What is decision analysis?

Decision analysis is a mature mixture of art and science.  At its heart, decision analysis is a toolbox of skills and tools that help you explore and later explain decision problems that you face.

The reasons for performing a formal decision analysis on a complex problem include:

1. Psychological comfort: it allows you sleep well at night knowing that you have explored the decision fully.

2. Communication: it explains the reasoning behind your decision, allowing others to contribute their alternate views.

3. Advocacy: it justifies the reasonableness of the proposed action or opinion.

4. Record: it documents why a particular alternative was chosen and what information was uncertain at the time of the decision.

After conducting a decision analysis, you should be able to answer such questions as:

1. What triggered the problem that led to the decision?

2. What criteria are being used to compare the alternatives?

3. What are the uncertainties relating to this decision?

4. What are the risk profiles of each of the alternatives?

5. How does our risk tolerance affect the alternatives?

6. What is the expected value of the preferred alternative?

7. How sensitive is the preferred alternative to changes in the variables?

Decision analysis is an iterative process, often requiring many loops through the process as you gain greater and greater insight into the decision.  

Prescriptive decision analysis translates the structured representation of a decision and its corresponding recommendation into insight for the decision maker and other stakeholders.  Decision analysis does not replace using your intuition; it simply gives it a structure and combines it with insight into the decision to guide you towards the best course of action.

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