Hands-On Prescriptive Analytics

Part IV. Stochastic Prescriptive Analytic Methods

In this fourth part, I will present methods for stochastic Prescriptive Analytics. The major one is simulations. This enables or aids the development of the decision-making menu. In typical expositions of selecting an optimal menu option, such as capital investment projects in OR and economics textbooks, the projects are just there, with no indication of where they came from. In addition, in those expositions, probabilities are assigned to different possible paths to an outcome, but, like the projects, there is no indication of where the probabilities came from; they are also just there. Yet these probabilities cannot be ignored because they are vital for expected value calculations.

In real-world problems, however, both the menu options and the probabilities must be developed. I acknowledge that, in some instances, a chief decision-maker, perhaps the CEO for strategic scale-views, may just state what they are without any discussion or consultation with others. I conjecture, however, that this is probably rare.

This fourth part is concerned with developing the two critical parts of a decision menu: the menu options and the probability distribution for the paths leading to the expected value calculations. This part is more extensive, with five chapters:

• Chapter 7, “Simulation Essentials”
• Chapter 8, “Simulation Examples”
• Chapter 9, “Developing Menu Options”
• Chapter 10, “Developing Menu Priors”
• Chapter 11, “One-Time Decisions”