Decision Analysis

Process for Decision Analysis

Decision Analysis process concerns decision
analysis practitioner who wants to increase the
technical skills, concepts and mathematics and soft
skills, personal and interpersonal, required for
success in any field.
Consequences of decisions directly affect
professional and personal lives.
Decisions can be difficult, and making good
decisions can be very valuable.
 Decisions are made by people vested
with the authority and responsibility to
make decisions for an organization or
enterprise.
Decisions involve stake-holders who
are individuals and organizations that
could be affected by the future
consequences of the decision.
 Definition

Decision analysis is a body of knowledge and

professional practice for logical illumination of
decision problems.
Decision analysis is an approach that suggests
how an individual faced with a problem of choice
under uncertainty should go about choosing a course
of action that is consistent with personal basic
judgments and preferences
 Definition
Decision analysis is a philosophy and a social-
technical process for creating value for decision makers and
stakeholders facing difficult decisions involving multiple
stakeholders, multiple conflicting objectives, complex
alternatives, important uncertainties, and significant
consequences.
Decision analysis is a formalization of common sense
for decision problems which are too complex for informal
use of common sense.
Decision analysis is a philosophy, articulated by a set
of Logical axioms, and a methodology and collection of
systematic procedures, based upon those axioms, for
responsibly analyzing the complexities inherent in decision
problems.
 Decision Analysis focuses on
Decision analysis focuses on fundamental
aspects to decision problems.
1. A perceived need to accomplish some objectives.
2. Several alternatives, one of which must be
selected.
3. The consequences associated with alternatives
are different.
4. Uncertainty usually about the consequences of
each alternative
5. Possible consequences are not all equally valued.
 DA Is a Socio-Technical Process
Effective decision analyst must understand
challenges of decision making in organizations,
mathematical foundations of decision analysis, and
the soft skills required to work with decision
makers, stakeholders, and experts to perform a
decision analysis.
 Decision Processes
Decision processes used by decision analysts
to integrate contributions of decision makers (DMs),
stake-holders (SH), subject matter experts (SMEs),
and decision analysts to reach a good decision.
Decision Making Challenges
 Decision Analysis
A decision professional is an individual who
seeks to learn and apply proven decision analysis
technical and soft skill best practices to help senior
leaders create potential value for their organizations
Decision professionals belong to two types of
professional societies.
1. The societies that focus on decision analysis
methods, education, and professional development.
2. The professional societies that focus on particular
problem domains.
 Education and Training
Different decision professionals learn decision
analysis in undergraduate or graduate degree
programs.
Decision professionals begin their education
with a degree in engineering, science, business and
some begin with a liberal arts degree.
Various individuals become decision analysts
after working in a particular application domain by
taking professional decision analysis training
course
 Decision Analysis Professional Organizations

Decision analysis professional organization

is the Decision Analysis Society (DAS)
DAS promotes development and use of
logical methods for improving decision making in
public and private enterprise whose members
include practitioners, educators, and researchers
with backgrounds in engineering, business,
economics, statistics, psychology, and social and
applied sciences
 Decision Analysis Affinity Group (DAAG) which is a
group of corporate and consulting decision analysis leaders
who meet once in a given period to share decision analysis
insights, challenges and successes.
Society of Decision Professionals (SDP) is an
organization which is devoted to helping decision
professionals to become trusted advisors of choice for
DMs facing important and complex decisions.
The Society promotes collaboration, continual
learning, and networking amongst its members and other
professional societies and organizations so as a growing
community, they can bring clarity and an insight into DMs.
 Problem Domain Professional Societies

Several problem domains have professional

societies including decision analysis applications in
their meetings and publications.
As an example a Military Operations
Research Society (MORS) which is a professional
society devoted to advancing the development and
use of operations research techniques for national
security problems. MORS has a decision analysis
working group at their annual meeting.
 Professional Service

Decision professionals perform professional

service by taking leadership positions in professional
societies and serving on national, regional, and local
public service activities.
Various decision analysts have served on
committees of the National Research Council by
using decision analysis expertise to help solve
specific nation’s most significant challenges.
 Decision-Making Challenges

To achieve effective decision making, it is

desirable to bring rational decision makers
together with high-quality information about
alternatives, preferences, and uncertainty
regrettably information is not always the high
quality that we would like.
 Methodology of Decision Analysis
Decision analysis provide details on aspects
of methodology.
Methodology for decision analysis
1. Structure the decision problem.
2. Assess possible impacts of each alternative.
3. Determine preferences or values of decision
makers.
4. Evaluate and compare alternatives.
 Structure the Decision Problem
Structuring a decision problem comprises the
generation of alternatives and the specification of
objectives. Creativity required for these tasks is
promoted by the systematic thought processes of
decision analysis.
Decision analysis captures the dynamic nature
of decision processes that prescribes a decision
strategy that indicates what action should be chosen
originally and what further actions should be
selected for each subsequent event that could occur.
 Decision Strategy
Example
A decision strategy to suggest an initial test
market for a new product and based on the results
can either cancel the product or initiate further
testing, or begin a full scale marketing and sales
effort.
In describing the alternatives, one must
simultaneously specify the decision points, events
that may occur between them, and the information
that can be learned in the process.
Schematic Representation of the Steps of DAN
 Implementing Knowledge Management
Major problem associated with generating alternatives is that
sometimes there seems to be a complete lack of reasonable
alternatives.
In such a case it is advisable to utilize the objectives of the
problem to stimulate creativity.
Principally only if the objectives are clearly specified one can
describe possible consequences of the problem which seem mainly
desirable.
Then one works backward and asks what types of alternatives
might achieve such consequences.
The process of quantifying the objectives with an objective
function promotes additional thinking about worthwhile , alternatives.
 Data, Information and Knowledge
N Company sells two products.
Product A sells for $100 per unit, and has unit variable costs of $60.
Product B sells for $70 per unit, and has unit variable
costs of $50.
Currently, N Company sells three units of product A for every one unit
of product B sold.
N Company has fixed costs of $750,000.
How many units would N Company have to sell to earn a profit of
$300,000?

a) 7,500 units of A and 22,500 units of B

b) 22,500 units of A and 7,500 units of B
c) 17,600 units of A and 12,400 units of B
d) 12,400 units of A and 17,600 units of B