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.
