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Module 1 INTRODUCTION TO DECISION ANALYSIS

Introduction To Decision Analysis Learning Objectives • Reasons for studying decision analysis • Basic sources of decision difficulty • Decision analysis process • Applications of decision analysis

Why Study Decision Analysis? • Managers are responsible for making decisions • Structured frameworks benefit complex decisions

Why Study Decision Analysis? • The techniques can lead to better decisions • Decisions are made more effectively and more consistently • It helps managers deal with difficult decisions

Why Study Decision Analysis? • Help you think about the specific problem at hand • Improve the quality of your decisions • Provide tools that you can use to model decision situations

Basic Sources of Difficulty • Complexity • Uncertainty • Multiple objectives • Different perspectives

Basic Sources of Difficulty • Complexity • Number of issues • Quantity of data • Number of stakeholders • Absence of decision structure

Basic Sources of Difficulty • Uncertainty • Orientation to future • Incomplete information

Basic Sources of Difficulty 3. Multiple Objectives • Progress in one direction may impede progress in others • Must trade off benefits in one area against costs in another

Basic Sources of Difficulty • Different perspectives • Multiple decision makers • Different perspectives yield different outcomes

A Decision Analysis Process • Identify decision situation and define objectives • Identify alternative choices • Develop models • Select the best alternative • Conduct sensitivity analysis • Conduct further analysis as needed • Implement best alternative

A Decision Analysis Process • Figure 1.1 on page 6

Where Is Decision Analysis Used? • Managing R&D programs • Forecasting sales for new products • Deciding whether to launch a new product or new venture • Negotiating commercial real estate developments • Setting regulatory standards for air and water pollution • Making medical diagnoses and evaluating treatment risks • Evaluating widespread testing for various medical conditions

SUMMARY • The purpose of decision analysis is to help make decisions • Decision analysis is a process • Decision analysis provides a framework and methods for dealing with difficult decisions • Decision analysis is widely used

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