Introduction to Decision Analysis 1 Complex decisions 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 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 Analysis: ‘divide and conquer’ Defensible rationale: ‘audit trail’ Raised consciousness about issues Allows participation: commitment Insights: creative thinking 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 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 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 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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