The Evolution of The Evolution of Decision AnalysisDecision Analysis

By

Ali AbbasAli Abbasaliabbas@stanford.edu

Lecturer

Department of Management Science and Engineering

Stanford University

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Presentation ContentsPresentation Contents

1. History of Decision Analysis

2. Applications from practice

3. The Decision Education Foundation

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Decision Analysis: Applied Decision Decision Analysis: Applied Decision Theory, 1966Theory, 1966

•In 1966, Ronald Howard coined the term “decision analysis” as a formal procedure for the analysis of decision problems.

•Early structure of the Decision Analysis Cycle.

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How did it start?How did it start?•Doctoral work in Markov decision processes (Policy Iteration).

•Met Myron Tribus at MIT and was introduced to the probabilistic traditions of Laplace, Jeffreys, Cox, and Jaynes.

•Invited by Bill Linvill to become a Visiting Professor at Stanford for 1964-1965.

•Invited to present a course on Markov Decision Processes at the General Electric nuclear power division in San Jose in 1965.

•After a few sessions, an engineer in the course, Howard Cook, asked if he could apply these concepts to an actual decision problem.

•The decision was whether a super heater should be added to their current power reactor.

•Ron replied, “Why not?”

•

Ronald HowardRonald Howard

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Stanford Research Institute (SRI) Stanford Research Institute (SRI) Decision Analysis GroupDecision Analysis Group

• Established 1966

• Joint program with Stanford University - Engineering Economic System Department

• Many of the early practitioners did “internships” with this group and/ or joined it as permanent staff.

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In 1968 the SRI group wrote two In 1968 the SRI group wrote two publications that were best sellers at the publications that were best sellers at the time.time.

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In In 1966,1966, Ron wrote a paper: Ron wrote a paper: Information Value TheoryInformation Value Theory•This enabled calculation of the “Value of Perfect Information” and “Value of Imperfect Information” as well as the value of testing.

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Special Issue: IEEE Transactions Special Issue: IEEE Transactions Systems Science and Cybernetics, 1968Systems Science and Cybernetics, 1968

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In 1968, in a conversation at Harvard, Ron In 1968, in a conversation at Harvard, Ron convinced Howard Raiffa that Decision convinced Howard Raiffa that Decision Analysis is the right name for the field.Analysis is the right name for the field.

*Some of Howard Raiffa’s Contributions:

Statistical Decision Theory Conjugate Prior Distributions Multiattribute Utility

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In 1968, in a conversation at Harvard, Ron In 1968, in a conversation at Harvard, Ron convinced Howard Raiffa that Decision convinced Howard Raiffa that Decision Analysis is the right name for the field.Analysis is the right name for the field.

*Some of Howard Raiffa’s Contributions:

Statistical Decision Theory Conjugate Prior Distributions Multiattribute Utility

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By 1976 research contracts led to By 1976 research contracts led to envisioning of automated aids, including envisioning of automated aids, including influence (decision) diagrams.influence (decision) diagrams.

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Decision NodeUncertainty Node

Deterministic Node Value Node

F(x,y)

x y

Decision diagrams are graphical representationsDecision diagrams are graphical representationsof decision situations. They contain..of decision situations. They contain..

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The original influence diagram dealt with The original influence diagram dealt with unrest in the mid-east – still a current unrest in the mid-east – still a current problem.problem.

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Here is that initial diagramHere is that initial diagram(Signal flow graph of uncertainty)(Signal flow graph of uncertainty)

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Other notable early applications.Other notable early applications.

• New Drug Product Development

• Mars Contamination from Earth

• Earth Contamination from Mars

• Mine Opening Decision

• Petrochemical Plant Investment

• Exxon R&D Portfolios

• Hurricane Seeding

• Forest Fires

• Synthetic Fuels

• Nuclear Reprocessing

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Decision Analysis SpreadDecision Analysis Spread

• Spin off of several individual to Decision Focus Inc (DFI)

• Another spin off to Applied Decision Analysis (ADA)

• Key figures founded Strategic Decisions Group (SDG) in 1981– Ronald Howard, Jim Matheson, Carl Spetzler, Jeff Foran & others– Many tools and applications developed in practice.

• 40 Students conducted research and graduated with PhD’s at the Stanford Decision Analysis program.

