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DISC 321: DECISION ANALYSIS


FALL 2016
Instructor
Room No.
Office Hours
Email
Telephone
Secretary/TA
TA Office Hours
Course URL (if any)
COURSE BASICS
Credit Hours
Lecture(s)
Recitation/Lab (per week)
Tutorial (per week)

Kamran Ali Chatha


4-36, 4th Floor, SDSB Building
TBA
kamranali@lums.edu.pk
042 3560 8094
TBA
suraj.lums.edu.pk

4
Nbr of Lec(s) Per Week
Nbr of Lec(s) Per Week
Nbr of Lec(s) Per Week

Duration
Duration
Duration

110 minutes

COURSE DISTRIBUTION
Core
Core
Elective
Open for Student
Category
Close for Student
Category
COURSE DESCRIPTION (BRIEF)
Decision Analysis is a branch of science that focuses on utilizing quantitative techniques for the purpose for making
sound managerial decisions under various forms of constraints (economic, temporal and behavioral). This course
exposes students to the concepts, methods and techniques of decision analysis to conceptualize real world managerial
problems, analyze them and find workable solutions. The course covers topics such as: decision trees, decision making
under uncertainty, value of information, risk analysis using Monte Carlo simulation, risk attitude, and multi-objective
decisions. A real world project and written case analyses provide avenues for practical learning.
COURSE DESCRIPTION (ELABORATE)
Major objectives of this course are:
(1) To understand basic concepts, methods and techniques of decision analysis;
(2) To develop capability to use quantitative techniques (in relation to decision analysis) for analyzing and solving real
world managerial problems;
(3) To have hands-on experience of developing spreadsheet models (using Microsoft Excel and an add-on software
namely Palisade Suite) for modeling and analyzing decisions;
Decision Analysis / Science is a branch of science that focuses on utilizing quantitative techniques for the purpose for
making sound managerial decisions under various forms of constraints (economic, temporal and behavioral) faced in the
real world problems. These problems may belong to an organziations functional areas such as finance, operations,
engineering, HRM and marketing functions etc. The problems may also be interdisciplinary in nature in which case
function or discipline specific techniques when applied to solving these problems may not necessarily result into
practical solutions. In such scenarios the techniques developed within the discipline of decision analysis may provide
broader frameworks and concepts that render practical solutions to such problems.
There are numerous examples in various disciplines where decision analysis concepts are needed for making sound

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decisions, for example in software engineering (e.g. decision about choosing one technology or process over the other),
legal decisions (e.g., understanding the effects of economic pressures on attributions of responsibility), risk assessments
(e.g., assessing risks of nuclear power or missile tests), marketing (e.g. launching specific product in a market) and
managerial decision making (e.g., correcting biases in the assessment of risk). The decision analysis concepts and
frameworks are equally applicable in problems belonging to many other disciplines as well.
Decision analysis relies heavily on decision theory which is concerned with identifying values of different alternatives,
uncertainties involved, their utilities, and other issues relevant to a given decision, its rationality, and the resulting
optimal decision. In order to exercise these concepts decision theory borrows some of the concepts from probability
theory.
In order to achieve aforementioned objectives two major steps have been taken while designing the course: (1) a number
of real world case studies are used in order to better comprehend applicability of decision analysis concepts and
techniques in real world problems. Extended class room discussions on case study analyses will be instrumental in
understanding key issues pertaining to application, managerial concerns, and assumptions around the technique while
focusing on the real world problem, (2) a number of lab sessions have been included in order to develop practical skills
of configuring and using spreadsheets for decision analysis.
COURSE PREREQUISITE(S)

Participants should possess basic knowledge of Probability / Statistics and calculus.


Students should have taken DISC-203 or an equivalent course.

