1. 1 Dr. Greg Parnell Virginia Commonwealth University Phone: 804-828-1301, ext. 133 Email: gparnell@vcu.edu & Toffler Associates Phone:978-526-2444, Ext 210 Email: gparnell@toffler.com March 1999 Introduction to Multiobjective Decision Analysis Virginia Commonwealth University Toffler Associates ®

2. Complex Policy Decisions Complex policy decisions involve many objectives (values). Multipleobjective decision uses these objectives to identify and evaluate future decision opportunities. Qualitative and quantitative value model are the key tools. Values What do we want? Information What do we know? Alternatives What can we do? Future

3. 3 Overview Introduction –Terminology –Decision Analysis Tenets –Scope of Decision Analysis Illustrative Example –Environmental Remediation Decision Analysis –Applications –Professional Organizations –Decision Analysis References Decision Analysis Summary

4. Introduction Decision: An irrevocable allocation of resources Decision Analysis: Discipline for evaluating complex alternatives by systematically examining - decisions - uncertain variables - preferences (value, risk, & time) Purpose: Provide insight to decision- makers faced with hard problems

5. 5 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.

6. 6 Decision Analysis Tenets (Con’t) Quantification offers significant benefits –Clarifies thinking Values Uncertainties (Probability) Consequences –Improves communications –Enables logical reasoning Support decision-maker judgments Provide insights!

7. 7 Scope of Decision Analysis

8. 8 Multiobjective Value Model Value model has two parts: Qualitative and Quantitative –Qualitative -most important evaluation considerations & measures Use terms most appropriate for the domain –Quantitative - scoring functions (measure returns to scale) and weights (measure relative importance) used to evaluate alternatives Project Current Best Qualitative Value Model Quantitative Value Model

9. 9 Illustrative Value Model Criteria Evaluation Measures Sub-Criteria Grelk,B. J., Kloeber, J. M., Jackson, J. A., Parnell, G. S., and Deckro, R. F., “Quantifying CERCLA Using Site Decision Maker Values,” Remediation, Spring 1998, pp. 87-105

10. 10 Colors highlight the differences in the alternatives. Environmental Remediation Alternative Rankings

11. 11 0 1 2 3 4 5 6 7 8 0200400600800100012001400160018002000 NPV ($ Millions) 1 3 Vaults Monitoring MCS IST Grout EST Without analysis Highest cost/good value alternative selected on similar project After analysis: Highest value - affordable cost alternative preferred Value vs. Cost Value versus cost plots provide insight on the alternatives.

12. DA Has Many Successful Applications 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.

13. Welcome to DAWeb, the web site of the Decision Analysis Society of INFORMS. The Society promotes the development and use of logical methods for the improvement of decision- making in public and private enterprise. Such methods include models for decision-making under conditions of uncertainty or multiple objectives; techniques of risk analysis and risk assessment; experimental and descriptive studies of decision-making behavior; economic analysis of competitive and strategic decisions; techniques for facilitating decision-making by groups; and computer modeling software and expert systems for decision support. Our members include practitioners, educators, and researchers with backgrounds in engineering, business, economics, statistics, psychology, and other social and applied sciences. News and Announcements The Field of Decision Analysis (references, journals, software,...) Activities and Services of the Society Officers and Council Membership Directory Newsletter Archive Working Paper Abstract Archive Upcoming Events and Meetings How to Join Us Related Links Our web address is www.informs.org/Society/DA

