IE 423 Design of Decision Support Systems

Decisions and Decision Making

Decision Support Systems

Let’s analyze what this term means

Decisions

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

choices

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

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

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

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

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

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…

Decision Making

Goal: maximize the amount of money you get for the old houseSuppose 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?

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

Decision Making

Now, what is your decision?What about this decision making process changed?

Decision MakingOK, 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?

Decision Making

Which do you choose?

Revenue

Tim

e o

n M

ark

et

High Low

Short A$200k1 week

B$150k1 week

Long C$200k

36 weeks

D$150k

36 weeks

Decision Making

Decision making is usually not about choosing between good and badThat would be too easy…but about competing goods or competing badsDecisions can be complicated by multiple goals

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)

Decision Making

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

Decision MakingRemember the brother-in-law in the basement?Did you change your decision?If you did, something else is at playHaving 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

Decision MakingSo how do we make decisions?

Decision MakingDecision making for important real world problems is rarely neat and tidy, or simpleWe assume that we have perfect knowledge, but it is rarely trueWe often have multiple goals and objectives Sometime conflicting goals and objectives

We often need to deal with uncertainty in our decisionsDecisions are often made contrary to what the data, algorithms or experts suggest

Decision MakingSubjective 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

Decision MakingSubjective Utility Theory To the extent that we can operationalize

the subjective utility of outcomes, … … the better are able to support the

decision making process

Decision Making

Please read – Decision Making and Problem

Solvingby Herbert A. Simon and

Associates http://dieoff.org/page163.htm

Wikipedia article on Decision Making http://en.wikipedia.org/wiki/

Decision_making