1st Edition

Value-Added Decision Making for Managers

    578 Pages 219 B/W Illustrations
    by Chapman & Hall

    Developed from the authors’ longstanding course on decision and risk analysis, Value-Added Decision Making for Managers explores the important interaction between decisions and management action and clarifies the barriers to rational decision making. The authors analyze strengths and weaknesses of the best alternatives, enabling decision makers to improve on these alternatives by adding value and reducing risk.

    The core of the text addresses decisions that involve selecting the best alternative from diverse choices. The decisions include buying a car, picking a supplier or home contractor, selecting a technology, picking a location for a manufacturing plant or sports stadium, hiring an employee or selecting among job offers, deciding on the size of a sales force, making a late design change, and sourcing to emerging markets. The book also covers more complex decisions arising in negotiations, strategy, and ethics that involve multiple dimensions simultaneously.

    Numerous activities interspersed throughout the text highlight real-world situations, helping readers see how the concepts presented can be used in their own work environment or personal life. Each chapter also includes discussion questions and references.

    Web Resource
    The book’s website at http://ise.wayne.edu/research/decision.php offers tutorials of Logical Decisions software for multi-objective decisions and Precision Tree software for probabilistic decisions. Directions for downloading student versions of the DecisionTools Suite and Logical Decisions software can be found in the appendices. Password-protected PowerPoint presentations for each chapter and solutions to all of the numeric examples are available for instructors.

    STRUCTURING HARD DECISIONS
    The Case for a Structured Analytic Decision Process
    Goal and Overview
    The Challenge
    Decision Analysis Effectiveness
    Do Not Trust Your Gut
    Maximize versus Satisfice
    Established Biases
    What Makes a Decision Difficult?
    Symptoms of a Poor Decision Making Process
    Transparent and Efficient Decision Making

    Framing Decisions with Influence Diagrams
    Goal and Overview
    Components of an Influence Diagram
    Learn by Simple Example: Automation Investment
    Divide and Delay Decision: Plan an RSVP Theater Party
    Arrows in Complex Influence Diagram: New Product Late-to-Market
    Multiple Objective Influence Diagram: Buying a Used Car
    Oglethorpe Power Corporation: Actual Case
    Influence Diagram Construction: Review
    Solving Influence Diagrams
    Recent Articles on Influence Diagrams

    Common Decision Templates
    Goal and Overview
    In-House or Outsource (Make or Buy)
    Change (Upgrade) or Keep Status Quo
    Products: Launch, Portfolios, and Project Management
    Project Management: Product Development
    Capacity Planning
    Technology Choice
    Personnel and Organizational Selection: Hire Faculty
    Facility Location: Sports Arena
    Bidding: Make Offer
    Personal: University Selection
    Information Gathering: Market Research, Prototypes, and Pilot Plants
    Summary

    DECISIONS WITH MULTIPLE OBJECTIVES
    Structure Decisions with Multiple Objectives
    Goal and Overview
    Description of the Overall MAUT Process
    Basic Terminology
    Fundamental Objectives
    Objectives Hierarchy: Examples
    Top-Down Approach: Global Facility Location
    Bottom-Up Approach: Kitchen Remodeling
    Measures
    Example: Buy a Used Car
    Identify Alternatives
    Real-World Applications

    Structured Trade-Offs for Multiple Objective Decisions: Multi-Attribute Utility Theory
    Goal and Overview
    Concepts and Terminology
    Compare Alternatives
    Trade-Off Conflicting Objectives
    Single-Measure Utility Function: Proportional Scores
    Aggregate Utility: Total Score for Each Alternative
    Assessing Weights Revisited: Large Set of Measures
    Assess Individual (Single-Measure) Utility Function: Nonlinear Utility Functions and Constructed Measures
    Group Decision Making
    Uncertainty
    Contractor Selection for Kitchen Remodeling
    Real-World Application: Multi-Attribute Risk Analysis in Nuclear Emergency Management
    Selection of Best Conformal Coating Process
    Nonlinear Additivity: Multiplicative Form
    Research Issues with Weight Elicitation

    Value and Risk Management for Multi-Objective Decisions
    Goal and Overview
    Synthesize Weighted Sum
    Comparison of Two Alternatives
    Robustness of a Decision Using Sensitivity Analysis
    Value Enhancement with Hybrid: Lighting Example
    Better Alternative through Value Enhancement: Kitchen Remodeling
    Value Enhancement: Warehouse Selection
    Value Enhancement and Risk Management: Process Selection
    Risk Analysis and Management
    MAUT and Subject Matter Experts: Process
    Applications

    Multiple Objective Decisions with Limited Data: Analytical Hierarchy Process
    Goal and Overview
    AHP Procedure Details and Snow Blower Example
    Commercial Snow Throwers Selection
    Select a Job
    Software Selection
    Growth of AHP Pair-Wise Comparison Effort
    Comparison of AHP versus MAUT
    Application Capsule: Compare AHP with MAUT: A Case Study

