# ©Chelst & Canbolat Value-Added Decision Making Chapter 4 Structure Decisions with Multiple Objectives Create and structure objectives hierarchy Create.

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©Chelst & Canbolat Value-Added Decision Making Chapter 4 Structure Decisions with Multiple Objectives Create and structure objectives hierarchy Create measures – natural and categorical 9/19/2011 1 Most of the chapter’s tables and figures are included in the file. Instructor must decide how many and which examples to use.

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Influence Diagram – Review Role  Communication & Agreement  Admit – Uncertainty and Risk  Identify major sources of risk  Admit Multiple Objectives and Tradeoffs  Identify Major Objectives  Lead to analysis  Not an analytic tool 2 Chapter 4

©Chelst & Canbolat Value-Added Decision Making Decision Analysis Initial Framing (Influence Diagram) Decision Tree Complex Uncertainty with ONE Objective MAUT/ AHP Combination Complex Uncertainty & Multiple Objectives Analysis Multiple Objectives Uncertainty 3Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Tradeoffs - Upfront  Recognize there are multiple objectives  Admit- NOT possible to achieve the best possible score on all multiple objectives simultaneously  Few magical out-of-the box solutions that produces win-win-win on three or more Objectives at once  Better: tradeoffs upfront and NOT forced as last resort  Structured total approach and not just “let’s sit down or send out survey and allocate 100 points.” 4 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Multi-Criteria Decision Analysis (MCDA) Multi-Criteria Decision Analysis (MCDA)  MAUT – Multi-Attribute Utility Theory (our primary technique)  Detailed quantitative structure – data driven  Requires hard thinking by decision maker  Yields insight as to strengths and weaknesses of the decision  Easy to create better hybrid alternative  AHP – Analytic Hierarchy Process (our secondary technique)  Pair-wise Comparisons  Mix of qualitative and quantitative – not as data driven  Easy to interview  Focuses on comparing actual alternatives 5 Chapter 4

©Chelst & Canbolat Value-Added Decision Making Multi-Criteria Decision Analysis Multi-Criteria Decision Analysis  Identify and clarify decision objectives and criteria  Create Goals Hierarchy  Define measures for performance on criteria  Transform disparate measures to (0-1) common scale  Weight relative importance of decision criteria  Identify and input feasible solution alternatives  Structured assessment of alternatives – strengths and weaknesses  Create improved Hybrid alternative- Value-added 6Chapter 4

©Chelst & Canbolat Value-Added Decision Making MAUT Process Describe Alternatives Clarify Preferences Analyze Structure TASKSSTEPS Weighted Sum Synthesize Conduct Comparative Analysis Evaluate Hybrid Alternative(s) Conduct Sensitivity Analysis Gather data for each alternative for each measure Assign weights Create a common scale for each measure Identify Measures Identify Requirements Determine Objectives Identify Alternatives TECHNIQUES Creativity & Expert Judgment 7Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Structure the MAUT: Basic Definitions  Objectives (Goals) – Desirable Characteristics  Minimize Objective or Maximize Objective but more than just “meet” Objective  Criteria or sub-goals: verbal description of something to be minimized or maximized  Measures - Unambiguous ratings of how well alternatives do with respect to each Objective.  Measures can be qualitative or quantitative  Alternatives - choices or decisions. 8 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Objectives & Goals - Semantics  Objectives:  Desired state of system toward which we strive.  Use terms like ‘minimize’ cost or ‘maximize’ performance.  Goal:  Colloquial - people use the term goal to identify a specific level or target of achievement to strive toward.  Reduce cost by 10% in one year   Maximize cost reduction  Minimize cost  Reach the moon by 1970  Minimize resources required to reach moon by 1970  Maximize probability of reaching moon by 1970  Goal used interchangeably with the term objective. Logical Decisions software uses the term Goal instead of Objective. 9 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Fundamental Objectives  What is important to the person(s) making the decision in this context!!  Overarching Objective => Profit or Shareholder Value  Industry Problem – Hard to evaluate most decision outcomes based on profit or shareholder value.  Consequence - Multiple fundamental objectives are surrogates for overarching objective.  Maximize quality as measured by first three months in service  Minimize warranty costs  Minimize investment expenditures  Maximize production flexibility  Class activity: examples of objectives related to a decision 10 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Tradeoffs Amongst Objectives  Fundamental Objectives are Not Absolutes!!!  They can are traded off against each other!  Investment cost and variable cost  Do not subdivide costs into components that can be added  Durability and Weight  Service level and cost  Two things can be Fundamental Objectives but with different Weights W i  Minimize component weight and Maximize durability 11 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Tradeoffs: Value and Technical  Technical Tradeoffs  Engine power and fuel economy  Performance and cost (higher performance costs more)  Strength of material, durability, and cost  Value tradeoffs  Where is the preferred point on the technical tradeoff curve?  How much am I willing to spend to achieve a certain performance level?  What is a customer’s preference with regard to mpg and horsepower or torque? 12 Chapter 4

