Steps in Decision Process

By Dr Owu Adeboye | 25 Jan 2009

1) Define the problem and the factors which influence it:
- Identify the problem, not just the symptoms
- Identify those factors, both controllable and uncontrollable, which influence your perception of the problem and your ability to affect a solution

2) Establish goals and decision criteria:
- Know what it is you intend or need to accomplish
- Develop criteria which, when satisfied, will indicate that you have reached your goal
(c) Formulate a model of the relationship between the goals/decision criteria and the variables:

3) Formulate a model (mathematical, graphical, verbal, logical, or physical), which describes the relationship between the variables which you can control and those included in your decision criteria
- Use this model to study and increase your understanding of this relationship

4) Identify and evaluate alternatives:
- Identify possible solutions to the problem
- Use the model to evaluate the efficacy of each of the possible solutions

5) Select the best alternative:
- Based upon the selected decision criteria, select the “best” solution

6) Implement the decision:
- Implement the selected solution
One should also consider adding a seventh step to this process:

7) Evaluate the outcome:
- Ask questions such as:
“Does the solution really solve the problem?”
“Has my view of the problem changed during the process?”
“What could I have done to make my problem solving process more efficient or effective?”

Notes
The basic purpose of a model should be to aid the user in expanding his or her understanding of the problem which the model is intended to represent. The purpose should never be thought of as “to make a decision.” While the appropriateness of a particular model is usually determined by the problem to be solved, operations managers tend most often to use mathematical or iconic models.
A “good” decision is one which is based upon logic and all available information and resources. A “bad” decision is one which is not based upon logic and all available information and resources. It is possible for an unfortunate or undesired outcome to result from a “good” decision. It is also possible to have a favorable or desirable outcome result from a “bad” decision.

An alternative is a course of action over which we have control. A state of nature is an event or occurrence over which we have no control. An example of a choice between alternatives is our decision as to whether or not to carry an umbrella to work today. The relevant state of nature is whether or not it will rain.

The basic difference between decision-making under certainty, risk, or uncertainty is based upon the nature and amount of chance or risk that is involved in making the decision. Decision-making under certainty assumes that we know with complete confidence the outcomes that result from our choice of each alternative. Decision-making under risk implies that we do not know the specific outcome that will result from our choice of a particular alternative, but that we do know the set of possible outcomes, and that we are able to objectively measure or estimate the probability of occurrence of each of the outcomes in the set. Decision-making under uncertainty implies that we do not know the specific outcome that will result from our choice of a particular alternative; we know only the set of possible outcomes and are unable to objectively measure or estimate the probability of occurrence of any of the outcomes in the set.

EMV is defined as the expected monetary value. The EMV is the expected or average return that we would realize if we were to repeat the decision an infinite number of times.
EV|PI is defined as the expected value given perfect information. EV|PI is the expected or average return that we would realize if we were to repeat the decision an infinite number of times, each time having “perfect” or complete information and making the “best” possible decision based upon that information. EVPI is defined as the expected value of perfect information. EVPI is equal to the difference between EMV (the expected or average return given that we were to make the decision based upon current or available information) and EV|PI, and is the maximum amount we would be willing to pay for additional (perhaps, perfect) information.

Determination of EVPI is useful any time the decision-maker has the option of expending additional resources to acquire additional information, and making the decision using currently available information.

Techniques used to make decisions under uncertainty include those based upon the following criteria: maximax, maximin, equally likely (LaPlace), coefficient of realism, coefficient of optimism, and minimax criteria. Maximax is an optimistic decision-making criterion, while the maximin is a pessimistic decision-making criterion.