1 Making Decisions Strategically Dr. Jason R. W. Merrick Department of Statistical Sciences & Operations Research

2 Strategic Decisions  Decision: An irrevocable allocation of resources  R1-1 What is the one essential element of a decision? What are the two usual additional elements?  Which element is the most fundamental?  Strategic Decision Important Long range Conflicting objectives

3 Strategic Approach  R1-2 Describe the steps presented in this chapter for a strategic decision making process Specify objectives and scales of measurement Develop alternatives to achieve the objectives Determine how well each alternative achieves the objectives Consider tradeoffs between objectives Select alternative that best achieves objectives, taking into account the uncertainties

4 Quantitative Approach  R1-3 Give advantages and disadvantages of a quantitative approach to decision making.

5 Value Focused Thinking  Decide what you want – Values  Decide how to get it – Alternatives  Decision aren’t problems, they are opportunities Create better alternatives  Once you get good at making decisions, go looking for them!!

6 Uses of Value Focused Thinking Thinking About Values Creating Alternatives Guiding Strategic Thinking Inter- Connecting Decisions Guiding Information Collection Facilitating Involvement Identifying Decision Opportunities Evaluating Alternatives Improving Communication Uncovering Hidden Objectives Keeney, Ralph L., Value Focused Thinking: A Path To Creative Decisionmaking, Harvard University Press, Cambridge, MA, 1992, pp

7 Applications of Decision Analysis  Private Automotive General Motors Ford Oil & Gas Chevron Phillips Petroleum Pharmaceutical Eli Lilly R&D Portfolios etc.  Public DoD Air Force Army Navy DOE Nuclear Waste Hazardous Chemicals Public Utilities NASA etc.

8 Project  Analyze a business or personal decision with multiple objectives and significant uncertainties > 3 alternatives > 3 evaluation considerations Significant uncertainty about > 1 attribute > 2 outside expert data sources

9 Business Decisions Process Improvement or Re-engineering Facility Siting New Ventures New Products or Services Acquisitions Divestments Capital Expenditures Lease-Buy Personnel Planning Technology Choice Research/Development Planning

10 Personal Decisions  Career Choice  Change Career  Buy a Car  Buy a House

11 Prepare for Wednesday  Presentation outlining Summary of decision to be analyzed Preliminary list of alternatives Preliminary list of evaluation considerations Proposed expert data sources

12 Course Objectives  Understand and apply the multi-objective decision analysis approach and Value-Focused Thinking  Understand assumptions of multi-objective value and utility models  Identify and formulate a problem as a multi- objective model  Use decision analysis and VFT techniques to generate alternatives

13 Course Objectives  Implement multi-objective models in spreadsheets  Implement multi-objective models in specialized software  Perform sensitivity analyses on critical parameters  Be able to clearly and concisely present the decision analysis results to senior decision- makers