WHAT IS DECISION ANALYSIS?

The area of decision analysis

Decision analysis is the science of better decision-making. Researchers in the area aim to develop and apply logical methods to improve the quality of complex decisions in public and private enterprises. Complex decisions in this context refer to ill-structured situations possessing multiple (usually competing) objectives and risk regarding outcomes. Decision analytic methods include models for decisions with uncertainty and/or multiple objectives; techniques of risk analysis; descriptive studies of decision processes, the analysis of competitive and strategic decisions/negotiations and techniques for facilitating group decisions. Usually (simple) quantitative models are used to create qualitative insights into complex decision situations. Model-based methods usually serve both decision-makers in public organisations and in the private sector.

Decision analysis for public policy decisions

Decision analysis can provide public policy makers with an analytical framework to manage complex multi-stakeholder decisions. Methodologies in the area are usually used to develop coherent objectives, generate and evaluate alternatives, assess risks and reach a consensus on a preferred course of action. Public policy makers benefit from improved management and analysis of complex decisions, enabling them to use public resources optimally. In addition, the methodologies can be used to engage internal and external key-stakeholders creating commitment to action and resolving intra-team differences. Thirdly, decision-analytic methodologies serve to communicate decisions and decision processes transparently to tax-payers.

Decision analytic approaches have been applied in the public sector in the following areas (amongst others):

Project appraisal (e.g. project funding at public health institutes, Hall et al. 1992)
Resource allocation (e.g. prioritisation models for National Health Service, UK Ministry of Defence, Royal Navy and UK Department of Trade and Industry, Catalyse, 2006)
Budgeting & planning (e.g. strategic town planning, Bana e Costa et al. 2001; nuclear emergency management, Hämäläinen et al. 2000)
Site selection (e.g. disposal of nuclear weapons, Dyer et al. 1998 & Perdue and Kumar, 1999)
Technology choice (e.g. management of nuclear waste, Keeney and von Winterfeldt, 1994; evaluation of energy policies, Jones et al. 1990)
Strategy (e.g. strategic policy evaluation for national health insurance, Reagan-Cirincione et al. 1991 & Quaddus et al. 1992; evaluation of climate change policies, Keeney and McDaniels, 2001)
International negotiations (e.g. international oil tanker standards negotiation, Ulvila and Snider, 1980; panama canal negotiations, Barclay and Peterson, 1976; US armed services base-rights negotiations, Ulvila, 1990)

Decision-analytic methodologies have, up to now, been used in many public organisations, especially in the UK and the US, such as:

UK National Health Service, UK Ministry of Defense, Royal Navy, UK Department of Trade and Industry, The Environment Agency (UK), U.S. Department of Energy, New York State Insurance Department, New York Power Authority, U.S. National Cancer Institute, U.S. Department of Transportation, U.S. Environmental Protection Agency, U.S. Coast Guard

Sources: Corner and Kirkwood, 1991; Keefer, Kirkwood et al., 2004; Catalyze, 2006

See Bibliography for the relevant literature.

Decision analysis for the private sector

Decision analysis provides corporate decision-makers with an analytical framework to manage complex multi-stakeholder decisions. Methodologies in the area are usually used to develop coherent objectives, generate and evaluate alternatives, optimise portfolios, assess risks and reach mutual agreements to a preferred course of action. Decision analysis thereby holds a number of benefits for decision-makers in the private sector. These may be classified into three broad areas:

Improving decision outcomes, by analysing corporate spending consistently and transparently according to best value-for-money allocations
Improving decision processes, by combining the operational knowledge of middle management with the strategic knowledge of top-level executives
Improvements in the implementation of decisions, by engaging major stakeholders in a transparent decision process, thereby creating ‘ownership’ of the decision by the stakeholders and thus greater commitment to the implementation of the proposed decisions.

Decision analytic approaches have been used in the private sector in the following areas (amongst others):

Product planning & development (e.g. product development strategy at Amgen, Beccue, 2001; evaluation of customer acquisition at American Express, Keeney, 2000)
Bidding (e.g. screening of bidding logistic subcontractors in the coal industry, Bell, 1984)
Finance (e.g. operation risk management at a major bank, Engemann and Miller, 1992)
Project appraisal (e.g. analysis of oil and gas investments, Smith and McCardle, 1999; selection of R&D projects, Perdue et al., 1999)
Resource allocation (e.g. strategic marketing budgeting, MARA, 2006); R&D planning, Burnett et al. 1993; analysing R&D portfolios, Rzasa et al. 1990, best-value-for money allocation in defence industries, Catalyze, 2006)
Strategy (e.g. integration of external environment in strategic planning, Matheson and Matheson, 1999; framework for future resource planning, Keeney and McDaniels, 1999; choosing value-creating strategies, Bodily and Allen, 1999)
Technology choice (e.g. analysis of hazardous waste remediation alternatives, Toland et al., 1998)

Decision-analytic methodologies have so far been applied to various areas and various industries. Firms that have used these methodologies include among others Amgen, Eastman Kodak, New York Power Authority, British Columbia Hydro, Ford Microelectronics, Philipps Petroleum, and Amoco. During MARA 2005, decision-analytic models were developed in conjunction with BASF, Schering, Siemens and Volkswagen (www.projectmara.com)

See Bibliography for the relevant literature.

More information about the area can be found on the homepage of the Decision Analysis Society of INFORMS faculty.fuqua.duke.edu/daweb.