1. IE 423 Design of Decision Support Systems Decisions and Decision Making

2. Decision Support Systems Let’s analyze what this term means

3. Decisions A decision must have at least two characteristics – Goal (or objectives) Choices (or more specifically a set of choices

4. Decisions Goal What is the purpose of the decision? What is the decision intended to accomplish?  Maximize profits  Reduce manufacturing costs  Have more fun Usually goals are more specific  Increase snipe trap production rate

5. Decisions Choices A decision requires a selection of one or more alternatives from a set of choices A decision that has only one alternative is not a decision  Imagine a Chinese restaurant with only Kung Pao Chicken on the menu Choices can be discrete, or… …continuous, even (theoretically) infinite

6. Decisions – but wait – there’s more Actions Each choice must have an associated action  Something must be done or something must happen  Even if one of the actions is do nothing – that’s still an action (but you can only have one of these) Order snipe trap weaving machine from Snipes-R-Us

7. Decisions – but wait – there’s more Metrics You should have a way to measure the outcome of a decision What you measure or your metrics should be defined in terms of your goals or objectives You can have multiple metrics, but.. … they should be unambiguous … you should be able to tell

8. Decisions – but wait, there’s more Feedback Effective decision making requires a feedback mechanism You should be able to assess the impact of a decision Some decisions are one time… And some are recurrent

9. Decision Making So, suppose some time in the future you buy a house,… … and further in the future your spouse wants a new house, so… …you try to sell your current (future) house…

10. Decision Making Goal: maximize the amount of money you get for the old house Suppose you two offers: Offer A: $150,000 Offer B: $140,000 Do we have what we need to make this decision? Which do you choose?

11. Decision Making OK, but suppose the Offerer B agrees to take your spouse’s brother … (who came for a “weekend” visit but has been living in your basement for five years, eats all of your food, never flushes the toilet, and makes strange noises in the basement that you are afraid to investigate) … with the house

12. Decision Making Now, what is your decision? What about this decision making process changed?

13. Decision Making OK, let’s change to two goals in selling the house… Maximize the selling price for the house Minimize the amount of time from when it goes on the market to the sell of the house Again you have two offers…  Offer A: $180,000 but it must wait on the buyer to close on another property (might take six months)  Offer B: $150,000 but the offerer has “cash-in- hand” and would be ready to close next week Which do you choose?

14. Decision Making Which do you choose? Revenue Time on Market HighLow ShortA $200k 1 week B $150k 1 week LongC $200k 36 weeks D $150k 36 weeks

15. Decision Making Decision making is usually not about choosing between good and bad That would be too easy …but about competing goods or competing bads Decisions can be complicated by multiple goals

16. Decision Making Let’s try to sell that house one more time- This time consider this scenario Offer A: will pay $200,000 but the offer is contingent on the buy selling another piece of property Offer B: will pay $150,000 but has “cash-in- hand” (no contingencies)

17. Decision Making So, what did we introduce to this decision making process? Uncertainty! So, how do we deal with uncertainty?

18. Decision Making Remember the brother-in-law in the basement? Did you change your decision? If you did, something else is at play Having someone take your brother-in-law has some value to you… And that value will bear on your decision …even if you can’t quantify that value (although, indirect you often can) Subjective Utility

19. Decision Making So how do we make decisions?

20. Decision Making Decision making for important real world problems is rarely neat and tidy, or simple We assume that we have perfect knowledge, but it is rarely true We often have multiple goals and objectives Sometime conflicting goals and objectives We often need to deal with uncertainty in our decisions Decisions are often made contrary to what the data, algorithms or experts suggest

21. Decision Making Subjective Utility Theory Decision makers make decisions to optimize the subjective utility of that decision’s outcome Subjective utility means the value of that outcome to the decision maker This may not be congruous with more objective outcome measures like cost or income This is why company president Smith picks the more expensive design A for the new headquarters building rather than the cheaper design B

22. Decision Making Subjective Utility Theory To the extent that we can operationalize the subjective utility of outcomes, … … the better are able to support the decision making process

23. Decision Making Please read – Decision Making and Problem Solving by Herbert A. Simon and Associates  http://dieoff.org/page163.htm http://dieoff.org/page163.htm Wikipedia article on Decision Making  http://en.wikipedia.org/wiki/Decision_making