Business Statistics: For Contemporary Decision Making, 7th Edition

CHAPTER 19

Decision Analysis

LEARNING OBJECTIVES

This chapter describes how to use decision analysis to improve management decisions, thereby enabling you to:

1. Make decisions under certainty by constructing a decision table.
2. Make decisions under uncertainty using the maximax criterion, the maximin criterion, the Hurwicz criterion, and minimax regret.
3. Make decisions under risk by constructing decision trees, calculating expected monetary value and expected value of perfect information, and analyzing utility.
4. Revise probabilities in light of sample information by using Bayesian analysis and calculating the expected value of sample information.

Decision Making at the CEO Level

CEOs face major challenges in today's business world. As the international marketplace evolves, competition increases in many cases. Technology is improving products and process. The political and economic climates both internationally and domestically shift constantly. In the midst of such dynamics, CEOs make decisions about investments, products, resources, suppliers, financing, and many other items. Decision making may be the most important function of management. Successful companies are usually built around successful decisions. Even CEOs of successful companies feel the need to constantly improve the company's position.

In 1994, Ford Motor Company posted a record profit of more than $4 billion with five ...