COURSE LEARNING OBJECTIVES


Major objectives of this course are:

(1) To expose students basic concepts, methods and techniques of decision analysis;

(2) To learn using quantitative techniques (in relation to decision analysis) for analyzing and solving real

world managerial problems;


(3) To have a hands on experience of developing spreadsheet models (using Microsoft Excel and an addon software namely Palisade Suite) for modeling and analyzing decisions;
UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES
General Learning Goals & Objectives
Goal 1 Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an
organizational context.
Goal 3 Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable
solutions.
Goal 4 Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and
management context.
Goal 5 Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political,
Regulatory, Legal, Technological, and Social environment of organizations.
Major Specific Learning Goals & Objectives
Goal 7 (a) Program Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact

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including application to real world situations.


Goal 7 (b) Understanding the science behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply
appropriate decision-support tools, interpret results and make meaningful recommendations to support the
decision-maker

Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.
Program Learning Goals and
Objectives
Goal 1 Effective Written and Oral
Communication
Goal 2 Ethical Understanding and
Reasoning
Goal 3 Analytical Thinking and
Problem Solving Skills

Course Learning Objectives

Course Assessment Item


Written Case Analyses.
Group Project (Presentation).

To learn using quantitative techniques Written Case Analyses.


(in relation to decision analysis) for Midterm Exam
analyzing and solving real world Final Exam
managerial problems (Obj-2);
To have a hands on experience of
developing spreadsheet models (using
Microsoft Excel and an add-on
software namely Palisade Suite) for
modeling and analyzing decisions
(Obj-3);

Goal 4 Application of Information


Technology
Goal 5 Teamwork in Diverse and
Multicultural Environments
Goal 6 Understanding
Organizational Ecosystems
Goal 7 (a) Program Specific
Knowledge and Understanding

Written Case Analyses.


Group Project.

To expose students basic concepts, Class Participation.


methods and techniques of decision Group Project.
analysis (Obj-1);;
To learn using quantitative techniques
(in relation to decision analysis) for
analyzing and solving real world
managerial problems (Obj-2);

Goal 7 (b) Understanding the


science behind the decision-making
process
LEARNING OUTCOMES

To have a hands on experience of


developing spreadsheet models (using
Microsoft Excel and an add-on
software namely Palisade Suite) for
modeling and analyzing decisions
(Obj-3);
To understand basic concepts, methods Quizzes
and techniques of decision analysis.
Midterm Exam
Final Exam

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Decision Analysis Process, and accompanying concepts, methods and techniques.


Palisade Suite for conducting quantitative analyses.
Capability to take managerial decisions.

GRADING BREAKUP AND POLICY


Written Cases Analyses / Assignment(s): 20%
Home Work: -----Quiz(s): 10% (generally announced, occasionally unannounced)
Class Participation: 15%
Attendance: given below
Midterm Examination: 10%
Project: 15%
Final Examination: 30%
The instructor has the right of re-assigning 5% of the grading criteria.
Class Participation Policy
Class participation grading will be carried out as per the following rules:
a)

- 0.5 for being absent from the class.

b) 0 for attending the class but coming late.


c) 0.25 for attending the class without any participation in class discussions.
d) 0.5 to 0.7 for little participation in the class discussion (awarded for engaging in a discussion, asking questions
relevant to a discussion, describing case facts, giving an opinion or idea in relation to the discussion).
e) 1.0 to 1.5 for good participation in the class discussion (awarded for giving a valid contradictory viewpoint or
comprehensive argument or rationale behind a concept).
f) 2.0 for very good participation in the class discussion (awarded for hitting multiple es as mentioned above)
g) 2.5 for excellent participation in the class discussion (awarded for bringing to the class and supporting with solid
argument some concepts which even instructor does not know)
Group Project
Students will engage in a group project. The group size will be decided based on course enrollment. Students will
identify a decision situation in an organization and apply course concepts thus formulating and analyzing the problem.
Following this they will synthesize and suggest an appropriate solution to the problem. They will share their solution
with the case study organization, and understand from company personnel the likely problems in implementing their
solutions. The feedback obtained from the company personnel will be incorporated in the final project report.
A detailed description on group project will be provided once the course starts.
*** A few of the student projects will be shortlisted for conversion into teaching cases. Students will be asked if they are
interested to convert their projects into teaching cases that will be published in an international conference / case
journal and will make part of the DA course in the future.

