Decision Making on Decision Making on selection of alternate selection of alternate energy resources in a energy resources in a Software Company Software Company

Presented By

Hamid Amir

EM/MSC/048

Company IntroductionCompany IntroductionNumetrics Private Limited, Islamabad Pakistan Fully-owned subsidiary of Numetrics Management

Systems Based in Silicon Valley in USAA world leader in providing predictive analytics

project management software for:◦IC◦Semi-conductor ◦Embedded systems organizations

The core engineering center for the worldwide organization

Has setup an offshore office in Islamabad comprising 30 colleagues.

Six Steps in Decision MakingSix Steps in Decision Making

Step 6 Apply the model and make your decision

Decision Making on selection of Decision Making on selection of alternate energy resources in a alternate energy resources in a

Software CompanySoftware Company

Possible AlternativesPossible Alternatives

Do nothing i e WAPDA electricity and working with 4 hour load shedding

Solar plus WAPDA

UPS plus WAPDA

Generator plus WAPDA◦

A.Electricity Load Calculation - Numetrics Software    

Equipment Quantity Wattage Total

Wattage

CPUs 50 110 5500

LCD Monitors 18" 50 45 2250

Laptops 40 150 6000

Server Machines 6 260 1560

Refrigerator 2 1000 2000

Split A.C 2 Ton 11 2200 24200

Tube lights 80 40 3200

Energy Savers 70 25 1750

Fans 20 80 1600

    Total 48060

   

Total KW (Watts/1000) 48.06

Per Month = 22 days(Unit Price * Total KW

*8*22)

134,555

Per Year (for 8 hrs, without load shedding)

1,614,655

Per Year (for 4 hrs daily operation)

807,327

Total Electricity Cost WAPDA - 5 years

(for 4 hrs daily operation) 4,036,636

Total Electricity Cost WAPDA - 10 years

(for 4 hrs daily operation) 8,073,273

Peak (Rs.) 13.20

Off Peak (Rs.) 8.01

Assuming Average (Rs.) (Peak+Off Peak)/2

10.61

Total Load (KW) 48.06Electricity Cost Rs. Per Hr

(Unit Price * Total KW) 509.68

Additional Surcharges @ 50% (Fuel Adjustment +

GST + Duty )764.51

1 Electricity Cost - WAPDA

1.1 Electricity Cost - WAPDA @ Total Load Calculation with 4 hrs daily load-shedding

1 Unit Price for 1 KWH (Rs.)

WAPDA Electricity Cost Rs

Per Month = 22 days(Unit Price * Total KW *8 hrs*22 days)

78,392

Per Year (without load shedding)(month * 12 )

940,706

Per Year (for 4 hrs daily operation) 470,353

Total Electricity Cost WAPDA - 5 years (for 4 hrs daily operation)

2,351,765

Total Electricity Cost WAPDA - 10 years (for 4 hrs daily operation)

4,703,530

Peak (Rs.) 13.20

Off Peak (Rs.) 8.01

Assuming Average (Rs.) (Peak+Off Peak)/210.61

1 Unit Price for 1 KWH (Rs.)

WAPDA Electricity Cost Rs. (Partial for AC/Ref. only)

Electricity Cost - WAPDA

Electricity Cost - WAPDA Partial Load Calculation only for AC & Refrigerator Load (28 KW) ) For further consideration with UPS and Solar options which don't support AC/Ref loads)

B. Revenue Loss due to 4 hrs daily load-shedding

No of Employees 30

Total Salaries per month (22 days) 3,000,000

Total Salaries per hr 17,045

Total Salaries loss per day (4 hrs-load shedding) 68,182

Total Revenue loss per day (4 hrs-loadshedding) Assuming 25% of salaries 17,045

Total Revenue Loss per month (22 days)(4 hrs-load shedding) 375,000

Total Revenue Loss per year (12 months)(4 hrs-loadshedding) 4,500,000

Total Revenue Loss for 5 years(4 hrs-loadshedding) 22,500,000

Total Revenue Loss for 10 years(4 hrs-loadshedding) 45,000,000

2 Electricity Cost - SOLAR + WAPDA (Partial)    

Solar System CapacityCost

(Rs.)