©Chelst & Canbolat Value-Added Decision Making Denver Police Bullet Controversy Denver Police Bullet Controversy Scientific data  Scientific Judgment  Value Tradeoff Sequence and Linkages Scientific Data (e.g. Muzzle velocity) Scientific Judgment (e.g. injury) Value Judgment : tradeoffs 14Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Identify Objectives Driven by   Requirements – what is needed?  Program objectives  Customer guidance  Technical performance measures  Different Perspectives  Alternatives  Problems and Shortcomings 15 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Common objectives 16 Major ObjectivesSub-Objectives Direction of Preference Objectives Direction of Preference Objectives Minimize Cost Minimize Investment cost Variable cost or operating costs Number of workers Warranty cost Training cost Maintenance cost MaximizeProduction rate TimeMinimize Development time Implementation difficulty

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 17 Major ObjectivesSub-Objectives Direction of Preference Objectives Direction of Preference Objectives Maximize ProfitMaximize Return on investment Net present value CompetitivenessMaximize Market share Overall style and appearance Difficulty in copying Performance Minimize Weight Power consumption Maximize On-time delivery Ease of maintenance Durability Ease of use Upgradeability SafetyMinimize Minor injuries Serious injuries Fatalities

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 18 Major ObjectivesSub-Objectives Direction of Preference Objectives Direction of Preference Objectives Maximize Quality Minimize Rework or scrap rate Failure rate Maximize Life cycle Labor skill Craftsmanship Stability MinimizeCorruption Maximize Economic stability Political stability Customer Satisfaction MinimizeWaiting Time Maximize Problem Resolution Personalized service Location MinimizeEnvironmental Impact Maximize Access Expandability

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Example: Light Bulb Selection Classic tradeoff: Cost vs. Performance  Bill Frail has recently been promoted to a product development manager position and he will move to his new office. His new office is being repaired now. He will select light bulbs for the office. In the office, there are 10 bulb fixtures. What is the best bulb for Mr. Frail? 19 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Structure the MAUT Identify Measures: Light Bulb Objectives  Maximize Performance  Minimize Annual Total Cost Measures  Watts (not lumens?)  Dollars Performance Watts Maximize Performance Cost Dollars Minimize Cost Select the Best Light Bulb 20 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Figure 4.4: Subdivide cost into Operating and Purchase (capital investment) Performance Watts Maximize Performance Operating Cost Dollars Purchase Cost Dollars Minimize Cost Select the Best Light Bulb

©Chelst & Canbolat Value-Added Decision Making 9/19/2011  Objectives Hierarchy - Diagram of relationships between objectives, sub- objectives, and measures.  Could have many layers, sub- objectives or tiers - need not be symmetric.  Final tier is always composed of measures.  Clarify meaning of parent objective.  Subdivided only when effort to evaluate measures is warranted. Objectives Hierarchy: Definitions 22 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Mod Stack is a medium priced retailer of fashionable clothing.  Store can have 3, 4 or 5 cashier stations spread throughout store  How many stations?  Level of qualifications for the staff.  Cashiers also play a role in sales 23 Activity: Construct an objectives hierarchy for Mod Stack. 1. Highest level objective: Maximize store performance a. Sub-objective _____________ i. Measure _______________ ii. Measure _______________ b. Sub-objective _____________ i. Measure _______________ ii. Measure _______________

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Construct an Objectives Hierarchy Top-Down Approach Start with overall objective  List Major Objectives – 3 to 5 – What is IMPORTANT to decision maker.  Subdivide specific Objective to develop lower tier Objectives in successively greater detail.  Calling Customer Satisfaction  Waiting time & Quality of Answer  Failures  a) MTBF and b) Time to repair  Continue until reasonable evaluation “measures” defined. 24 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Planet Inc., Global toy co. Manufacturing facility Asia or Eastern Europe Top- down: Objectives hierarchy for facility location selection

