Objectives:

1
More Definitions

• Objectives
• It is a specific thing that you want to achieve
• Decision making can be guided by one or multiple
  objectives
• Values
• An individuals objectives taken together make up
  his or her values
• Outcomes
• The possible things that can happen while trying
  to resolve an uncertain event through a decision
  analysis process

Ref slides from Dr. Loerch
2
More Definitions (contd.)

• Information
• Information relates to a specific decisionit is
  what the decision is based on.

Information can be measured as the probability
that the preferred choice in a specific decision
with specific alternatives will lead to the
outcome most desired from among the outcomes
actually achievable from the available
alternatives
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Strategic decisions involve four critical
components
Values What do we want?
Future What could happen?
Information What do we know?
Alternatives What can we do?

• Understanding of the future is critical to all
  three elements.
• Use strategic values to identify future
  decision opportunities.

4
Decision Analysis Process
Decompose and Model Problem Structure
Uncertainty Preference
Yes
No
5
Decision Analysis has many successful
applications.

• Private
• Automotive
• General Motors
• Ford
• Oil Gas
• Chevron
• Phillips Petroleum
• Pharmaceutical
• Johnson Johnson
• Eli Lilly
• Bristol Myers Squibb
• Aerospace
• Medical
• IT
• Kodak
• RD Portfolios
• etc.

• Public
• DoD
• Joint Staff
• Air Force
• Army
• Navy/Marines
• DOE
• Nuclear Waste
• Hazardous Chemicals
• ST
• Intelligence Community
• CIA
• NRO
• NSA
• CIFA
• NASA
• etc.

6
Types of decisions
Static Decision

• One time decisions
• Analysis performed only once
• Sequential decisions but Analysis performed only
  once
• Dynamic Decisions
• Analysis performed more than once
• Time is a factor

7
Decision Analysis For System Design

• The purpose of a design is
• To solve a problem
• To overcome a shortcoming
• To improve a situation
• Design involves decision making
• The same procedures that provide a framework for
  other decision processes work for design
  decisions as well

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Measurement

• Most important step in analysis - What should be
  measured?
• Goes by many names
• Measure of Effectiveness (MOE)
• Measure of Performance
• Measure of Merit
• Objective
• Measure of Benefit (vice Cost)
• Metric
• Must reflect outcome of decision

9
Risk

• Definition (Oxford English Dictionary)
• Exposure to the possibility of loss, injury, or
  other adverse circumstance
• Risk is the variability in our estimation of the
  outcome of a choice, including both better and
  worse-than-hoped-for events.
• Three Issues
• How bad could it get? Must measure bad outcome
  in some sense
• How possible is the bad outcome? Need probability
  distribution on possible outcomes.
• How much do I care? Risk attitude of decision
  maker

10

• Decision Analyst
• vs
• Decision Maker

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Purpose of Decision Analysis

• To provide insight to the Decision Maker
• Not make the decision for him/her
• 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 dont worry about it!

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Analysts need to better understand
decision-making process
Political
Rational
Emotional
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Interacting with Decision Makers

• We as systems engineers and analysts are seldom
  the decision maker!
• Understanding
• Senior level decision-making
• Senior decision-makers
• Decision analysts
• Presentations to senior decision-makers
• Discussing potential new analyses
• Obtaining approval for analysis plan
• Providing a decision briefing

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• Who are Decision Makers ?

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Characteristics of Decision Makers

• Busy
• Difficult to see
• Gatekeepers control access
• Establish vision and strategic objectives
• Interested in how your idea fits with their
  agenda
• Knowing their objectives is valuable
• Control resources
• Analysis champion requires their approval
• Their support is usually critical

Get access to senior leaders early in the
analysis and at key decision points.
16
Senior decision-makers need to better communicate
with analysts

• Define the problem
• Describe the desired product
• State the need date
• Identify the constraints
• Provide resources

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Three proven guidelines to successful
presentations to senior leaders

• Allow time for the senior decision-maker to talk
• Once you are in let them determine how long you
  stay
• Use fewer and better slides
• Use 10-15 slides for 30 minutes
• Always state (restate) the problem/issue/challenge
  
• Put a summary of the key message on every chart
• Brief the message
• Seek first to understand then to be understood
• Listen to the question
• Answer questions briefly and clearly

• Make sure you are working the right problem.

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Decision analysts need to provide executive
summary presentations to senior decision-makers

• When the analysis is finished you are 50 done
• Pre-brief key advisors
• Incorporate their comments and suggestions
• Used more detailed briefings
• Do not use your own perceptions
• Summarize the results of your systematic analysis
• Tell what is means to the decision-maker
• Keep the charts clear and concise
• Tell a story
• Avoid extraneous information

Bring the decision-maker through the front
door.
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• Extensively use graphs, colors, and pictures
• A picture speaks a thousand words

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• Extensively use graphs, colors and pictures
• Example 1

Cumulative density function
21

• Extensively use graphs, colors and pictures
• Example 2

• Chart displays the potential range of value
• Range increases and value declines with volume

22

• Extensively use graphs, colors and pictures
• Example 3

Colors can be used to highlight the differences
in the 5 alternatives.
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Summary

• Communicating with senior managers
• Get access early and often
• Make sure you are working the right problem
• Respect their time
• Need to remind them of your project
• Provide executive summary briefings
• One chart summary
• Three communication opportunities
• Get started understand the decision-makers
  problem
• Obtain approval for work plan - systematic
  approach
• Provide a decision briefing - tell a story

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Definition

• Consequence
• Its the final fate of the Decision Maker

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Time value of Money

• If an investment at 10 inflation yields 110
  after 1 year its present value (PV) is
• PV X
• (1r)n

The net present value is NPV PV of returns on
investment investment If you invest
100 for 1 year at 10 interest, you will earn
100(1.1) 110. The PV is 110/(10.1)100. NPV
100-100 0. The interest earned (10) has
been adjusted for inflation.
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Time value of Money

• The return on 425 investment is
• Year 1 2 3 4
• Return 110 121 133.1 146.41
• Assume inflation 10
• Is this a good investment?
• Total return 110121133.1146.41 510.51

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Time value of Money

• Calculate PV
• PV 110/(10.1) 121 /(10.1)2 133.1
  /(10.1)3 146.41/(10.1)4
• PV 100100100100400
• NPV PV investment 400-425 -25
• Its not worth investing!!

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Reading Assignment

• Read Chapter 1 and 2 of the textbook
• Next topic
• Refresher on Probability Chapter 7, 8, 9