Decision Analysis for Management Judgement

SUMMARY
Why should we study about Decision Analysis ? Paul Goodwin shows that
research over the past 30 years has revealed numerous ways in which the process
of making decision goes wrong, usually without our knowing it. This book will show
us how decision analysis can be applied so that decisions are made correctly. These
techniques are usable by busy managers and administrators.
When we are facing a problem and had to make a decision, whether it was a life
decision or an organizational decisions, we should know how to analyze all the
aspects and elements also the situation before making the right decisions.
For example, deciding between staying in our present job or building our own
business, is not easy to do. The Job we had is secure, there will be a pay check
every month. In other hand, building up our new business can be hard if we
havent had a good reputation. As well as, we should have a good network and
relationship among the customers.
It is difficult to think clearly about the decision; there seem to be so many
different aspects to consider. Sometimes, we feel tempted to make a choice purely
on emotional grounds why not simply jumpin and take the risk? but then we
realize that this would be unfair to our family.
This is a personal decision problem, but it highlights many of the interrelated
features of decision problems in general. Ideally, we would like to maximize our
income, maximize our job security, maximize our job satisfaction, maximize our
freedom and so on, so that the problem involves multiple objectives. Clearly, no
course of action achieves all of these objectives, so we need to consider the tradeoffs between the benefits offered by the various alternatives. This reflects, in
part, the number of alternative courses of action from which we can choose was
should we stay with our present job, change jobs, change jobs and become a parttime consultant, become a full-time consultant, etc.?
Finally, this problem is not ours alone; it also concerns our spouse, so the decision
involves multiple stakeholders. Our spouse may view the problem in a very
different way. For example, he or she may have an alternative set of objectives
than you. Moreover, he or she may have different views of the chances that we will
make a success of the business and be more or less willing than we to take a risk.
The Role of Decision Analysis
Decision analysis refers to the process of breaking something down into its
constituent parts. Decision analysis provides a formal mechanism for integrating
the results so that a course of action can be provisionally selected. This has been
referred to as the divide and conquer orientation of decision analysis.

When there are disagreements between a group of decision makers, decision

analysis can lead to a greater understanding of each persons position so that there
is a raised consciousness about the issues involved and about the root of any
conflict. This enhanced communication and understanding can be particularly
valuable when a group of specialists from different fields have to meet to make a
decision.
Keeney points out:
Decision analysis will not solve a decision problem, nor is it intended to. Its
purpose is to produce insight and promote creativity to help decision makers make
better decisions. The analysis may enable the decision maker to develop a greater
comprehension of the problem so that his or her preference changes towards that
prescribed by the analysis.
The Application of Decision Analysis
Improved strategic decision making at Du Pont
The analysis has allowed them to take into account the effect on the value of the
business of uncertainties such as competitors strategies, market share and market
size.
Structuring decision problems in the International Chernobyl Project
Decision analysis was used in the project to evaluate countermeasure strategies
(for example, relocation of some of the population, changes in agricultural
practice and decontamination of buildings)
Selecting R&D projects at ICI America simple and transparent
Decision analysis models, using decision trees (Chapter 6), were used to provide
logic and consistency to the selection process, allowing a variety of criteria, such
as risk, speed of development and sales level, to be taken into account.
Petroleum exploration decisions at the Phillips Petroleum Company
The use of decision trees (Chapter 6) and utility functions (Chapter 5) allowed
managers to rank investment opportunities consistently and to identify
participation levels that conformed with the companys willingness to take on risk.
Strategic planning in an Australian voluntary organization
Through decision analysis the group developed a shared understanding of the key
issues that would affect the future of the organization and conflicting opinions
within the committee were resolved.