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Chapter 3

# Chapter 3 - Chapter 3 Making Hard Decisions R T Clemen T...

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Making Hard Decisions R. T. Clemen, T. Reilly Chapter 3 – Structuring Decisions Lecture Notes by: J.R. van Dorp and T.A. Mazzuchi http://www.seas.gwu.edu/~dorpjr/ Slide 1 of 49 COPYRIGHT © 2006 by GWU Draft: Version 1 Structuring Decisions Chapter 3 Making Hard Decisions R. T. Clemen, T. Reilly

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Making Hard Decisions R. T. Clemen, T. Reilly Chapter 3 – Structuring Decisions Lecture Notes by: J.R. van Dorp and T.A. Mazzuchi http://www.seas.gwu.edu/~dorpjr/ Slide 2 of 49 COPYRIGHT © 2006 by GWU Draft: Version 1 Introduction How does one proceed structuring the DP? Suppose elements of Decision Problem (DP) are available, i.e.: Objectives that apply to the decision context Immediate decision and subsequent decision(s) Alternatives for each decision Uncertain elements (events) You know how to evaluate consequences STEP 1: Filter & Operationalize the Objectives Classify objectives as means or fundamental objectives Classify how to measure fundamental objectives
Making Hard Decisions R. T. Clemen, T. Reilly Chapter 3 – Structuring Decisions Lecture Notes by: J.R. van Dorp and T.A. Mazzuchi http://www.seas.gwu.edu/~dorpjr/ Slide 3 of 49 COPYRIGHT © 2006 by GWU Draft: Version 1 Introduction STEP 2: Structure the elements in a logical framework Structure Logic and time sequence between decisions Structure Logic (dependence) between the uncertain events Structure time sequence of uncertain events related to the sequence of decisions Represent Logic by using Influence Diagrams or Decision Trees STEP 3: Fill in the Details, e.g.; Give precise (unambiguous) definitions of decisions & uncertain events Specify probability distributions for the uncertain events through a combination of data analysis & expert judgment. Specify precisely (unambiguous) how consequences are measured and formalize trade off between objectives.

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Making Hard Decisions R. T. Clemen, T. Reilly Chapter 3 – Structuring Decisions Lecture Notes by: J.R. van Dorp and T.A. Mazzuchi http://www.seas.gwu.edu/~dorpjr/ Slide 4 of 49 COPYRIGHT © 2006 by GWU Draft: Version 1 Introduction Comment with Respect to STEP 1: Identifying objectives is Creative Process 1. Develop a wish list. What do you want? What should you want? 2. Identify alternatives. What is the perfect alternative, a terrible alternative, some reasonable alternatives, what is good or bad about each? 3. Consider problems and shortcomings. What is wrong or right with your organization? What needs fixing? 4. Predict consequences. What has occurred that was good or bad? What might occur that you care about? 5. Identify goals, constraints, and guidelines. What are your aspirations? What limitations are placed on you? 6. Consider different perspectives. What would your competitor or constituency be concerned about? At some time in the future, what would concern you?
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