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Classification of Decision ProblemsClassification of Decision Problems

•Organizational Complexity• Many parties in conflict• Individual and organizational

differences– Values, desires, and

motivation– Initial convictions– Fundamentally different

frames– Personalities and

competencies– Degrees of power and

resources• Group dynamics—human

nature in groups Analytical Complexity• Uncertainty• Dynamics• Many interrelated factors• Many alternatives• Multiple, interrelated decision criteria

High

Low

Low High

FacilitativeLeadership

DecideNow

TraditionalDecisionAnalysis

Dialogue Decision Process(DDP)

Source: Strategic Decisions Group

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Dialogue Decision Process developed at Dialogue Decision Process developed at SRI in the late 1970s:SRI in the late 1970s:

Frame EvaluatedAlternativesAlternatives Plan

Recog-nize

Situation

ApproveFrame

ApproveAlternatives

ApprovePlan

DevelopAlternatives

AssessSituation

EvaluateAlternatives

Plan forImplementation

MakeDecision

DecisionBoard

ProjectTeam

Dialogue Decision Process

Getting the decision makers involvedGetting the decision makers involvedSource: Strategic Decisions Group

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ApplicationsApplications

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In 1988, General Motors decided to design In 1988, General Motors decided to design an all new, fifth-generation Corvette.an all new, fifth-generation Corvette.

Corvette logo goes here

Source : SDG

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Three norms were used because the Three norms were used because the decisions were both organizationally and decisions were both organizationally and analytically complex.analytically complex.

1. Use a common decision process, teach people how to use it, and then continuously improve it.

2. Involve the right people in a decision dialogue.

3. Use powerful tools to improve communication, creativity, and analysis.

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““An almost perfect car,” says Automobile An almost perfect car,” says Automobile magazine editor. “A big boy’s toy that magazine editor. “A big boy’s toy that First Wives’ club may co-opt.”First Wives’ club may co-opt.”

Time, April 14, 1997

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In March, 2000, the Society of Automotive In March, 2000, the Society of Automotive Engineers selected the C5 Corvette “the Engineers selected the C5 Corvette “the best engineered car of the 20th Century.”best engineered car of the 20th Century.”

Without a disciplined decision making process it probably would have beena marketing disaster.

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Stanford- GM Research ProjectStanford- GM Research Project

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GM Vehicle Development ProcessGM Vehicle Development Process

VPI

Imperatives*

Charter

Vehicle C

oncept

Initial Design Concepts

Corvette Study

Stanford CRL Effort

General ideaHigh Level definition High Level Program Targets

Engineering and styling decisions Comprehensive

Business Case for the vehicle

Given the imperatives

Vehicle Program Initiation

Go to contract after that

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Decision Education FoundationDecision Education Foundation

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The teaching team relied on a variety of The teaching team relied on a variety of techniques to bring the material to life…techniques to bring the material to life…

• Lecture and discussion

• Interactive activities

• Decisions in pop culture

• Term projects

• HomeworkA student group presents its term project.

The teaching team: Carl Spetzler, Ali Abbas, Steve Tani, Kim Keller, and Josh Cohen.

Students enjoyed

analyzing decisions

from a variety of

media.

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The teaching team discovered that failing to The teaching team discovered that failing to recognize a decision situation is the biggest recognize a decision situation is the biggest failure modefailure mode

StimulusAutomatic response

Cruising Along

Being Reactive

Stimulus

ConsciousChoice

ChosenResponse

Being Pro-active

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Decision analysis adds clarity to Hamlet’s Decision analysis adds clarity to Hamlet’s dilemma: “To be or not to be”… dilemma: “To be or not to be”…

Be

Not Be

Bear whips and scorns of time oppressor’s wrong proud man’s contumely pangs of dispriz’d love law’s delay insolence of office spurns that patient merit of the unworthy takes

Not Dream

DreamC. Ills we know not of

End the heartache and the thousand natural shocks that flesh is heir to; a consummation devoutly to be wished

Suffer the slings and arrows of

outrageous fortune

Take arms against a sea of troubles

p

1-p

Bear the ills we haveA.

C. Ills we know not of

B.

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The Decision Education FoundationThis Summer Make Math

Come Alive for Your Students“Decision Analysis – Math in the Real World”

Use math to address real issues in students’ lives! Especially applicable to Algebra l and ll and Prob/Stat, but useful for all classes.

“Enrolling in the Decision Skills class has been one of the best decisions I have ever made.” – Brian Wu, Student

For more information, fill out the form at www.sdg.com/defsurvey

A Two-week Course for High School Mathematics Teachers

August 4-15, 2003On the Campus of Stanford University

Academic Credit Offered

Better Decisions—Better Lives

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Decision Analysis is being applied professionally in many industries like oil and gas, power generation and distribution, automobile manufacturing, insurance, financial institutions, complex medical decisions, and to teach teens to lead better lives.

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Thank You!Thank You!

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AcknowledgementsAcknowledgements•Ronald Howard

•Jim Matheson

•Steve Barrager

•Wei Chen