Optimal Design of a Stochastic System with Dominating Fixed Costs**

Abstract

Executives in a wide variety of formal organizations frequently face decisions involving changes in capacity of service capabilities. Usually these changes mean increases in manpower and/or capital expenditures for new facilities, but due to seasonality, or a decline in business, a decision may also involve the determination of whether to reduce the available capacity. These decisions generally are made by comparing the cost (or savings, which is a negative cost) of changing the service capability with the corresponding costs or risks of not being able to properly meet service requirements. In this paper, the problem described is one in which services are provided, and the cost, or risk, of not being able to meet service requirements is expressed by means of a queuing equation.