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Decision Making
Modelling for Decisions
Simulation
Trade-off analysis
Cost-benefit analysis
Reading: chapter 9

Goals and objectives

Decision type

Decision context

Provide the basis for comparing different choices

Provide information for trade-off
Decision should made to satisfy the important
stakeholders
Binary decision (go or no-go) vs. Selection among some
choices (make or buy and supplier selection)
Who make the decision: individual or group?
Scope of the decision: developing A380 or not vs. 10 or
7 tablet vs. VGA or HDMI
Context dimensions: technical, financial, personnel,
process, temporal and legacy

Stakeholders

Anyone (people or organization) who will be

affected by the results of the decision
Important aspect in policy making (e.g., cell phone
tower)

Legacy decisions

Learn from the past

Supporting data

Ensure proper information to support the decision

Data collection may require a lot of resources
Accuracy in data collected depends on the decision
type and context

Structured decision making

Routine, with well-understood context and scope
E.g., selecting a meal

Semi-structured decision making

Past decisions cannot be repeatedly used
E.g., buying a car

Unstructured decision making

Complex problems that are unique and typical onetime
E.g., adopting a new technology, developing iPod or
not
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The following three are about the scope of

control in decision making
Operational
Practitioner level on some daily or routine work

Managerial

Define the management, mentoring or coaching level of

decisions
E.g., when formulating a project, decide on the budget
and time

Strategic

Represent an executive or enterprise level control

E.g., investment decisions, merging of company,
whether or not to develop a new product
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Phase I: Intelligence

Phase II: Design

Define problem
Collect and synthesize data
Develop model
Identify alternatives (options
or choices)
Evaluate alternatives
(objectives)

Phase III: Choice

Search choices
Understand sensitivities
Make decision(s)

Phase IV: Implementation

Implement change
Resolve problem

Developing a model of the

decision means creating a
model that represents the
decision context and
environment
Represent make things
more explicit, focus on
important issues
Models can be complex in
scope and fidelity
Factors to decide the
decision model

Decision time frame

Resources
Problem scope
Uncertainty
Stakeholder, objectives and
values

Model: a physical, mathematical, or otherwise logical

representation of a system entity, phenomenon or
process
Mathematical models

Physical models

Representation = abstraction, only approximation

Use mathematical notation to represent a relationship or

function
Computable: quantitative and use of algorithms

Reflect directly some or most of the physical characteristics

of the actual system or system element under study
Prototype: can be both hardware and software
Schematic models

Diagrams or charts representing a system element or process

E.g., block diagram, IDEF0, UML

Mathematical models
Differential equations for dynamic systems (finite
element analysis, computational fluid dynamics,
population model)
Discrete event simulation (traffic simulation)
Formal language in computer science

Physical models
Scale model of airplane for the simulation in the
wind tunnel
Vehicle used in crash tests
3D printing

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Characteristics
- Intuitive, you dont need indepth training for
understanding
- Good for conceptual clarity
and understand
- Not good to support
computing and analysis

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Simulation = experiments on the (computational)

models
Key benefit: understand and predict the system
behavior or property without the cost of building
physical prototypes
Operational simulation

Games

Simulation of operational systems used in conceptual

development stage
Simulation of the interactions between (competing)
entities
Game with the environment (or nature)
Examine and decide the game strategy for better
outcomes

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Physical simulation

Study the physical behavior of system elements

E.g vehicle motion with external forces

Hardware-in-the-loop simulation

Physical simulation in which actual system hardware is

coupled with a computer-driven simulation

Environmental simulation

Used in engineering test and evaluation

Mechanical (computational) stress testing, crash testing,
wind tunnel testing

Virtual reality simulation

Use of 3D visual environment

E.g., pilot simulator
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Development of system simulations

Simulation is a complex subject
Balance between fidelity and complexity
Design of experiments to control the experimental
setups

Simulation verification and validation

Verification: check the consistency within the
systems domain
Validation: check whether the simulation can fairly
correspond to the real world (environment)

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Fuel-efficient car vs. powerful car

Defining the objectives

Identification of alternatives

Comparing the alternatives

Sensitivity analysis

Expressed as quantitative measures

At least two objectives for a possible trade-off
Include all promising candidate alternatives
Determine the relative merits of the alternatives
Seek for a balance solution
Do not just select the top winner. Any alternatives that
perform close to the winner should be re-examined
carefully

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Step 1: Definition of the objectives

Step 2: Identification of viable alternatives

Step 3: Definition of selection criteria

Step 4: Assignment of weighting factors to selection

criteria

There is never a single possible solution

Optimal solution vs. good-enough solution
Understand the discriminators among alternatives
Remain open to addition solution surfacing during the trade
study

Quantifiable and objective measure is one key

E.g., cost, reliability, maintainability, ease of use, etc

Weighting factors different importance of criteria

E.g., 5-point scale, limit the sum of weights, normalization

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Reliability

Maintainability

Ease of use

Component A has 95% chance being functional for 5

years
This data can be obtained from past records and
experiments
The system is running properly 97% of the service time
MTBF = mean time between failures expected time
between failures
MTTR = mean time to repair expected value of the
repair time

Number of steps (or time) required to complete some

tasks

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Step 5: Assignment of value ratings for

alternatives

Why: each criterion may use different units

Three options: subjective value method, step function
method and utility function method

Step 6: Calculating comparative scores

Basic method: weighted sum

Using just a single sum to select an alternative may be
over-simplified

Step 7: Analyzing the results

Why: qualitative judgments and incommensurable nature

of criteria
Sensitivity analysis

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Subjective value
method

1 = poor
4 = good

2 = fair 3 = satisfact
5 = superior

5-point scale

Actual measurement
method
An explicit mapping
between a measure and a
score

Utility function method

Mapped to the score
between 0 and 1
Normalization takes place
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Key: objective reasoning behind the decision

Trade-off analysis report
Communicated to all major participants, such as
customers, managers, technical leaders, etc
Provide a reference for reviewing the subject if
problems arise later in the program

Limitations of numeric comparisons

Controversy in a decision problem cannot be simply
resolved by assigning and summing the numbers
The values of weights can be arbitrary by nature
Advice: do not blindly trust the numbers
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Three
alternatives
and four
criteria
Which one are
you going to
select?

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Five software tools evaluated by six criteria

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Each criterion is assigned a weight based on

its importance.

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Develop a relative ranking for each criterion (e.g., $/10 for both
profit potential and risk and use a 5point scale for market share
with 5=H, 4=MH, 3=M, etc.) giving the following:
Profit potential
Profit risk
Market share

SW II
14.0
3.5
3.0

SW III
15.0
5.0
1.0

SW IV
13.0
4.5
3.0

Tabulate the product of weight times ranking; add the products

across all criteria to obtain:
Profit potential
Profit risk
Market share

SW I
10.0
4.0
5.0

SW I
6.50
0.80
0.75
8.05

SW II
9.10
0.70
0.45
10.25

SW III
9.75
1.00
0.15
10.90

SW IV
8.45
0.90
0.45
9.80

Under the given weights and the ranking values chosen, it would be
best for the firm to offer SW III. SW II is found to be a close second
choice.

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