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Construct an Objectives Hierarchy Bottom-Up Approach Start with details and alternatives  List and define differences between alternatives  Group differences into sub-objectives  Group Sub-objectives into major objectives 27 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Activity – Select Kitchen Re-modeler  Top Down Approach  What would be primary objectives – max and min  Sub-objectives  Measures  Bottom Up approach – 3 contractors met with you provided bids, information about company and list of references  How might the information details be different?  Group details into categories  Group categories into two or three major objectives 28 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Treat Investments and Operating Costs Separately – Circumstances?  Separate Budgets within organization  Different Tax ramifications  Affect Return on Investments (ROI)  Different time dimension – Capital investments may be carried over five or ten years and somewhat arbitrary based on accounting rules.  In bulb example the capital costs are small and should be converted into annual costs 29 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Subdivide Other Costs: Yes or No  Operating costs and transportation costs  Scrap? Warranty?  Question – How should labor costs be treated? 30 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Uses of a Objectives Hierarchy  Facilitate communication  Better understand breadth of important considerations.  Captures multiple perspectives.  Guide information collection  Focuses information collection on important evaluation considerations.  Chunk into pieces to facilitate collection of subjective data.  Help identify alternatives  Where alternatives are not all pre-specified. 31 Chapter 4

©Chelst & Canbolat Value-Added Decision Making Guidelines for a Objectives Hierarchy Complete & Concise  Significant Concerns  Can Be Measured or Estimated at Reasonable Cost  Decomposable  Easily Understood by All Trade Study Participants  Do not make distinct measures if measures simply add together (e.g. two types of variable cost)  As few as possible: Often 10 or fewer measures  15 - 20 measures for MAJOR studies  Non-redundant or overlapping  Meaningful Differentiation  Directly Relevant 32Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Objectives => Measures (one or more)  Types of measure scales:  Natural: In general use with common interpretation. Dollars, weight, mpg, time units  Constructed: Developed for a particular MAUT. A ) Descriptive phrase describes each level Words with specific meaning  subjective data for alternative Levels must be unambiguous and carefully defined. B) Group numeric measure to make meaningful Do Not create scales that are too Complex to be efficiently used or too Simple to be meaningful. 33 Chapter 4

