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Handbook of Decision Analysis

by Gregory S. Parnell PhD, Terry Bresnick MBA, Steven N. Tani PhD, Eric R. Johnson PhD

March 2013

Intermediate to advanced

432 pages

12h 33m

English

Wiley

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This Handbook Is TimelyDecision Professionals: The Practitioner PerspectiveOur ProfessionThe Biggest Challenge
Special AcknowledgmentsIndividual AcknowledgmentsChapter AcknowledgmentsHandbook Chapter Reviewers

1.1 Introduction1.2 Decision Analysis Is a Socio-Technical Process1.3 Decision Analysis Applications1.4 Decision Analysis Practitioners and Professionals1.5 Handbook Overview and Illustrative Examples1.6 SummaryKEY TERMS
2.1 Introduction2.2 Human Decision Making2.3 Decision-Making Challenges2.4 Organizational Decision Processes2.5 Credible Problem Domain Knowledge2.6 Behavioral Decision Analysis Insights2.7 Two Anecdotes: Long-Term Success and a Temporary Success of Supporting the Human Decision-Making Process2.8 Setting the Human Decision-Making Context for the Illustrative Example Problems2.9 SummaryKEY TERMS
3.1 Introduction3.2 Brief History of the Foundations of Decision Analysis3.3 Five Rules: Theoretical Foundation of Decision Analysis3.4 Scope of Decision Analysis3.5 Taxonomy of Decision Analysis Practice3.6 Value-Focused Thinking3.7 SummaryKEY TERMSACKNOWLEDGMENTS
4.1 Introduction4.2 Thinking Strategically4.3 Leading Decision Analysis Teams4.4 Managing Decision Analysis Projects4.5 Researching4.6 Interviewing Individuals4.7 Conducting Surveys4.8 Facilitating Groups4.9 Aggregating across Experts4.10 Communicating Analysis Insights4.11 SummaryKEY TERMS
5.1 Introduction5.2 What Is a Good Decision?5.3 Selecting the Appropriate Decision Process5.4 Decision Processes in Illustrative Examples5.5 Organizational Decision Quality5.6 Decision Maker’s Bill of Rights5.7 SummaryKEY TERMS
6.1 Introduction6.2 Declaring a Decision6.3 What Is a Good Decision Frame?6.4 Achieving a Good Decision Frame6.5 Framing the Decision Opportunities for the Illustrative Examples6.6 SummaryKEY TERMS
7.1 Introduction7.2 Shareholder and Stakeholder Value7.3 Challenges in Identifying Objectives7.4 Identifying the Decision Objectives7.5 The Financial or Cost Objective7.6 Developing Value Measures7.7 Structuring Multiple Objectives7.8 Illustrative Examples7.9 SummaryKEY TERMS
8.1 Introduction8.2 Characteristics of a Good Set of Alternatives8.3 Obstacles to Creating a Good Set of Alternatives8.4 The Expansive Phase of Creating Alternatives8.5 The Reductive Phase of Creating Alternatives8.6 Improving the Set of Alternatives8.7 Illustrative Examples8.8 SummaryKEY WORDS
9.1 Introduction9.2 Planning the Model: Influence Diagrams9.3 Spreadsheet Software as the Modeling Platform9.4 Guidelines for Building a Spreadsheet Decision Model9.5 Organization of a Spreadsheet Decision Model9.6 Spreadsheet Model for the RNAS Illustrative Example9.7 Debugging the Model9.8 Deterministic Analysis9.9 Deterministic Modeling Using Monetary Multidimensional Value Functions (Approach 1B)9.10 Deterministic Modeling Using Nonmonetary Multidimensional Value Functions (Approach 1A)9.11 Illustrative Examples9.12 SummaryKEY TERMS
10.1 Introduction10.2 Structure the Problem in an Influence Diagram10.3 Elicit and Document Assessments10.4 Illustrative Examples10.5 SummaryKEY TERMS
11.1 Introduction11.2 Exploration of Uncertainty: Decision Trees and Simulation11.3 The Value Dialogue11.4 Risk Attitude11.5 Illustrative Examples11.6 SummaryKEY TERMS
12.1 Introduction to Portfolio Decision Analysis12.2 Socio-Technical Challenges with Portfolio Decision Analysis12.3 Single Objective Portfolio Analysis with Resource Constraints12.4 Multiobjective Portfolio Analysis with Resource Constraints12.5 SummaryKEY TERMS
13.1 Introduction13.2 Determining Communication Objectives13.3 Communicating with Senior Leaders13.4 Communicating Decision Analysis Results13.5 Communicating Insights in the Illustrative Examples13.6 SummaryKEY TERMS
14.1 Introduction14.2 Barriers to Involving Decision Implementers14.3 Involving Decision Implementers in the Decision Process14.4 Using Decision Analysis for Decision and Strategy Implementation14.5 Illustrative Examples14.6 SummaryKEY TERM
15.1 Overview15.2 Decision Analysis Helps Answer Important Decision-Making Questions15.3 The Purpose of Decision Analysis Is to Create Value for Shareholders and Stakeholders15.4 Decision Analysis Is a Socio-Technical Process15.5 Decision Analysts Need Decision-Making Knowledge and Soft Skills15.6 The Decision Analysis Process Must Be Tailored to the Decision and the Organization15.7 Decision Analysis Offers Powerful Analytic Tools to Support Decision Making15.8 Conclusion
A.1 IntroductionA.2 Distinctions and the Clarity TestA.3 Possibility Tree Representation of a DistinctionA.4 Probability as an Expression of Degree of BeliefA.5 Inferential NotationA.6 Multiple DistinctionsA.7 Joint, Conditional, and Marginal ProbabilitiesA.8 Calculating Joint ProbabilitiesA.9 Dependent and Independent ProbabilitiesA.10 Reversing Conditional Probabilities: Bayes’ RuleA.11 Probability DistributionsA.12 Combining Uncertain Quantities
B.1 IntroductionB.2 Influence Diagram ElementsB.3 Influence Diagram RulesB.4 SUMMARY
C.1 IntroductionC.2 Conference Process and FormatC.3 Location, Facilities, and EquipmentC.4 Use of Group ProcessesC.5 Advantages and DisadvantagesC.6 Best PracticesC.7 SUMMARYKEY TERMS