Electriciy Load (KW) 48.06  

Electriciy Load (KVA) (1 KVA = 0.8 * KW) 38.448  

Solar System Initial CostSolar Panels + Inverters + Charge Controller + Install Cost

4,108,000

Batteries Cost 5,131,000

Solar System Total Initial + Running Cost (5 years) 9,239,000

WAPDA Partial Load Cost for AC + Refrigerator (5 years) 2,351,765

Total Solar (Initial + Running ) + WAPDA Partial Load Cost ( 5 years)

11,590,765

Solar Batteries Upgrade after 5 years 5131000

Solar System Total Initial + Running Cost (10 years)(5 years cost + batteries replacement after 5 years)

14,370,000

WAPDA Partial Load Cost for AC + Refrigerator (10 years) 4,703,530

Total Solar (Initial + Running ) + WAPDA Partial Load Cost ( 10 years)

19,073,530

3 Electricity Cost - UPS + WAPDA  Dedicated UPS  

Electriciy Load (KW) 48.06

Electriciy Load (KVA) (1 KVA = 0.8 * KW)

38.45

UPS Capacity (KVA) 10No. of Units Required 8Installed capacity (KVA) 80UPS Cost per unit 345,000

UPS Cost per unit + Maintenance @30% during 5 years

448,500

Total UPS Install Cost for 5 years (Rs.) Assuming 5 year life

3,588,000

WAPDA Supply Cost for 5 years (4 hrs daily)4,036,636

UPS Charging cost on WAPDA supply for 5 years (after 4 hrs discharge daily) WAPDA Supply * 1.5

6,054,954

Total Cost for 5 years (UPS Install + UPS Operation + WAPDA Supply for 4 hrs) (Rs.)

10,091,591

Total Cost for 10 years (UPS Install + UPS Operation + WAPDA Supply for 4 hrs) (Rs.)

20,183,181

4Electricity Cost - Generator + WAPDA  

Generator   Capacity (KVA) 60Capacity (kW) 75Initial Cost (assuming 10 years life) 2,200,000  Running cost per hr (Diesel, Parts, Maintenance)

650

  Running cost per 4-hr (daily load-shedding) 2,600  Running cost per month 22 days (4-hr daily load-shedding)

57,200

 Generator Running cost per year (during 4-hr daily load-shedding)

686,400

 Generator  Running cost for 5 years (during 4-hr daily load-shedding)

3,432,000

Total Generator Cost for 5 years (Running cost + initial cost) for 4 hr daily operation

5,632,000

WAPDA Supply cost for 5 years (4 hrs daily) 4,036,636Total Generator + WAPDA Cost for 5 years (4 hrs WAPDA + 4 hrs Generator)

9,668,636

Generator  Running cost for 10 years (4-hr daily operation)

6,864,000

Total Generator Cost for 10 years (Running cost + initial cost) for 4 hr daily operation

9,064,000

WAPDA Supply cost for 10 years (4 hrs daily) 8,073,273Total Generator + WAPDA Cost for 10 years (4 hrs WAPDA + 4 hrs Generator)

17,137,273

Decision making models usedDecision making models used

Maximax

Prospect Theory

Decision Tree

Decision Making Models Decision Making Models AppliedApplied

Decision theory is an analytic and systematic approach to the study of decision making models.

Good decision; logical, considering all available data, alternatives and application of quantitative decision model.

Decision Making Environments Certainty: alternatives and outcomes known

with certainty -e g interest on income. Risk: alternatives and Probability of occurrence

of each outcome known-e g fliping of coin . Uncertainty: Probability of occurrence of each

outcome not known-e g election results after 10 years.

Decision Making under Risk◦Probabilistic decision situation◦EMV is the weighted sum of possible payoffs

for each alternative.◦EOL requires an opportunity loss table; it is the

amount lost by not picking the best alternative/solution.

◦Maximum EMV and Minimum EOL will always give same result.

◦Sensitivity Analysis investigates how our decision might change with different input data /probability scenario.

◦Decision Trees used for large sequential decision problems.

Decision making under Uncertainty◦Probability data not available◦Maximax is an optimitic approach/decision

criterion as it maximizes the maximum outcome for every alternative

◦Maximin is a pessimistic approach/decision criterion as it maximizes the minimum outcome for every alternative

◦Equally Likely (Laplace Criterion) computes the highest average outcome

◦Criteria of Realism (Hurwicz Criterion) uses the weighted average approach( personal choice of alpha 0-1;alpha close to 1 ;optimistic decision maker )

◦Minimax Regret is based on opportunity loss;it finds the alternative that minimizes the maximum opportunity loss with in each alternative

Decision Making Models Decision Making Models AppliedApplied

Decision making models under uncertainty

MaximinMaximinMinimax RegretLaplace Hurwicz

Decision making models under RiskEMV( Expected monetary value)EOL( Expected opportunity loss)Decision TreeSensitivity AnalysisProspect Theory

OPTIONS

Net Savings -5 yrs(Revenue Gain - Elect.

