Decision Analysis for Management Judgment, 6th Edition

14Resource allocation and negotiation problems

Introduction

In this chapter we will demonstrate how decision-analysis models can be applied to two types of problem: how best to allocate limited resources between alternative uses and how to achieve a satisfactory outcome in negotiations. Both of these usually involve groups of decision-makers. For example, a group of product managers may have to decide on how next year’s advertising budget should be divided between the products for which they are responsible. Similarly, a local police force might have to determine how its available personnel should be allocated between tasks such as crime prevention, traffic policing, and the investigation of serious and petty crimes. Negotiation problems involving two parties often involve a number of issues. For example, in industrial relations disputes, negotiations may involve such issues as pay, holidays, and the length of the working day. In these circumstances, decision analysis can be used to help the parties attain a mutually beneficial settlement. Both of these applications rely on the concepts of multi-attribute value analysis, which are covered in Chapter 3.

Modeling resource-allocation problems

The central purpose of resource-allocation models in decision analysis is to resolve what is known as the commons dilemma.^1–4 On the one hand, an organization can decentralize its decision-making, allowing each manager to make the best use of the resources which he or she is allocated. ...