Decision Cap - Decision Analysis Decision tree Decision...

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1 Decision Analysis Decision tree Decision criteria Expected monetary value (EMV) Expected value of perfect information (EVPI) Sensitivity analysis
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2 The Decision Process Specify objectives and the criteria for making a choice Develop alternatives Analyze and compare alternatives Select the best alternative Implement the chosen alternative Monitor the results
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3 Causes of Poor Decisions Bounded Rationality The limitations on decision making caused by costs, human abilities, time, technology, and availability of information
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4 Causes of Poor Decisions Sub-optimization The result of different departments each attempting to reach a solution that is optimum for that department
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5 Decision Environments Certainty - Environment in which relevant parameters have known values Risk - Environment in which certain future events have probable outcomes Uncertainty - Environment in which it is impossible to assess the likelihood of various future events
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6 Decision Theory Decision Theory represents a general approach to decision making which is suitable for a wide range of operations management decisions, including: capacity planning product and service design equipment selection location planning
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7 Decision Theory Elements A set of possible future conditions that will have a bearing on the results of the decision A list of alternatives for the manager to choose from A known payoff for each alternative under each possible future condition
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8 Decision Theory Process Identify possible future conditions called
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