    DECISIONS AND MANAGEMENT UNDER UNCERTAINTY
    Value-Added Risk-Management Framework and Strategies
    Goal and Overview
    Overview of the Risk Management Process
    Risk Identification
    Risk Quantification
    Systems Risk Analysis
    Risk Mitigation Framework
    Risk Communication, Perception, and Awareness
    Alternative Risk Mitigation and Elimination Strategies

    Spreadsheet Simulation for Decisions with Uncertainty
    Goal and Overview
    Using @Risk Spreadsheet Simulation
    Project Acceleration Investment
    Profit Forecasting for Drug Development
    Global Sourcing Risk Analysis
    Real-World Applications @Risk

    Decisions with Uncertainty: Decision Trees
    Goal and Overview
    Early Users of Decision Trees
    Concepts
    Influence Diagrams and Schematic Trees
    Constructing and Analyzing a Simple Decision Tree
    Risk Profile/Cumulative Risk Profile
    Complex Symmetric Decision Tree: Make or Buy
    Asymmetric Tree: Design Change
    Sequential Decisions
    Robustness of Optimal Solution through Sensitivity Analysis
    Real-World Applications

    Structured Risk Management and the Value of Information and Delay
    Goal and Overview
    Identify High-Impact Variables
    Risk Profiles and Structured Risk Management
    Make or Buy Example: Discrete Decision Tree Analysis
    Perfect and Imperfect Information
    Imperfect Information: Bayes’ Theorem
    Conditional Decisions and Information Seeking Trees: Flu Virus Detection Technology
    Contingent Contracts Reduce Risk
    Real Options

    Risk Attitude and Utility Theory
    Goals and Overview
    Utility Theory: Concepts and Terminology
    Utility Function Assessment
    Change the Risk Equation: Insurance and Risk Sharing
    Case Study: Phillips Petroleum and Onshore U.S. Oil Exploration
    Utility Theory: Practical and Theoretical Challenges
    Current Research in Utility Theory

    CHALLENGES TO "RATIONAL" DECISIONS
    Forecast Bias and Expert Interviews
    Goals and Overview
    Motivational and Personal Biases
    Point Estimate and Narrow Ranges: Overconfidence
    Faulty Probability Reasoning
    Availability and Representativeness
    Confirmation and Interpretation Bias
    Expert Interview: How to Identify and Reduce Bias
    Research into Probabilistic Forecasts

    Decision Bias
    Goal and Overview
    Sunk Cost and Escalation of Commitment
    Framing Bias
    Status Quo and Omission Bias
    Regret
    Fairness
    Mood
    Groupthink, Optimism, and Miscellaneous Biases

    DECISIONS WITH MULTIPLE PERSPECTIVES
    Value-Added Negotiations
    Goal and Overview
    Understanding Negotiations
    Challenges to Effective Negotiation
    Managing the Negotiation Process
    Negotiating a Deal
    Negotiating a Dispute
    Agents and Multiparty Negotiations
    Negotiating across Border
    Negotiating Ethically
    Conclusion

    Ethical Decisions
    Goal and Overview
    Ethical Decision-Making Framework
    Values
    Biases, Myopia, and Don’t Want to Know
    Pressures Undermine Ethical Balance
    Short Cases

    Strategic Direction, Planning, and Decision Making
    Goal and Overview
    Strategic Planning
    Elements of Strategic Decisions
    Situation Assessment: SWOT Analysis
    Basic Tools: Decision Hierarchy and Strategy Table
    Strategy Development Steps for Large Organizations
    Scenario Planning

    Appendix A: Instructions for Downloading the DecisionTools Suite
    Appendix B: Instructions for Downloading Logical Decisions

    Index

    Exercises and References appear at the end of each chapter.

    Biography

    Kenneth Chelst is a professor of operations research and director of engineering management programs in the Department of Industrial and Systems Engineering at Wayne State University. An Edelman Award finalist, he is also co-principal investigator of the NSF-funded Project MINDSET and a senior consultant for the International City and County Management Association. He earned a Ph.D. in operations research from MIT. His research interests include engineering management, emergency service management, global engineering, and the use of operations research to enhance K-12 mathematics education.

    Yavuz Burak Canbolat is a senior manager in the Decision Support Group at Abbott Laboratories. He was previously an associate manager in decision analysis for Merck & Co., Inc., and an instructor in the Industrial Engineering Department at Qafqaz University. He earned a Ph.D. in industrial engineering from Wayne State University. His research interests include decision analysis and operations research techniques in R&D portfolio evaluation and management, strategic planning, financial and economic analysis, global operations and logistics, risk analysis, and capacity planning.

    "[The authors] introduce all concepts and methods using realistic decision-making examples to make them relevant to practitioners. This style also makes the description of the processes easy to comprehend and apply. … I was impressed with the presentation and development of the materials. Because it avoids purely technical topics, this book is easy to read and would make an excellent textbook for a practical course on decision making with multiple objectives and under uncertainty."
    —Matthias Ehrgott, The University of Auckland, Interfaces, July–August 2013