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4
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Duration
Duration
Duration
110 minutes
COURSE DISTRIBUTION
Core
Core
Elective
Open for Student
Category
Close for Student
Category
COURSE DESCRIPTION (BRIEF)
Decision Analysis is a branch of science that focuses on utilizing quantitative techniques for the purpose for making
sound managerial decisions under various forms of constraints (economic, temporal and behavioral). This course
exposes students to the concepts, methods and techniques of decision analysis to conceptualize real world managerial
problems, analyze them and find workable solutions. The course covers topics such as: decision trees, decision making
under uncertainty, value of information, risk analysis using Monte Carlo simulation, risk attitude, and multi-objective
decisions. A real world project and written case analyses provide avenues for practical learning.
COURSE DESCRIPTION (ELABORATE)
Major objectives of this course are:
(1) To understand basic concepts, methods and techniques of decision analysis;
(2) To develop capability to use quantitative techniques (in relation to decision analysis) for analyzing and solving real
world managerial problems;
(3) To have hands-on experience of developing spreadsheet models (using Microsoft Excel and an add-on software
namely Palisade Suite) for modeling and analyzing decisions;
Decision Analysis / Science is a branch of science that focuses on utilizing quantitative techniques for the purpose for
making sound managerial decisions under various forms of constraints (economic, temporal and behavioral) faced in the
real world problems. These problems may belong to an organziations functional areas such as finance, operations,
engineering, HRM and marketing functions etc. The problems may also be interdisciplinary in nature in which case
function or discipline specific techniques when applied to solving these problems may not necessarily result into
practical solutions. In such scenarios the techniques developed within the discipline of decision analysis may provide
broader frameworks and concepts that render practical solutions to such problems.
There are numerous examples in various disciplines where decision analysis concepts are needed for making sound
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decisions, for example in software engineering (e.g. decision about choosing one technology or process over the other),
legal decisions (e.g., understanding the effects of economic pressures on attributions of responsibility), risk assessments
(e.g., assessing risks of nuclear power or missile tests), marketing (e.g. launching specific product in a market) and
managerial decision making (e.g., correcting biases in the assessment of risk). The decision analysis concepts and
frameworks are equally applicable in problems belonging to many other disciplines as well.
Decision analysis relies heavily on decision theory which is concerned with identifying values of different alternatives,
uncertainties involved, their utilities, and other issues relevant to a given decision, its rationality, and the resulting
optimal decision. In order to exercise these concepts decision theory borrows some of the concepts from probability
theory.
In order to achieve aforementioned objectives two major steps have been taken while designing the course: (1) a number
of real world case studies are used in order to better comprehend applicability of decision analysis concepts and
techniques in real world problems. Extended class room discussions on case study analyses will be instrumental in
understanding key issues pertaining to application, managerial concerns, and assumptions around the technique while
focusing on the real world problem, (2) a number of lab sessions have been included in order to develop practical skills
of configuring and using spreadsheets for decision analysis.
COURSE PREREQUISITE(S)
(1) To expose students basic concepts, methods and techniques of decision analysis;
(2) To learn using quantitative techniques (in relation to decision analysis) for analyzing and solving real
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Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.
Program Learning Goals and
Objectives
Goal 1 Effective Written and Oral
Communication
Goal 2 Ethical Understanding and
Reasoning
Goal 3 Analytical Thinking and
Problem Solving Skills
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EXAMINATION DETAIL
Yes/No: Yes
Combine Separate: Combine
Midterm
Duration: 3 Hours in the Lab
Exam
Preferred Date:
Exam Specifications: Closed Books / Open Notes
Final Exam
Yes/No: Yes
Combine Separate: Combine
Duration: 4 Hours in the Lab
Exam Specifications: Closed Books / Open Notes
TEXTBOOK(S)/SUPPLEMENTARY READINGS
Following books are recommended for this course however, students are strongly encouraged to consult any other
resources such as: books, journals, magazines, sharing personal experiences to enhance their learning.
[AWZ]: Albright, S.C., Winston, W.L., and Zappe, C., 2006, Data Analysis & Decision Making With Microsoft Excel,
3e, Thomson, South-Western, ISBN: 0-324-40083-7.
[CLEMEN]: Clemen, R. T., 2001, Making Hard Decisions: An Introduction to Decision Analysis with Decision Tools,
Duxbury Press, Thomson Learning, ISBN: 0-534-36597-3.
[PB]: Powell, S.G., and Baker, K.R., 2009, Management Science The Art of Modeling with Spreadsheets, John Wiley
& Sons Inc., ISBN-13: 978-0-470-39376-5.
[ASW] Anderson, Sweeney & Williams, Statistics for Business and Economics.
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Session
Type
Topic
Assignment Questions
Session Objectives
INTRODUCTION
1.
