Chapter 1

Why are decisions hard?

• Complexity
• Uncertainty of Key Elements
• Multiple Objectives
• Different Perspectives
• Sensitivity/Unitability

Decision analysis:

• Supplies methods for organizing decisions.

• Allows Identification of important sources of uncertainty
• Forces representation of uncertainty
• Supplies framework for dealing with multiple objectives.

What Leads to better decisions:

• Decisions are consistent.

• No surprises due to thorough study of the problem
• Performance of decision making is better on average

A good decision:

• Is one that is made on the basis of a thorough and complete understanding of the problem and
carful thought regarding the important issues.
• Looking back in the past, one can say that one would have made the same decision givne the
information available at the time of the decision.

Definition decision analysis (DA):

• Prescriptive approach for people who want to think hard and systematically about decision
problem.

Comments decision analysis:

• A DA is an information source.
• Should not replace the decision maker but support him/her.
• A DA does not only provide a solution, but also insight into
o Situation
o Uncertainty
o Objectives
o Trade offs

Important inputs for decision analysis:

• Subjective judgments about uncertainties.

• Subjective judgments about preferences.
Strength Requirement of subjective judgement:

• Does not ignore subjective judgments prevalent in other management science techniques.

Weakness Requirement of subjective judgement:

• BE CAREFULL, human beings are imperfect information processors.

• Subjective Judgments and Decision Making.

Decision making is used to identify decision in three Environment/cases:

• Decision- making under certainty.

• Decision- making under uncertainty.
• Decision- making under risk.

Three types of decision making are use:

• Optimistic (Maximax)
• Pessimistic (maximin)
• Minimum regret method (Minimax)

Each decision is characterized by:

• A decision statements.
• A set of alternatives.
• A set of decision-making criteria,

A decision statement: States what we are trying to decide. A clear decision statement is important for
intelligent decision-making. It keeps our thinking focused on the main subject and away from irrelevant
issues.

A set of alternatives: Are the set of possible decision we can make. Might be few or several thousands.

A set of decision-making criteria: Are what we want to optimize in a decision.

Types of Decisions:

• A structured decision is one for which a well-defined decision-making procedure exists.

• An unstructured decision is one for which all three decision phases are unstructured.
• A semi-structured decision has some structured aspects but cannot be completely structured.
• A strategic decision is one which will affect the entire organization, or a major part of it for a
long period of time. Strategic decisions affect organizational objectives and policies.
• A tactical decision, also called management control decision, will affect how a part of the
organization does business for a limit time into the future.
• An operational decision is one that affects particular activity currently taking place in the
organization but has a little impact on the future.
The Decision Analysis Process:

Requisite Decision Models:

• A Model is requisite if no new intuitions emerge about the problem or when it contains
everything essential for solving the problem , Phillips (1982, 1984)

Convergence to Requisite Decision Models:

• Technical Modeling Expertise.

• Decision Maker (DM) will not accept incomplete or inappropriate models.