1. Decision and Risk Analysis Systems 473
Dr. Rajesh Ganesan
classweb.gmu.edu/rganesan

2. Definitions Decision – An irrevocable allocation of resources
The use of resources makes the decision important
Money
Time
People
A decision must have
Alternatives to choose among
Outcomes for each alternative
A value structure within which to order / rank outcomes
Assumptions relating to all of the above
A decision may have
A probability measure on possible outcomes
A probability measure on future conditions (states of nature)
An active opponent trying to defeat your decision
Ref: slides from Dr. Loerch

3. Alternatives and Choice
A decision is a commitment to an action, taken by the decision
maker.
The commitment involves making a choice between
alternative courses of action.
We distinguish between the alternatives, which are the various courses of action available to the decision maker, and
the choice, which is the alternative selected for action by the decision maker.

4. Risk and Uncertainty
Risk is the variability in our estimation of the outcome of a choice, including both better and worse-than-hoped-for events.
Uncertainty is the cause of risk. It includes our imperfect and incomplete understanding of the laws of nature, our inability to mathematically model artifacts with total precision, our inability
to know initial states of a system with total precision, our inability to carry out precise calculations, and the notion that some things
may simply be non-deterministic, such as quantum mechanical effects.

5. Decision Analysis What makes a decision hard to make?
• Competing objectives
• Uncertainty
• Politics
• Lack of information
• Differing perspectives of Decision makers
• Disagreement over what is to be accomplished
• Complexity
Note: Some of these overlap

6. Decision Analysis What is decision analysis? A Method to:
Organize or structure complex problems for analysis
Deal with tradeoffs between multiple objectives
Identify and quantify sources of uncertainty
Incorporate subjective judgments

7. Decision Analysis tenets.
Quality decision making requires a systematic process to incorporate
Information, expert opinion, and preferences
Complex decisions in large organizations involve
Functional experts (inside)
R&D, engineers, operations, production, finance, etc.
Interested stakeholders (outside)
Stockholders, government, community, etc.

8. Decision Analysis tenets (continued)
3. Quantification offers significant benefits
Clarifies thinking
Values
Uncertainties (Probability)
Consequences
Improves communications
Enables logical reasoning
4. Support decision maker judgments by providing insights (more about dealing with decision makers later)

9. Purpose of Decision Analysis
To provide insight to the Decision Maker
Not make the decision for the decision maker
Difference between Decision Maker and Analyst
3 things that a decision maker can do with your analysis
Use it
Modify it
Throw it away
Do a good job and don’t worry about it!

10. Read Chapter 1