Content preview from Handbook of Decision Analysis

CHAPTER TWELVE

Portfolio Resource Allocation

TERRY A. BRESNICK, ERIC R. JOHNSON, and GREGORY S. PARNELL

Good portfolio decisions begin with a conducive culture, effective behaviors, a decision quality framework, and a good process

—Michael Menke

12.1 Introduction to Portfolio Decision Analysis

12.2 Socio-Technical Challenges with Portfolio Decision Analysis

12.3 Single Objective Portfolio Analysis with Resource Constraints

12.3.1 Characteristics of Portfolio Optimization

12.3.2 Greedy Algorithm Using Profitability Index and the Efficient Frontier

12.3.3 Application to Roughneck North American Strategy Portfolio

12.3.4 Portfolio Risk Management

12.3.5 Trading off Financial Goals with Other Strategic Goals

12.4 Multiobjective Portfolio Analysis with Resource Constraints

12.4.1 Characteristics of Incremental Benefit/Cost Portfolio Analysis

12.4.2 Algorithm for Incremental Benefit/Cost Portfolio Analysis

12.4.3 Application to the Data Center Portfolio

12.4.4 Comparison with Portfolio Optimization

12.4.5 Strengths and Weaknesses of Incremental Benefit/Cost Portfolio Analysis

12.5 Summary

Key Terms

References

12.1 Introduction to Portfolio Decision Analysis

In earlier chapters, we show how to use decision analysis to select the best single choice from a set of well-defined alternatives. But in many cases, the goal is not to select the single best alternative, but rather, to select the combination, or portfolio of alternatives that best meets the articulated goals of the leadership. Many ...