Decision analysis (Part I)
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Decision analysis is a Quantitative framework aiming at optimization of the resulting payoff in terms of a decision criterion.
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Decision analysis (Part I)
- 1. Core Purpose: To Enable Organisations Become Happier Decision Analysis 4th November 2013
- 2. Training | Mentoring | Data Analytics | Execution | Deployment What is Decision Analysis? • A quantitative framework for making decisions • Selection of a decision from a set of possible decision alternatives when uncertainties regarding the future exist • Goal is to optimize the resulting payoff in terms of a decision criterion
- 3. Training | Mentoring | Data Analytics | Execution | Deployment Decision Models • Deterministic models • Probabilistic models • Decision-making under pure uncertainty • Maxmin • Maxmax • Minmax • Decision-making under risk • Expected value criterion • Expected value of perfect information • Bayesian analysis
- 4. Training | Mentoring | Data Analytics | Execution | Deployment Case Study States of nature >1000 points 300-1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Alternatives Bonds 9% 7% 6% 0% -1% Stocks 17% 9% 5% -3% -10% Fixed deposit 7% 7% 7% 7% 7%
- 5. Training | Mentoring | Data Analytics | Execution | Deployment MaxMin Pessimistic approach based on worst case scenario 1. Write min for each row 2. Choose max of the above States of nature >1000 points 300- 1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Min Alternatives Bonds 9% 7% 6% 0% -1% -4% Stocks 17% 9% 5% -3% -10% -10% Fixed deposit 7% 7% 7% 7% 7% 7%
- 6. Training | Mentoring | Data Analytics | Execution | Deployment MaxMax Pessimistic approach based on worst case scenario 1. Write max for each row 2. Choose max of the above States of nature >1000 points 300- 1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Max Alternatives Bonds 9% 7% 6% 0% -1% 9% Stocks 17% 9% 5% -3% -10% 17% Fixed deposit 7% 7% 7% 7% 7% 7%
- 7. Training | Mentoring | Data Analytics | Execution | Deployment MinMax Pessimistic approach to minimize regret or opportunity loss 1. Take the largest number in each coloumn 2. Subtract all the numbers in the coloumn from it 3. Choose maximum number for each option 4. Choose minimum number from step 3
- 8. Training | Mentoring | Data Analytics | Execution | Deployment Case Study States of nature >1000 points 300-1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Alternatives Bonds 9% 7% 6% 0% -1% Stocks 17% 9% 5% -3% -10% Fixed deposit 7% 7% 7% 7% 7%
- 9. Training | Mentoring | Data Analytics | Execution | Deployment Regret Matrix States of nature >1000 points 300-1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Alternatives Bonds (17%-9%) (9%-7%) (7%-6%) (7%-0%) (7%+1%) Stocks (17%-17%) (9%-9%) (7%-5%) (7%+3%) (7%+10%) Fixed deposit (17%-7%) (9%-7%) (7%-7%) (7%-7%) (7%-7%)
- 10. Training | Mentoring | Data Analytics | Execution | Deployment Regret Matrix States of nature >1000 points 300-1000 +/-300 -300 to - 1000 <-1000 points Large rise Small rise No change Small fall Large fall Max Alternatives Bonds 8% 2% 1% 7% 8% 8% Stocks 0% 0% 2% 10% 17% 17% Fixed deposit 10% 2% 0% 0% 0% 10%
- 11. Training | Mentoring | Data Analytics | Execution | Deployment Applications • Project solution selection • Make or buy decisions
- 12. Training | Mentoring | Data Analytics | Execution | Deployment References • University of Baltimore: http://home.ubalt.edu/ntsbarsh/opre640a/partIX.htm • John Wiley & Sons
- 13. Training | Mentoring | Data Analytics | Execution | Deployment Thanks!!!