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EXAMINATION DETAIL
Yes/No: Yes
Combine Separate: Combine
Midterm
Duration: 3 Hours in the Lab
Exam
Preferred Date:
Exam Specifications: Closed Books / Open Notes

Final Exam

Yes/No: Yes
Combine Separate: Combine
Duration: 4 Hours in the Lab
Exam Specifications: Closed Books / Open Notes

TEXTBOOK(S)/SUPPLEMENTARY READINGS
Following books are recommended for this course however, students are strongly encouraged to consult any other
resources such as: books, journals, magazines, sharing personal experiences to enhance their learning.
[AWZ]: Albright, S.C., Winston, W.L., and Zappe, C., 2006, Data Analysis & Decision Making With Microsoft Excel,
3e, Thomson, South-Western, ISBN: 0-324-40083-7.
[CLEMEN]: Clemen, R. T., 2001, Making Hard Decisions: An Introduction to Decision Analysis with Decision Tools,
Duxbury Press, Thomson Learning, ISBN: 0-534-36597-3.
[PB]: Powell, S.G., and Baker, K.R., 2009, Management Science The Art of Modeling with Spreadsheets, John Wiley
& Sons Inc., ISBN-13: 978-0-470-39376-5.
[ASW] Anderson, Sweeney & Williams, Statistics for Business and Economics.

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DETAILED COURSE OUTLINE


S.
No.

Session
Type

Topic

Cases and Readings

Assignment Questions

Session Objectives

INTRODUCTION
1.
2.

3.

Class
Session

Lab

Introduction

Readings:
(1) PB-Chapter-2: Modeling in a
Problem Solving Framework
(Sections 2.1, 2.2, 2.3, 2.4)
(2) Learning by the Case Method, by
Hammond, J.S. (HBS # 9-376-241)
Readings:
Using
Spreadsheet
(1) AWZ-Chapter-5: Probability and
for
Probability Distribution (Sections
Probability &
5.1, 5.2, 5.3, 5.4, 5.5, 5.6)
Probability
(2) AWZ-Chapter-6: Normal,
Distributions
Binomial, Poisson, and Exponential
Distributions (Sections 6.1, 6.2,
6.3, 6.7)

As two class sessions are devoted to this:

Read PB-Chapter-2 for the first class session.


Read Learning by the Case Method for the second class
session.

Read specified sections before the lab session.


Practice examples in the lab.

Decision analysis
and problemsolving.

Revision of
probability
distributions.

MODELING DECISIONS
4.

Class
Session

Influence
Diagram and
Payoff Table

5.

Class
Session

Decision
Trees

6.

Class
Session

Decision
Trees

Case: Athens Glass Works


Reading: CLEMEN-Chapter
Structuring Decisions pp43-65
Readings:
(1) Decision Trees for Decision
Making
(2) CLEMEN-Chapter-3: Structuring
Decisions pp69-83
Case: Freemark Abbey

Focusing just on the prices discussed by Christina Matthews


and Robert Alexander, which price would you recommend,
$2.15 or $2.36?

Developing
Influence Diagrams
and Payoff Tables.

Developing and
analyzing decision
trees.

What are various elements of a decision tree?


How are decision trees analyzed?

1. Assuming Mr. Jaeger chooses to harvest the Riesling


grapes before the storm arrives, how much money will he
make?
2. Assuming Mr. Jaeger chooses to leave the grapes on the
vine, what is the probability that the grapes will end up
with botrytis, and how much money will he make if that
occurs?
3. Taking account of all the various possibilities, what

Developing and
analyzing decision
trees.

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should Mr. Jaeger do?


Read specified material and prepare yourself for in-class
discussion.

7.

Class
Session

Sensitivity
Analysis

Reading: CLEMEN-Chapter-5:
Sensitivity Analysis pp174-192

8.

Class
Session

Sensitivity
Analysis

Case: Dhahran Roads (A)


Reading: Cash Flow and Time Value of
Money (SKIM)

1. What do you recommend regarding the proposed contract


for the Dhahran Roads project?
2. Be sure that your recommendation acknowledges any key
sources of risk in the conduct of the project and any
negotiable parameters of the proposed contract.
3. Does sensitivity analysis change your decision when
compared to the base case?