©Chelst & Canbolat Value-Added Decision Making Constructed Scale: With Phrases Global Facility Location  Trade Union Environment LevelDescription 1Low Most Preferred Co-operative, rational in demands: work stoppages less than once a year 2Mid Demanding: work stoppages more than once a year - infrequent short strike during contract negotiations 3High Least Preferred Highly organized and aggressive union: frequent work stoppages and strikes at negotiations. 34Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Nearness to Family (College – Job) Constructed Scale: Group Data Minimize or Maximize – Not always clear Nearer to house is better 1. Within half hour drive 2. Half hour to one hour 3. One hour to two hours 4. Two hours to five hours 5. More than 5 hours drive Farther away is Better 1.More than 5 hours drive 2.Two hours to 5 hours 3.One hour to 2 hours 4.Half hour to 1 hour 5.Within half hour drive 35 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Constructed Scale: Nearness to Family Not Monotonic function of distance  Create Monotonic Scale Nearer to house is better but not Too close 1. One hour to two hours 2. Half hour to one hour 3. Two hours to five hours 4. Within half hour drive 5. More than 5 hours drive 36 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Activity: Kitchen Re-modeler Constructed Scale  Describe Measure – min or max  __________________________________  Create at least 3 groupings with phrases 1._____________________________ 2._____________________________ 3.______________________________ 37 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Measure Type: Yes or No Feature  A desired property or attribute may either be present or not be present.  Only two measure levels  0 (no) or 1 (yes)  0 (A) or 1 (B)  Examples  Vehicle has ABS brakes or not  High school diploma  Technology is computer controlled or not  Fixed monthly charge for debit card 38 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Activity: Constructed Scale & Yes/NO Decision Context: BUY a HOUSE  Describe a measure that might be yes or no.  __________________________________ 39 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Measures – Hard or Subjective data available?  There is no value to a measure without some way of estimating its value for each alternative  Personnel Decisions  What can you find out?  How does prior performance relate to new more difficult job?  Company performance  Quality  Customer Service  Travel lodging  available rating info on internet  What measure(s) would you use.  ACTIVITY  Go to Internet 40 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Expand Mr. Frail’s Bulb Decision Context  Often decision context too narrowly defined  Not just bulbs – Office Lighting System  Types of fixtures now a factor  Control of fixture beyond just on or off?  Need for light  Type of activity  Impact eye strain  Importance of true color  Light type - Fluorescent  standard fixtures – new bulbs that screw in  special fixtures.  High Ceiling – Need electrician to change bulb 41 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Structure the MAUT: Objectives Hierarchy Office Lighting System Select the Best Lighting System Flexibility Performance Cost Flexibility Longevity Eye Strain Investment Operating # of Bulbs Replaced Amount of Light Quality of Light Operating \$\$ Investment \$\$ 42 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Structure the MAUT: Identify Objectives of Lighting System in High Ceiling Office  Objectives & Measures  Minimize cost  operation cost  investment cost (may include fixture)  Maximize Performance  Minimize eye strain  amount of light (lumens)  quality of light (fluorescent or incandescent)  Maximize longevity (replacement hassle)  Number of bulbs replaced per year (categories)  Maximize flexibility of light level  Flexible or not 43 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Binary Measure: Light Type - Quality  Incandescent (1,0) or Fluorescent light (0,1)  Which one is most preferred – depends on context  Office, kitchen, living room or basement  For most people (Office)  Fluorescent type light: Most preferred level (1)  Incandescent type light: Least preferred level (0)  For some people who have migraine  Incandescent type light: Most preferred level (1)  Fluorescent type light: Least preferred level (0)  For Mr. Frail  Fluorescent type light: Most preferred level (1)  Incandescent type light: Least preferred level (0) 44 Chapter 4

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.6: Customer satisfaction measure 45 LevelWordsPreferenceDescription 1HighMost Preferred More than 80% of the customers have no complaint about the quality, and performance of the product and would consider buying the product again. 2MediumCustomers are not totally satisfied with the product (20% to 40% of the customers have complaints) but more than 70% of the customers would consider buying the product again 3LowLeast Preferred More than 40% of the customers are dissatisfied with quality and performance of the product. At least 30% of the customers state that they will buy the product from the competitors

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.7: Ease of use of a computer 46 LevelWordsPreferenceDescription 1 Very highMost Preferred Users rarely need to reboot. Easy to install/uninstall software and hardware. Automatically performs system maintenance and optimization for user tasks. Failures are automatically fixed. 2 HighUsers rarely need to reboot. Plug and Play usually works. Does not require routine maintenance. Does not optimize for user tasks. Only 90% of the failures are automatically fixed. 3 MediumUsers sometimes need to reboot. Easy to install/uninstall software and hardware. Users need to do some of the routine maintenance. Half of the failures are automatically fixed. 4 LowSeveral specific applications or PC system problems require a reboot. Software is difficult to install. The user must open the cabinet to install hardware. Users need to fix half of the problems. 5 Very lowLeast Preferred Users need to do maintenance. Hardware and software fail often and errors are difficult to diagnose.

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Activity — Create measures for house purchase 47 Describe a constructed measure _______________________________ Describe a yes or no measure _______________________________

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.8: Contractor’s level of experience 48 Level WordsPreferenceDescription 1ExcellentMost PreferredMore than 20 years 2Good 10 to 20 years 3OKLeast Preferred5 to 10 years

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.9 – Time to Deliver: Grouped Measure 49 LevelWordsPreferenceDescription – time to deliver 1 Immediate vicinityMost PreferredLess than twenty minutes 2 NearbyTwenty minutes to an hour 3 Same shiftOne to four hours 4 Same dayFour to eight hours 5 Next dayLeast PreferredMore than eight hours

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.11: Measures for buy a used car example 51 MeasureScale/levels Odometer MileageMiles Dependability ratings 5 circles: Among the best 4 circles: Better than most 3 circles: About average 2 circles: Worse than average Purchase costDollar Annual Fuel CostDollar Maintenance costDollar/year LongevityYears ColorLight, Neutral or Dark Interior ConditionExcellent, Good, Fair, or Poor Exterior ConditionExcellent, Good, Fair, or Poor A/C & HeaterBoth work, A/C only, Heater only, or Neither works Seating Capacity6 or more, 4 or 5, 2 or 3 Sound System Radio & CD player, Radio & cassette player, Radio only, None

