Decision Analysis (DA) is a form of decision-making that involves identifying and assessing all aspects of a decision, and taking actions based on the decision that produces the most favorable outcome.
The goal of decision analysis is to ensure that decisions are made with all the relevant information and options available. As a form of decision-making, the fundamentals of decision analysis can be used to solve a multitude of problems, from complex business issues to simple everyday problems.
Corporations are especially focused on the principles of DA. This approach is often used to evaluate and model the potential outcomes of various decisions to determine the correct course of action. To be effective, the business needs to understand multiple aspects of a problem to result in a well-informed decision.
The analysis entails understanding various goals, outcomes, and uncertainties involved, including the use of probabilities to measure the expected outcome of various decisions.
Experts in this area believe that framing should be the first part of DA. Correct framing of a problem allows for further analysis. Framing generally involves creating a framework to evaluate the problem from multiple perspectives. They can include opportunity statements, action items, and measures of success.
Once the framework is established, a model can be developed to evaluate the favorability of various outcomes.
One popular DA model is the decision tree, a tool which can clarify for management, the choices, risks, objectives, monetary gains, and information needs involved in an investment problem.
Decision trees are tree-shaped models with “branches” that represent potential outcomes.
Decision trees are used because they are simple to understand and provide valuable insight into a problem by providing the outcomes, alternatives, and probabilities of various decisions. This makes it easy to evaluate which decision results in the most favorable outcome.
By using a decision tree, the alternative solutions and possible choices are illustrated graphically as a result of which it becomes easier to make a well-informed choice.
The tree is often made up of a series of nodes and branches. Each branch represents an alternative course of action or decision. At the end of each branch or alternative course is often another node representing a chance event.
Each subsequent alternative course represents an alternative outcome of this chance event. Associated with each complete alternative course through the tree is a payoff, shown at the end of the terminal branch of the course.
Want to learn more? Tonex offers Decision Analysis Training Workshop, a 3-day course designed for professionals in engineering, business, innovative technology, defense and aerospace, medicine and other fields. Decision analysis is a powerful way to think through and analyze decision problems involving uncertainty, complexity and time.
Participants will learn about decision analysis and how it can help when it comes to a tough decision by structuring the problem in terms of alternatives, information and preferences.
For more information, questions, comments, contact us.