Influence diagrams Once a decision-making problem is understood and defined, it must be analyzed. Best practice to analyze the problem is to construct model. (Just as a flowchart ) An influence diagram is a map of a model (a model of a model). An influence diagram provides visual communication to the model builder or development team. An influence serves as a framework for expressing the exact nature of the relationships of the DSS model, thus assisting a modeler in focusing on the model’s major aspects, and it can help eliminate the less important from consideration. The term influence refers to the dependency of a variable on the level of another variable.

Influence diagrams variables Decision variables: those variables representing a course of action. Input Variables: those whose values are estimated directly. Intermediate Variables: those which are calculated based on specified relationships with other variables

Influence diagram symbols Decision variables Intermediate or uncontrollable variables Input variables Influence diagrams appear in several formats. Let’s agree on this :

Decision variables Decision Variables corresponding to each decision to be made and controlled by the decision maker (the manager). When a manager chooses a course of action, a value has been set for a decision variable. Goal-seek point of view

Input Variable Input Variables are external to the model. They are a “given” to which the manager reacts. (Madjid Tavana) An input variable is an independent variable (not influenced by any other variables in the model).

Intermediate or uncontrollable variables Intermediate variables are variables whose values are computed as functions of input variables and sometimes of other intermediate variables.

Influence diagram example Consider the following profit model: Profit = Income – Expenses Income = Units sold × Unit price Expenses = Unit cost × Units sold × Fixed cost Profit Expenses Income Unit price Fixed cost Unit cost Units sold