Quantitative Analysis for Management, 13/e

3.1 The Six Steps in Decision Making

Whether you are deciding about getting a haircut today, building a multimillion-dollar plant, or buying a new camera, the steps in making a good decision are basically the same:

Six Steps in Decision Making

1. Clearly define the problem at hand.

2. List the possible alternatives.

3. Identify the possible outcomes or states of nature.

4. List the payoff (typically profit) of each combination of alternatives and outcomes.

5. Select one of the mathematical decision theory models.

6. Apply the model and make your decision.

The first step is to define the problem.

We use the Thompson Lumber Company case as an example to illustrate these decision theory steps. John Thompson is the founder and president of Thompson Lumber Company, ...