The role of
sensitivity analysis
in decision
modeling, analyzing
and making.
The role of
sensitivity analysis
in decision
modeling, analyzing
and making.

MODELING UNCERTAINTY
9.

Class
Session

DecisionMaking
under
Uncertainty

Reading: CLEMEN-Chapter-4: Making


Choices pp111-145

Read specified material and prepare yourself for in-class


discussion.

Making decisions in
probabilistic
situations.

10.

Lab

Using
Spreadsheet
for Decision
Trees

Reading: AWZ-Chapter-7: Decision


Making under Uncertainty, Section-7.2,
7.3.

Making decision
trees using a
spreadsheet.

DecisionMaking
under
Uncertainty

Case: Georges T-Shirts

11.

Class
Session

Read specified material and develop an understanding of


various functions of PrecisionTree module that relate to
making and analyzing decision trees using software.
Solve problems 36 and 37 given at the end of the chapter.

1. What are the financial outcomes if Lassiter orders 5,000


T-shirts? 7,500? 10,000?
2. How many T-shirts should Lassiter order?

Making decisions in
probabilistic
situations.

MID-TERM EXAM
12.

Class
Session

Value of
Information

Reading: CLEMEN-Chapter-12: Value


of Information, pp496-509

Read specified material and prepare yourself for in-class


discussion.

13.

Class
Session

Value of
Information

Case: Integrated Siting Systems, Inc.

1. What do you recommend Ms. Scott of what decision


should be taken?

The influence of the


availability of
information on the
decision.
The influence of the
availability of

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14.

Lab

Spreadsheet
Modeling for
Decision
Making
under
Uncertainty
Simulation
Modeling
with
Spreadsheets

15.
16.

Lab

17.

Class
Session

Monte Carlo
Simulations

18.

Class
Session

Monte Carlo
Simulations

Reading: AWZ-Chapter-7: Decision


Making under Uncertainty, Section-7.4,
7.5.

Reading: AWZ-Chapter-16:
Introduction to Simulation Modeling,
Sections 16.3, 16.4, 16.5, and 16.6.

2. How concerned should you be about the probability of the


standard system not working? How far off would your
assessment have to be before you would change your
recommendation?
3. What about reputation? Can you afford the chance of such
a visible failure? How much does reputation have to be
worth to change the decision on economic grounds?
4. What is this test worth to you? What would you pay for a
perfect information?
Practice examples 7.2, 7.3, 7.4 in the lab. Practicing these
examples will help you solve the following assignment.
ASSIGNMENT: Solve problems 19, 21, 22 individually
and submit your solutions.

information on the
decision.

Understanding RISK
as a package to
model decisions
using simulations.

Read specified material before the lab.


Practice examples 16.1, 16.2, 16.3, 16.4 and 16.5 in the
lab. Practicing these examples will help you solve the
following assignment.
ASSIGNMENT: Solve problems 11, 17, 22, 26
individually and submit your solutions.
Read specified material and prepare yourself for in-class
Readings:
(1) CLEMEN-Chapter-11: Monte Carlo discussion.
Simulation pp 459-487.
(2) Probability Distributions and
Simulation (SKIM).
The goal of this assignment is for you to help Frank Lockfeld
Case:
better understand the risks he is taking with his Calambra
(1) Calambra Olive Oil (A)
Olive Oil venture and to help him figure out how many
(2) Calambra Olive Oil (B)
gallons of olive oil he should order in 1994. We will analyze
this business problem in two parts.
Part A: In the first part, you should use the spreadsheet model
LIQUIDGOLD.XLS [available] and the ranges provided by
Frank Lockfeld to develop a tornado chart to identify the
important uncertainties in the problem. Be sure you can
explain any surprising findings in this analysis.
Part B: After that class you will be given the (B) case, which

Practicing
probabilistic
decisions using
spreadsheets.

Understanding
Monte Carlo
simulation method.

