Decision Analysis for Management Judgement

SUMMARY

Why should we study about Decision Analysis ? Paul Goodwin shows that research over the past 30 years has revealed numerous ways in which the process of making decision goes wrong, usually without our knowing it. This book will show us how decision analysis can be applied so that decisions are made correctly. These techniques are usable by busy managers and administrators.

When we are facing a problem and had to make a decision, whether it was a life decision or an organizational decisions, we should know how to analyze all the aspects and elements also the situation before making the right decisions.

For example, deciding between staying in our present job or building our own business, is not easy to do. The Job we had is secure, there will be a pay check every month. In other hand, building up our new business can be hard if we haven’t had a good reputation. As well as, we should have a good network and relationship among the customers.

It is difficult to think clearly about the decision; there seem to be so many different aspects to consider. Sometimes, we feel tempted to make a choice purely on emotional grounds – why not simply ‘jumpin’ and take the risk? – but then we realize that this would be unfair to our family.

This is a personal decision problem, but it highlights many of the interrelated features of decision problems in general. Ideally, we would like to maximize our income, maximize our job security, maximize our job satisfaction, maximize our freedom and so on, so that the problem involves multiple objectives. Clearly, no course of action achieves all of these objectives, so we need to consider the trade-offs between the benefits offered by the various alternatives. This reflects, in part, the number of alternative courses of action from which we can choose was should we stay with our present job, change jobs, change jobs and become a part-time consultant, become a full-time consultant, etc.?

Finally, this problem is not ours alone; it also concerns our spouse, so the decision involves multiple stakeholders. Our spouse may view the problem in a very different way. For example, he or she may have an alternative set of objectives than you. Moreover, he or she may have different views of the chances that we will make a success of the business and be more or less willing than we to take a risk.

The Role of Decision Analysis

Decision analysis refers to the process of breaking something down into its constituent parts. Decision analysis provides a formal mechanism

for integrating the results so that a course of action can be provisionally selected. This has been referred to as the divide and conquer orientation of decision analysis.

When there are disagreements between a group of decision makers, decision analysis can lead to a greater understanding of each person’s position so that there is a raised consciousness about the issues involved and about the root of any conflict. This enhanced communication and understanding can be particularly valuable when a group of specialists from different fields have to meet to make a decision.

Keeney points out:

“Decision analysis will not solve a decision problem, nor is it intended to. Its purpose is to produce insight and promote creativity to help decision makers make better decisions. 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”.

The Application of Decision Analysis

Improved strategic decision making at Du Pont

The analysis has allowed them to take into account the effect on the value of the business of uncertainties such as competitors’ strategies, market share and market size.

Structuring decision problems in the International Chernobyl Project

Decision analysis was used in the project to evaluate countermeasure strategies (for example, relocation of some of the population, changes in agricultural practice and decontamination of buildings)

Selecting R&D projects at ICI America simple and transparent

Decision analysis models, using decision trees (Chapter 6), were used to provide logic and consistency to the selection process, allowing a variety of criteria, such as risk, speed of development and sales level, to be taken into account.

Petroleum exploration decisions at the Phillips Petroleum Company

The use of decision trees (Chapter 6) and utility functions (Chapter 5) allowed managers to rank investment opportunities consistently and to identify participation levels that conformed with the company’s willingness to take on risk.

Strategic planning in an Australian voluntary organization

Through decision analysis the group developed a shared understanding of the key issues that would affect the future of the organization and conflicting opinions within the committee were resolved.