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Figure 4.7: Objectives hierarchy for BC Hydro case

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.12: Measures for BC Hydro case 53 MeasureScale/levels Cost of Electricity UseMills per kilowatt-hour in Canadian dollars Funds Transferred to GovernmentAnnualized dividend payable in Canadian dollars Recourse LossesCost of resource losses in Canadian dollars FloraHectares of mature forest lost FaunaHectares of wildlife habitat of Spatzizi Plateau quality lost WildlifeHectares of wilderness of Stikine Valley quality lost Recreational useHectares of high quality recreational land lost AestheticsAnnual person-years viewing high voltage transmission lines in quality terrain Public mortalityPublic person-years of life lost Public morbidityPublic person-years of disability equal in severity to that causing employee lost work time Employee mortalityEmployee person-years of life lost Employee morbidityEmployee person-years of lost work time Customer typesResidential, Commercial, and Industrial Equitable CompensationNumber of individuals who feel they are inadequately recompensed Outages to small customersExpected number of annual outages to small customers Duration of outages to small customersAverage number of hours per outage to small customers Outages to large customersExpected annual number of outages to large customers Duration of outages to large customersAverage number of hours per outage to large customers Elapsed timeElapsed time until new service installed Response timeTime until human answers the telephone Public service orientation Level 4 – Very public-service oriented Level 3 – Moderately public-service oriented Level 2 – Somewhat public-service oriented Level 1 – Minimally public-service oriented

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Figure 4.8: Objectives hierarchy for the watershed quality

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.13: Measures for watershed quality 55 MeasureScale/levels Water quality for amphibians% of acidity readings below 4.5 pH Water quality for all others % of dissolved oxygen readings below 5 ppm Riparian zone and floodplain % of riparian zone with underdeveloped or natural vegetation Land use % of Upham Brook with underdeveloped or natural vegetation Natural steam channel for all others% of non-redirected channel Natural steam channel for amphibiansEPA rapid bio-assessment metric Natural stream flow% of impervious surface in watershed Water safe for designated usage % of fecal coliform measurements in violation of regulations Access and recreation% of stream length accessible to public Flood safety % of riparian zone and floodplain with construction Aesthetics% of stream length with trash present

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Figure 4.9: An objectives hierarchy for the wastewater technology selection

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.14: Objectives for selecting wastewater technology 57 ObjectiveMeasure Minimize investment costDollars Minimize maintenance costDollars Minimize operating costDollars per gallon Minimize floor spaceSquare feet Minimize timeMonths Maximize supplier potentialConstructed (high, medium, low) Maximize system capacityGallons per day Maximize metallic water qualityMetallic parts (mg/L) Maximize oily water qualityOily parts (mg/L)

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.15: Constructed measure scale for outsourcing of ownership 58 Measure Level Order of Preference Description HighMost Preferred3 or more suppliers are available Medium1 to 3 supplier are available LowLeast PreferredSupplier is not available

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Figure 4.10: Objectives hierarchy for employee performance evaluation

©Chelst & Canbolat Value-Added Decision Making 9/19/2011 Table 4.17: Measure levels under the interpersonal development objective 60 MeasureMost Preferred Least Preferred Communication Exceptional: Exceptionally articulate in verbal and written communication Good: Communicates clearlyPoor: Communicates poorly Diversity Diligent: Works assiduously to foster an open and inclusive environment; actively involved in diversity initiatives; always displays behavior that respects and values individual differences. Acceptable: Contributes in promoting an open and inclusive environment; participates in diversity initiatives, generally displays behavior that respects and values individual differences. Limited: Needs encouragement to support a diverse and inclusive environment; fails to display behavior that respects and values individual differences. Teamwork Exceptional: Is very effective interpersonally; works extremely well with others. Good: Works well with others; facilitates cooperation. Unacceptable: Has difficulty in relating to others; is not readily cooperative. Work ethics Exceptional: Practices exceptional work ethics; demonstrates scrupulous integrity in all work. Good: Practices good work ethics; demonstrates integrity in all work. Poor: Fails to practice good work ethics; does not demonstrate integrity at work.

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