Module 1

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Module 1

• INTRODUCTION TO DECISION ANALYSIS

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Introduction To Decision Analysis Learning
Objectives

• Reasons for studying decision analysis
• Basic sources of decision difficulty
• Decision analysis process
• Applications of decision analysis

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Why Study Decision Analysis?

• Managers are responsible for making decisions
• Structured frameworks benefit complex decisions

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Why Study Decision Analysis?

• The techniques can lead to better decisions
• Decisions are made more effectively and more
  consistently
• It helps managers deal with difficult decisions

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Why Study Decision Analysis?

• Help you think about the specific problem at hand
• Improve the quality of your decisions
• Provide tools that you can use to model decision
  situations

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Basic Sources of Difficulty

1. Complexity
2. Uncertainty
3. Multiple objectives
4. Different perspectives

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Basic Sources of Difficulty

• Complexity
• Number of issues
• Quantity of data
• Number of stakeholders
• Absence of decision structure

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Basic Sources of Difficulty

• Uncertainty
• Orientation to future
• Incomplete information

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Basic Sources of Difficulty

• 3. Multiple Objectives
• Progress in one direction may impede progress in
  others
• Must trade off benefits in one area against costs
  in another

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Basic Sources of Difficulty

• Different perspectives
• Multiple decision makers
• Different perspectives yield different outcomes

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A Decision Analysis Process

• Identify decision situation and define objectives
• Identify alternative choices
• Develop models
• Select the best alternative
• Conduct sensitivity analysis
• Conduct further analysis as needed
• Implement best alternative

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A Decision Analysis Process

• Figure 1.1 on page 6

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Where Is Decision Analysis Used?

• Managing RD programs
• Forecasting sales for new products
• Deciding whether to launch a new product or new
  venture
• Negotiating commercial real estate developments
• Setting regulatory standards for air and water
  pollution
• Making medical diagnoses and evaluating treatment
  risks
• Evaluating widespread testing for various medical
  conditions

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SUMMARY

• The purpose of decision analysis is to help make
  decisions
• Decision analysis is a process
• Decision analysis provides a framework and
  methods for dealing with difficult decisions
• Decision analysis is widely used