14. 14 Decision Analysis References Bodily, S. E., Guest Editor, "Special Issue: Decision & Risk Analysis," Interfaces, Vol 22, No 6, 1992, pp. 1-166. [13 articles] Brown, R. V., & J. Ulviva, "Decision Analysis Comes of Age," Harvard Business Review, Sept-Oct 1982, pp. 130-141. Buede, D. "Aiding Insight III," OR/MS Today, August 1996, pp. 73-79. [Annual survey of DA software] Clemen, R., Making Hard Decisions, 2 nd Edition, Duxbury Press, 1996. Corner J. L. and Kirkwood, K. W., “Decision Analysis Applications in the Operations Research Literature, 1970-1989,” Operations Research, Vol 39, No 2, March- April 1991, pp. 206-219. Howard, R. A., "Decision Analysis: Practice and Promise," Management Science, Vol 34, 1988, pp. 679-695. Howard, R. A. & J. E. Matheson, Editors, The Principles & Applications of Decision Analysis, 1983, Volumes I & II, Strategic Decisions Group. Keeney, R.L. Value-Focused Thinking: A Path to Creative Decisionmaking. Cambridge, Massachusetts: Harvard University Press, 1992. Keeney, R.L. and Raiffa H. Decision Making with Multiple Objectives Preferences and Value Tradeoffs. New York: Wiley, 1976. Kirkwood, C. W., Strategic Decision Making: Multiobjective Decision Analysis with Spreadsheets, Belmont, California: Duxbury Press, 1997. Matheson, D. & Matheson, J., The Smart Organization: Creating Value Throught Strategic R&D, Harvard Business School Press, 1998 Raiffa, H. Decision Analysis: Introductory Lectures on Choices Under Uncertainty, Addison-Wesley Publishing Co., 1968. Tversky, A., & D. Kahneman, "The Framing of Decisions & the Psychology of Choice," Science, 1981, Vol 211, 453-458. Van Winterfeldt, D., & W. Edwards, Decision Analysis & Behavioral Research, Cambridge University Press, 1986

15. 15 Decision Analysis References Parnell, G., Lutz, L., Engelbrecht, J., Szafranski R., Bennett, E., & Yockey, J., “Improving Customer Support Decision Making at the National Reconnaissance Office”, submitted to Interfaces, October, 1998 Delano, G., Parnell, G., Vance, M. & Smith, C., “Quality Function Deployment and Decision Analysis: A R&D Case Study,” submitted to International Journal of Operations and Production Management, November 1998 Parnell, G., Conley, H., Jackson, J., Lehmkuhl, L, and Andrew, J., “Foundations 2025: A Framework for Evaluating Future Air and Space Forces," Management Science, 1998, Vol 44, No 10, 1998, pp. 1336- 1350 Grelk,B. J., Kloeber, J. M., Jackson, J. A., Parnell, G. S., and Deckro, R. F., “Quantifying CERCLA Using Site Decision Maker Values,” Remediation, Spring 1998, pp. 87-105 Jackson, J. A., Parnell, G. S., Jones, B. L., Lehmkuhl, L.J., Conley, H., and Andrew, J., "Air Force 2025 Operational Analysis," Military Operations Research, 1997, Vol 3, No 4, pp. 5-21 Hale, G., Jackson, J. & Parnell, G., “Assessing Communications Systems for the Australian Defense Force,” Asia-Pacific Journal of Operational Research, Vol 14, 1997, pp. 45-67 Papatyi, A. F., Deckro, R. F., Parnell, G. S., Jackson, J. A., & Kloeber, J. M., “Screening Technology Trains for DNAPL Remediation,” Remediation, Winter 1997, pp. 87-105 Rayno, B., Parnell, G., Burk, R., and Woodruff, B., “A Methodology to Assess the Utility of Future Space Systems,” Journal of Multi-Criteria Decision Analysis, Vol 6, 1997, pp. 344-54 Stafira, S., Parnell, G., and Moore, J., “A Method for Evaluating Military Systems in a Counterproliferation Role,” Management Science, Vol 43, No 10, October 1997, pp. 1420-1430 Griggs, B., Parnell, G., and Lehmkuhl, L., “An Air Mission Planning Algorithm Using Decision Analysis and Mixed Integer Programming,” Operations Research, Vol 45, No 5, September-October 1997, pp. 662-676 Burk, B. and Parnell, G, “Evaluating Future Space Systems and Technologies,” Interfaces, Vol 27, No 3, May-June 1997, pp. 60-73

16. Decision Analysis Summary Systematic process with well developed set of analysis techniques Incorporates information from functional experts and interested stakeholders Appropriate technique for identifying and quantifying values and uncertainties Provides analysis support to decision-makers Strong professional society and technical literature