Chapter 4 Structure Decisions with Multiple Objectives

1. Chapter 4 Structure Decisions with Multiple Objectives Create and structure objectives hierarchy Create measures – natural and categorical Most of the chapter’s tables and figures are included in the file. Instructor must decide how many and which examples to use.

2. Influence Diagram – Review Role • Communication & Agreement • Admit – Uncertainty and Risk • Identify major sources of risk • Admit Multiple Objectives and Tradeoffs • Identify Major Objectives • Lead to analysis • Not an analytic tool Chapter 4

3. Decision Tree Complex Uncertainty with ONE Objective Decision Analysis Initial Framing (Influence Diagram) Multiple Objectives Uncertainty Analysis Combination Complex Uncertainty & Multiple Objectives MAUT/ AHP Chapter 4

4. Tradeoffs - Upfront • Recognize there are multiple objectives • Admit- NOT possible to achieve the best possible score on all multiple objectives simultaneously • Few magical out-of-the box solutions that produces win-win-win on three or more Objectives at once • Better: tradeoffs upfront and NOT forced as last resort • Structured total approach and not just “let’s sit down or send out survey and allocate 100 points.” Chapter 4

5. Multi-Criteria Decision Analysis (MCDA) • MAUT – Multi-Attribute Utility Theory (our primary technique) • Detailed quantitative structure – data driven • Requires hard thinking by decision maker • Yields insight as to strengths and weaknesses of the decision • Easy to create better hybrid alternative • AHP – Analytic Hierarchy Process (our secondary technique) • Pair-wise Comparisons • Mix of qualitative and quantitative – not as data driven • Easy to interview • Focuses on comparing actual alternatives Chapter 4

6. Multi-Criteria Decision Analysis • Identify and clarify decision objectives and criteria • Create Goals Hierarchy • Define measures for performance on criteria • Transform disparate measures to (0-1) commonscale • Weight relative importance of decision criteria • Identify and input feasible solution alternatives • Structured assessment of alternatives – strengths and weaknesses • Create improved Hybridalternative- Value-added Chapter 4

7. MAUT Process TASKS STEPS TECHNIQUES Identify Measures Creativity & Expert Judgment Determine Objectives Identify Alternatives Identify Requirements • Structure Gather data for each alternative for each measure • Describe Alternatives Create a common scale for each measure Assign weights • Clarify Preferences Evaluate Hybrid Alternative(s) Weighted Sum Synthesize Conduct Comparative Analysis Conduct Sensitivity Analysis • Analyze Chapter 4

8. Structure the MAUT: Basic Definitions • Objectives (Goals) – Desirable Characteristics • Minimize Objective or Maximize Objective but more than just “meet” Objective • Criteria or sub-goals: verbal description of something to be minimized or maximized • Measures - Unambiguous ratings of how well alternatives do with respect to each Objective. • Measures can be qualitative or quantitative • Alternatives - choices or decisions. Chapter 4

9. Objectives & Goals - Semantics • Objectives: • Desired state of system toward which we strive. • Use terms like ‘minimize’ cost or ‘maximize’ performance. • Goal: • Colloquial - people use the term goal to identify a specific level or target of achievement to strive toward. • Reduce cost by 10% in one year  • Maximize cost reduction • Minimize cost • Reach the moon by 1970 • Minimize resources required to reach moon by 1970 • Maximize probability of reaching moon by 1970 • Goal used interchangeably with the term objective. Logical Decisions software uses the term Goal instead of Objective. Chapter 4

10. Fundamental Objectives • What is important to the person(s) making the decision in this context!! • Overarching Objective => Profit or Shareholder Value • Industry Problem – Hard to evaluate most decision outcomes based on profit or shareholder value. • Consequence - Multiple fundamental objectives are surrogates for overarching objective. • Maximize quality as measured by first three months in service • Minimize warranty costs • Minimize investment expenditures • Maximize production flexibility • Class activity: examples of objectives related to a decision Chapter 4

11. Tradeoffs Amongst Objectives • Fundamental Objectives are Not Absolutes!!! • They can aretraded off against each other! • Investment cost and variable cost • Do not subdivide costs into components that can be added • Durability and Weight • Service level and cost • Two things can be Fundamental Objectives but with different WeightsWi • Minimize component weight and Maximize durability Chapter 4

