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ISYE 575: Decision Analysis for Engineering

Elements of Decision Problems
Slide Contribution: J.R. van Dorp and T.A. Mazzuchi

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ISYE 575: Decision Analysis for Engineering

Learning Objectives
Able to characterize decision problem:
1. Values and objectives
2. Decisions to make
3. Uncertain Events
4. Consequences

Copyright © 2015. Board of Trustee. Northern Illinois University. All Rights Reserved.

ISYE 575: Decision Analysis for Engineering

Values and Objectives
1. OBJECTIVES:
A specific thing one wants to achieve:
• To harvest successfully – Farmer
• To resolve a specific scientific problem – Scientist
• To make a lot of money – Investor
Person’s Values: Collection of Objectives
No Values

No Objectives

No Decisions

Special Objective: Making Money; often a surrogate objective (or
means objective) for other objectives e.g. eating, traveling, afford
clothing, etc.
Copyright © 2015. Board of Trustee. Northern Illinois University. All Rights Reserved.

ISYE 475/575

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Board of Trustee. Buy a Car. All Rights Reserved. Northern Illinois University. ISYE 575: Decision Analysis for Engineering Values and the Current Decision Context Decision Context = The setting in which a decision occurs Person Value’s = Collection of All Objectives Decision Context activates only subset of objectives Example: Travel Comfortably from Point A to B If decision context changes from solely personal use to also business use other objectives or alternatives may have to be activated. All Rights Reserved. Example: Objective: Travel comfortably from Point A to B Alternative: Public Transportation. ISYE 575: Decision Analysis for Engineering Objectives trade off Often a trade off has to be made between “money making” objective and other fundamental objectives: • How much more money are you willing to spend on air conditioning for your car? • How much more money are you willing to spend on a different color? • How much more money are you willing to spend to buy a reliable brand? Copyright © 2015. All Rights Reserved.ISYE 575: Decision Analysis for Engineering Underlying Objectives Underlying Objectives: Understanding the underlying Objectives (or fundamental objectives) is crucial to formulating the decision problem and list alternatives. Board of Trustee. Board of Trustee. Northern Illinois University. Buy a Motorcycle Really two objectives: Travelling from A to B and Travelling Comfortably Copyright © 2015. • The type of car may need to be representative of the position you hold in the company (perhaps we need to consider the Lincoln Town Car with chauffer in that case) • Instead of buying a car we may want to lease a car for a three year term (better for tax write off?) Copyright © 2015. Northern Illinois University. ISYE 475/575 2 . Lease a Car.

as well as price and variety of management issues. When the company’s engineering department need to expand its computing capacity by purchasing a supercomputer. Board of Trustee. Boeing needs computing power for task ranging from accounting and word processing to computer-aided design. Copyright © 2015.ISYE 575: Decision Analysis for Engineering Case Analysis As a large-scale manufacturer of sophisticated aircraft. All Rights Reserved. inventory control and tracking. Board of Trustee. Northern Illinois University.” OR/MS Today. There were system requirements and legal issues to consider. Board of Trustee. Source: D. All Rights Reserved. the managers faced a huge task of assembling and evaluation massive amounts of information. No Go • Accept bet or not • Invest amount of money – may vary in range of values Look at all possible decision alternatives: Be Creative! • Do nothing • Wait for information and decide later on • Execute Hedging Decision may be of sequential nature: Future decisions may need to be taken into account when making immediate decision Copyright © 2015. and manufacturing support. All Rights Reserved. Copyright © 2015. ISYE 475/575 3 . ISYE 575: Decision Analysis for Engineering Boeing’s Super Computer Objectives • Objective hierarchy enables the identification of multiple objective criteria in a systematic way. Northern Illinois University. Barnhart (1993) “Decision Analysis Software Helps Boeing Select Supercomputers. ISYE 575: Decision Analysis for Engineering Decisions to Make Most decisions call for: The Immediate Decision • Go. Northern Illinois University. 62-63 Click on the play button to continue.

but more important is the order in which they occur. Board of Trustee. ISYE 575: Decision Analysis for Engineering Uncertain Events The time sequence of uncertain events related to the sequence of decision is important. but may differ. All Rights Reserved. Board of Trustee. ISYE 575: Decision Analysis for Engineering Uncertain Events Many decisions (if not all) are made under the presence of uncertainty: • Investment decision: Will stock of company go up or not? • Camping decision: Will the weather be good or not? • Mutual fund decision: Will entire stock market go up? A decision problem becomes more Complex when the number of relevant uncertain events increases. ISYE 475/575 4 .ISYE 575: Decision Analysis for Engineering Decisions to Make Future decision depends on: • Past Decisions • Past Events • Both List of possible decisions is important. Why? • Tells you what information becomes known before a decision has to be made • Uncertain events may be unknown at the time of the immediate decision. Consecutive decisions can be the same. Northern Illinois University. Northern Illinois University. All Rights Reserved. Nature of Uncertain Events: • Outcomes are measured in distinct classes (Discrete) • Outcomes may fall in a range of values • Interdependence between different uncertain events Copyright © 2015. Copyright © 2015. All Rights Reserved. but may be known by subsequent decisions Copyright © 2015. Northern Illinois University. Board of Trustee.

Board of Trustee. All Rights Reserved. Copyright © 2015.ISYE 575: Decision Analysis for Engineering Consequences Evaluation of Outcomes: • Profit – Measured in # Dollars • Casualties. Health Risk – Single measure modeling trade-off needs to be developed: Measured in # Utils. Copyright © 2015. This is the topic of multivariate attributeutility theory. Environmental Damage. Board of Trustee. ISYE 575: Decision Analysis for Engineering Consequences Planning Horizon = Time when decision maker finds out the results For requisite decision models: Stop when future decisions and future uncertain events are not essential to the immediate decision. Northern Illinois University. ISYE 475/575 5 . Casualties.Measured in # Deaths • Environmental Damage – Measured in # Polluted Soil • Health Risk – Measured in # Infected People Trade-off between has to be made in almost any decision problem • Profit. Northern Illinois University. All Rights Reserved.