 | ✔ best |
| Decentralized Systems | −$78,594,600 | |
| Regional Partnership | −$88,645,260 |
| Measure | Value |
|---|---|
| Expected value of the best strategy | −$71,707,940 |
| Best outcome on the best strategy | −$60,017,600 |
| Worst outcome on the best strategy | −$176,750,000 |
S-curve (cumulative probability) of Upgrade Existing Plant from the saved simulation.
The decision
A municipal water utility must expand treatment capacity to meet growing demand and comply with stricter EPA water quality standards. The current plant is aging and approaching capacity limits. The utility board must choose between:
- New membrane filtration plant — state-of-the-art but high capital cost
- Upgrade existing plant — lower cost but risk of not meeting standards
- Decentralized treatment systems — distributed approach, newer concept
- Regional partnership — share costs with neighboring municipality
How the inputs are linked
The tree sheet has a parameter table above the decision tree. Construction cost per MGD, operating costs, and plant capacity are defined once and referenced by multiple branches. Changing a single parameter instantly updates all linked values.
The inputs that drive several branches at once:
- Cost per MGD — scales construction cost in all build options
- Plant Capacity — multiplied across all capital cost calculations
- Operating Cost per 1000 Gal — drives O&M in every terminal value
- Energy Cost per kWh — energy component in all treatment paths
- Water Revenue — income calculation in all operating terminals
The decision tree
The tree has 1 decision, 4 chance events and 11 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.
DecisionChance event+$ cash flow on the branch
New Membrane Plant −$128,750,000expected −$134,315,630
Chance: Demand Growth (New Plant)- 35% High Demand Growth −$5,532,000payoff −$134,282,000
- 45% Expected Demand −$5,566,200payoff −$134,316,200
- 20% Low Demand −$5,623,200payoff −$134,373,200
Upgrade Existing Plant −$53,000,000expected −$71,707,940 ✔ best
Chance: Upgrade Outcome- 65% Meets All Standards −$7,017,600payoff −$60,017,600
- 25% Partial Compliance −$7,086,000payoff −$60,086,000
- 10% Fails Standards −$123,750,000payoff −$176,750,000
Decentralized Systems −$72,000,000expected −$78,594,600
Chance: Decentralized Performance- 50% Systems Effective −$4,629,000payoff −$76,629,000
- 50% Systems Ineffective −$8,560,200payoff −$80,560,200
Regional Partnership −$75,000,000expected −$88,645,260
Chance: Partnership Outcome- 55% Strong Partnership −$3,332,880payoff −$78,332,880
- 30% Partner Disputes −$3,373,920payoff −$78,373,920
- 15% Partnership Fails −$72,000,000payoff −$147,000,000
Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.
Key assumptions
| Assumption | Value | Notes |
|---|---|---|
| Construction Cost per MGD | $12,000,000 | Capital cost per million gallons/day capacity |
| Operating Cost per 1000 Gallons | $4 | Variable O&M cost per 1000 gallons treated |
| Plant Capacity (MGD) | 10 | Design capacity in million gallons per day |
| Regulatory Compliance Cost | $5,000,000 | One-time cost for regulatory permits/upgrades |
| Land Cost per Acre | $250,000 | Land acquisition cost per acre |
| Energy Cost per kWh | $0 | Electricity rate for pumping and treatment |
| Chemical Treatment Cost/1000 Gal | $1 | Chemical costs per 1000 gallons treated |
| Annual Water Demand (MG) | 3,000 | Annual volume in million gallons |
| Water Revenue per 1000 Gallons | $8 | Rate charged to customers |
| NPV Period (Years) | 20 | Analysis period for NPV calculation |
| Partner Cost Share (%) | 40.0% | Regional partner's share of costs |
| Acres Required (New Plant) | 15 | Land needed for new membrane plant |
The figures are illustrative: the companies and numbers are invented for teaching.
Try it in ModelChoice
- Increase Energy Cost per kWh. See how energy prices shift the decision
- Change Plant Capacity. Observe scale effects across all options
- Adjust Partner Cost Share. See when regional partnership becomes optimal
- Run Sensitivity Analysis. Tornado chart shows which parameters matter most
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Further reading
Download the workbook and open it with ModelChoice. The free trial opens every example.
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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.