Module 1 INTRODUCTION TO DECISION ANALYSIS 1 Introduction

Module 1 INTRODUCTION TO DECISION ANALYSIS 1

Introduction To Decision Analysis Learning Objectives • • Reasons for studying decision analysis Basic sources of decision difficulty Decision analysis process Applications of decision analysis 2

Why Study Decision Analysis? • Managers are responsible for making decisions • Structured frameworks benefit complex decisions 3

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 4

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 5

Basic Sources of Difficulty 1. 2. 3. 4. Complexity Uncertainty Multiple objectives Different perspectives 6

Basic Sources of Difficulty 1. Complexity • • Number of issues Quantity of data Number of stakeholders Absence of decision structure 7

Basic Sources of Difficulty 2. Uncertainty • Orientation to future • Incomplete information 8

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 9

Basic Sources of Difficulty 4. Different perspectives • Multiple decision makers • Different perspectives yield different outcomes 10

A Decision Analysis Process 1. 2. 3. 4. 5. 6. 7. 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 11

A Decision Analysis Process • Figure 1. 1 on page 6 12

Where Is Decision Analysis Used? • Managing R&D 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 13

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 14