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Introduction
to
Decision Analysis
1
Complex decisions

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You may face a job change (or job
selection) problem.
A lot of features you should take into
accounts.
The future conditions may not be
predictable.
Many friends give you “useful”
suggestions.
2
Management decisions are often
complex because they involve:
1. Risk and uncertainty
attitude to risk
2. Multiple attributes & objectives
A trade-off problem
3. A complex structure
4. Multiple stakeholders
(Group decision makers)
3
Why people have problems
coping with this complexity
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The human mind has limited
information processing capacity and
memory
To cope with complexity we tend to
simplify problems
This can lead to inconsistency and
biases
4
The Role of Decision Analysis
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Analysis: ‘divide and conquer’
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Defensible rationale: ‘audit trail’
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Raised consciousness about issues
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Allows participation: commitment

Insights: creative thinking
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Guidance on information needs
5
Note that the main purpose of decision
analysis is to yield insights and
understanding about the decision
problem rather than to impose an
‘optimal’ solution.
6
Rationality

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The basic assumption is rationality
If the decision maker is prepared to
accept a set of axioms then the decision
indicated by the analysis should be
preferred
7
Conflicts between analysis
and intuition
Perhaps:

Analysis failed to capture some aspect of

Intuitive preferences were only partly formed
problem
or
or were inconsistent
Exploring this conflict can lead to deeper
insights and understanding about the decision
problem
8
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The analysis may enable the decision
maker to develop a greater
comprehension of the problem so that
his or her preference changes towards
that prescribed by the analysis.
9
Applications of decision analysis
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Improved strategic decision making at Du Font
Structuring decision problems in the International
Chemobyl Project
Selecting R&D projects at ICI Americas
Petroleum exploration decisions at the Phillips
Petroleum Company
Strategic planning in an Australian voluntary
organization
Supporting the systems acquisition process for the US
military
Prioritizing projects in a busy UK social services
department
Selecting a wide area network (WAN) solution at EXEL
Logistics
Planning under a range of futures in a financial services
firm
10
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