2.
3.
Class
Session
Lab
Introduction
Readings:
(1) PB-Chapter-2: Modeling in a
Problem Solving Framework
(Sections 2.1, 2.2, 2.3, 2.4)
(2) Learning by the Case Method, by
Hammond, J.S. (HBS # 9-376-241)
Readings:
Using
Spreadsheet
(1) AWZ-Chapter-5: Probability and
for
Probability Distribution (Sections
Probability &
5.1, 5.2, 5.3, 5.4, 5.5, 5.6)
Probability
(2) AWZ-Chapter-6: Normal,
Distributions
Binomial, Poisson, and Exponential
Distributions (Sections 6.1, 6.2,
6.3, 6.7)
Decision analysis
and problemsolving.
Revision of
probability
distributions.
MODELING DECISIONS
4.
Class
Session
Influence
Diagram and
Payoff Table
5.
Class
Session
Decision
Trees
6.
Class
Session
Decision
Trees
Developing
Influence Diagrams
and Payoff Tables.
Developing and
analyzing decision
trees.
Developing and
analyzing decision
trees.
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7.
Class
Session
Sensitivity
Analysis
Reading: CLEMEN-Chapter-5:
Sensitivity Analysis pp174-192
8.
Class
Session
Sensitivity
Analysis
The role of
sensitivity analysis
in decision
modeling, analyzing
and making.
The role of
sensitivity analysis
in decision
modeling, analyzing
and making.
MODELING UNCERTAINTY
9.
Class
Session
DecisionMaking
under
Uncertainty
Making decisions in
probabilistic
situations.
10.
Lab
Using
Spreadsheet
for Decision
Trees
Making decision
trees using a
spreadsheet.
DecisionMaking
under
Uncertainty
11.
Class
Session
Making decisions in
probabilistic
situations.
MID-TERM EXAM
12.
Class
Session
Value of
Information
13.
Class
Session
Value of
Information
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14.
Lab
Spreadsheet
Modeling for
Decision
Making
under
Uncertainty
Simulation
Modeling
with
Spreadsheets
15.
16.
Lab
17.
Class
Session
Monte Carlo
Simulations
18.
Class
Session
Monte Carlo
Simulations
Reading: AWZ-Chapter-16:
Introduction to Simulation Modeling,
Sections 16.3, 16.4, 16.5, and 16.6.
information on the
decision.
Understanding RISK
as a package to
model decisions
using simulations.
Practicing
probabilistic
decisions using
spreadsheets.
Understanding
Monte Carlo
simulation method.
Applying Monte
Carlo Simulation
method in a real-life
business problem.
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19.
20.
Lab
Simulation
Modeling
with
Spreadsheets
Understanding RISK
as a package to
model decisions
using simulations.
MODELING PREFERENCES
21.
Class
Session
Risk Attitude
22.
Lab
Incorporating
Risk Attitude
23.
Class
Session
Risk Attitude
For questions 1 and 2 only, assume that Merck will follow the
advice of George W. Merck, We try never to forget that
medicine is for the people. It is not for the profits. The profits
follow, and if we have remembered that, they have never failed
to appear.
1. First, do a risk neutral analysis.
(a) Draw an influence diagram that captures the dynamics of the
KL-798 opportunity. (b) What is the expected monetary value of
the KL-798 opportunity? Be very clear about how your
spreadsheet works.
2. Now consider risk aversion in your analysis. What would be
the certainty equivalent for the total opportunity?
3. Assume that we ignore George W. Mercks advice and always
seek the financially best path. (a) Draw a decision tree of the
sequence of decisions and uncertainties and integrate it with the
influence diagram from question 1a. (b) What now is the
expected monetary value of KL-798? Clearly describe how you
arrived at this solution and provide information on how your
Understanding the
influence of
manager risk
attitude on
decisions.
Practicing risk
attitude using a
spreadsheet.
Understanding the
influence of
manager risk
attitude on
decisions.
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24.
Class
Session
25.
Class
Session
26.
Class
Session
27.
28.
Class
Session
Structuring
MultiObjective
Decisions
Additive
Utility
Function
Reading: CLEMEN-Chapter-15:
Conflicting Objectives I:
Fundamental Objectives and the
Additive Utility Function pp599-621.
Case: Sleepmore Mattress
Manufacturing; Plant Consolidation.
Multiattribute
Utility
Models
Reading: CLEMEN-Chapter-16:
Conflicting Objectives II: Multiattribute Utility Models with
Interactions pp644-659
FINAL EXAM
Understanding
multi-objective
decisions and
structuring them.
Additive utility
function as a method
of analyzing multiobjective decisions.
Multiplicative utility
function as a method
of analyzing multiobjective decisions.