Cost –Revenue Losses)

Net Savings- 10 yrs

(Revenue Gain - Elect. Cost –

Revenue Losses)

1

(Do Nothing) WAPDA Supply for 4 hrs daily

-26,536,636 -53,073,273

2SOLAR + WAPDA (Partial)

10,909,235 25,926,470

3 UPS + WAPDA 12,408,409 24,816,819

4Generator + WAPDA

12,831,364 27,862,727

Decision Model

Decison making model under Decison making model under uncertainityuncertainity

Options Regret Table Minimax Regret

Do Nothing 39,368,000 80,936,000 80,936,000

Solar + WAPDA

1,922,129 1,936,57 1,922,129

UPS + WAPDA

422,955 3,045,908 3,045,908

Generator + WAPDA

0 0 0

Decision making under uncertaintyDecision making under uncertainty

Decision making model under RiskDecision making model under Risk

Prospect TheoryProspect Theory

Decision TreeDecision Tree

Do Nothing

Solar+WAPDA

UPS+WAPDA

Generator+ WAPDA

5 yrs

10 Yrs

5 Yrs

10 Yrs

5 Yrs

10 Yrs

5 Yrs

10 Yrs

- 26,536,636

- 53,073,273

10,909,235,

25,926,470

12,408,409

24,816,819,

12,831,364

27,862,727

- 39,804,954.5

18,417,852.5

18,612,614

20,347,045.5

Decision Making under Decision Making under UncertaintyUncertainty

Criterion Choice

Alternative

Maximax Generator plus WAPDA

Maximin Generator plus WAPDA

Laplace

(Equally Likely)

Generator plus WAPDA

Hurwicz

(Criteria of Realism)

Generator plus WAPDA

Minimax(Regret) Generator plus WAPDA

Criterion Choice

Alternative

EMV Generator plus WAPDA

EOL Generator plus WAPDA

Sensitivity Analysis Generator plus WAPDA

Decision Tree Generator plus WAPDA

Prospect Theory Generator plus WAPDA

Decision Making under Risk

Conclusion Conclusion

Decision planningMaking a decision without planning is fairly

common but does not often end well. Planning allows for decisions to be made

comfortably and in a smart way.Planning makes decision making a lot more

simple than it is.Decision will get four benefits out of planning:

1. It gives chance to the establishment of independent goals. It is a conscious and directed series of choices. 2. Provides a standard of measurement. It is a measurement of whether you are going towards or further away from your goal. 3. It converts values to action. 4. Allows for limited resources to be committed in an orderly way. Always govern the use of what is limited to you. (e.g. money, time, etc.)

Decision makingIn the real world, most of our decisions are made

unconsciously in our mind.Decision-making models offer analytical tools

which can be combined to provide useful insights.

No perfect model as decision environments vary. Therefore risk preference/profile and decision environment may dictate choice of appropriate model.

Decision planning must be done.Cognitive Biases must be taken care off.Objectives must first be established.Objectives must be classified and placed

in order of importance.Alternative actions must be developed.

Alternative must be evaluated against all the objectives.

Alternative that is able to achieve all the objectives is the tentative decision.

Tentative decision be evaluated for more possible consequences.

Decisive actions be taken and additional actions must be taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again.

Selected Decision model steps be followed to determine an optimal plan.

In a situation featuring conflict, role-playing is helpful for predicting decisions to be made by involved parties.

Cognitive and personal biases in decision making

Biases can creep into our decision making processes.

Confirmation bias in psychology- (Scott Plous, 1993) – People tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.

Premature termination of search for evidence – People tend to accept the first alternative that looks like it might work.

Cognitive inertia – Unwillingness to change existing thought patterns in the face of new circumstances.

Selective perception – We actively screen-out information that we do not think is important. (e g prejudice.)

Wishful Thinking – a tendency to want to see things in a positive light, which can distort perception and thinking.

Choice Supportive Bias- occurs when people distort their memories of chosen and rejected options to make the chosen options seem more attractive.

Recency – People tend to place more attention on more recent information and either ignore or forget more distant information.

Repetition bias – A willingness to believe what one has been told most often and by the greatest number of different sources.

Anchoring and adjustment – Decisions are unduly influenced by initial information that shapes our view of subsequent information

Group think – peer pressure to conform to the opinions held by the group.

Source credibility bias – A tendency to reject a person's statement on the basis of a bias against the person, organization, or group to which the person belongs. People preferentially accept statement by others that they like .

Incremental decision making and escalating commitment – We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions; can be contrasted with zero-based decision makin.

Attribution asymmetry – People tend to attribute their own success to internal factors, including abilities and talents, but explain their failures in terms of external factors such as bad luck.

Role fulfillment – A tendency to conform to others' decision-making expectations.

Illusion of control–People tend to underestimate future uncertainty because of a tendency to believe they have more control over events than they really do.

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