Applying Monte
Carlo Simulation
method in a real-life
business problem.

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19.
20.

Lab

Simulation
Modeling
with
Spreadsheets

contains additional information about the uncertainties you


identified as important. Using this information, you should
develop a simulation model to resolve the key questions of the
case: How much olive oil should Frank Lockfeld order? How
risky is this venture?
Practice examples 17.1, 17.2, 17.3, 17.4, 17.5, 17.7, 17.8,
17.9 in the lab. Practicing these examples will help you
solve the following assignment.
ASSIGNMENT: Solve problems 17, 18, 20 individually
and submit your solutions.

Reading: AWZ-Chapter-17: Simulation


Models, Sections 17.2, 17.3, 17.4.

Understanding RISK
as a package to
model decisions
using simulations.

MODELING PREFERENCES
21.

Class
Session

Risk Attitude

Reading: CLEMEN-Chapter-13: Risk


Attitude, pp 527-555.

Read specified material and prepare yourself for in-class


discussion.

22.

Lab

Incorporating
Risk Attitude

23.

Class
Session

Risk Attitude

Reading: AWZ-Chapter-7: Decision


Making under Uncertainty, Section7.6.
Case: Risk Analysis for Merck &
Company: Product KL-798

Practice example 7.5 in the lab.


Solve problems 77, 79, 80 in the lab.

For questions 1 and 2 only, assume that Merck will follow the
advice of George W. Merck, We try never to forget that
medicine is for the people. It is not for the profits. The profits
follow, and if we have remembered that, they have never failed
to appear.
1. First, do a risk neutral analysis.
(a) Draw an influence diagram that captures the dynamics of the
KL-798 opportunity. (b) What is the expected monetary value of
the KL-798 opportunity? Be very clear about how your
spreadsheet works.
2. Now consider risk aversion in your analysis. What would be
the certainty equivalent for the total opportunity?
3. Assume that we ignore George W. Mercks advice and always
seek the financially best path. (a) Draw a decision tree of the
sequence of decisions and uncertainties and integrate it with the
influence diagram from question 1a. (b) What now is the
expected monetary value of KL-798? Clearly describe how you
arrived at this solution and provide information on how your

Understanding the
influence of
manager risk
attitude on
decisions.
Practicing risk
attitude using a
spreadsheet.
Understanding the
influence of
manager risk
attitude on
decisions.

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24.

Class
Session

25.

Class
Session

26.

Class
Session

27.
28.

Class
Session

Structuring
MultiObjective
Decisions
Additive
Utility
Function

Reading: CLEMEN-Chapter-15:
Conflicting Objectives I:
Fundamental Objectives and the
Additive Utility Function pp599-621.
Case: Sleepmore Mattress
Manufacturing; Plant Consolidation.

Multiattribute
Utility
Models

Reading: CLEMEN-Chapter-16:
Conflicting Objectives II: Multiattribute Utility Models with
Interactions pp644-659

spreadsheet model works. (c) What is the certainty equivalent of


KL-798 to Merck when considering their risk preference?
Read specified material and prepare yourself for in-class
discussion.

1. Be prepared to discuss all the decision approaches described


in the note and consider how the approaches might be
applied to the case.
2. Rate the four quantitative attributes, determine the
appropriate weights for the attributes and compare the three
locations. If you had to phase in the consolidations one at a
time, in what order would you do them?
3. How sensitive is your ranking to the weights you assigned?
4. How would you score plant size at site 1 if the sales were
$30 million at plant A rather than $3 million? Would you
change the range of the scale, or the weight of the attribute,
or both?
5. Implicit in your analysis are some trade-offs that can be
calculated. For example, what is the dollar value (in terms of
initial cost) of improving the labor attribute by 1 unit on the
10-point scale?
Read specified material and prepare yourself for in-class
discussion.

Project presentations (mandatory attendance by all students)

FINAL EXAM

Understanding
multi-objective
decisions and
structuring them.
Additive utility
function as a method
of analyzing multiobjective decisions.

Multiplicative utility
function as a method
of analyzing multiobjective decisions.