Decision analysis is a methodology that uses quantitative data and visual tools to determine which option represents the best possible outcome.
Part of the decision analysis process requires examining potential uncertainties surrounding a decision. Organizations may need to conduct research or other analysis to determine the probabilities of different outcomes. You can assess your decision based on the likelihood of its success and its ensuing potential value—or the likelihood of its failure and the corresponding potential loss.
Analysts often recommend a step by step process in order to more effectively carry out decision analysis. Perhaps the most important step is to identify the problem.
Once you identify the issue, think about the options or solutions available to you. For example, say you received a large sum of money and want to invest it. You may have several investment options to choose from and performing a decision analysis can help you choose the one that best suits your needs.
Those options then need to be researched. This information is important because it provides data organizations can use when developing a decision model and measuring the options’ outcomes. Options should be explored from different perspectives, such as:
- Associated costs
- Odds of success
Ultimately, the decision analysis process comes down to finding the expected values of your options. The expected value represents the average outcome of each decision. To complete this step, you must assign monetary or numerical values to each outcome and determine the probability of each.
Generally, the expected value is found by multiplying the outcome value of each option by its probability. This step provides you the partial value of each outcome. You then need to add up the partial values, and the result represents your expected value.
Organizations assess these values against their framework to determine which option best meets a company’s needs.
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.