12. Tradeoffs: Value and Technical • Technical Tradeoffs • Engine power and fuel economy • Performance and cost (higher performance costs more) • Strength of material, durability, and cost • Value tradeoffs • Where is the preferred point on the technical tradeoff curve? • How much am I willing to spend to achieve a certain performance level? • What is a customer’s preference with regard to mpg and horsepower or torque? Chapter 4

13. Tradeoffs: Value and Technical Chapter 4

14. Denver Police Bullet ControversyScientific data  Scientific Judgment  Value Tradeoff • Sequence and Linkages • Scientific Data (e.g. Muzzle velocity) • Scientific Judgment (e.g. injury) • Value Judgment : tradeoffs Chapter 4

15. Identify ObjectivesDriven by  • Requirements – what is needed? • Program objectives • Customer guidance • Technical performance measures • Different Perspectives • Alternatives • Problems and Shortcomings Chapter 4

16. Common objectives

19. Example: Light Bulb SelectionClassic tradeoff: Cost vs. Performance • Bill Frail has recently been promoted to a product development manager position and he will move to his new office. His new office is being repaired now. He will select light bulbs for the office. In the office, there are 10 bulb fixtures. What is the best bulb for Mr. Frail? Chapter 4

20. Select the Best Light Bulb Maximize Performance Performance Watts Minimize Cost Cost Dollars Structure the MAUTIdentify Measures: Light Bulb • Objectives • Maximize Performance • Minimize Annual Total Cost Measures  Watts (not lumens?)  Dollars Chapter 4

21. Maximize Performance Select the Best Light Bulb Performance Watts Minimize Cost Operating Cost Dollars Purchase Cost Dollars Figure 4.4: Subdivide cost intoOperating and Purchase (capital investment)

22. Objectives Hierarchy: Definitions • Objectives Hierarchy - Diagram of relationships between objectives, sub- objectives, and measures. • Could have many layers, sub- objectives or tiers - need not be symmetric. • Final tier is always composed of measures. • Clarify meaning of parent objective. • Subdivided only when effort to evaluate measures is warranted. Chapter 4

23. Mod Stack is a medium priced retailer offashionable clothing. • Activity: Construct an objectives hierarchy for Mod Stack. • 1. Highest level objective: Maximize store performance • a. Sub-objective _____________ • i. Measure _______________ • ii. Measure _______________ • b. Sub-objective _____________ • i. Measure _______________ • ii. Measure _______________ • Store can have 3, 4 or 5 cashier stations spread throughout store • How many stations? • Level of qualifications for the staff. • Cashiers also play a role in sales

24. Construct an Objectives Hierarchy Top-Down Approach • Start with overall objective • List Major Objectives – 3 to 5 – What is IMPORTANT to decision maker. • Subdivide specific Objective to develop lower tier Objectives in successively greater detail. • Calling Customer Satisfaction  Waiting time & Quality of Answer • Failures  a) MTBF and b) Time to repair • Continue until reasonable evaluation “measures” defined. Chapter 4

26. Planet Inc., Global toy co. Manufacturing facility Asia or Eastern Europe Top- down: Objectives hierarchy for facility location selection

27. Construct an Objectives Hierarchy Bottom-Up Approach • Start with details and alternatives • List and define differences between alternatives • Group differences into sub-objectives • Group Sub-objectives into major objectives Chapter 4

28. Activity – Select Kitchen Re-modeler • Top Down Approach • What would be primary objectives – max and min • Sub-objectives  Measures • Bottom Up approach – 3 contractors met with you provided bids, information about company and list of references • How might the information details be different? • Group details into categories • Group categories into two or three major objectives Chapter 4

29. Treat Investments and Operating Costs Separately – Circumstances? • Separate Budgets within organization • Different Tax ramifications • Affect Return on Investments (ROI) • Different time dimension – Capital investments may be carried over five or ten years and somewhat arbitrary based on accounting rules. • In bulb example the capital costs are small and should be converted into annual costs Chapter 4

30. Subdivide Other Costs: Yes or No • Operating costs and transportation costs • Scrap? Warranty? • Question – How should labor costs be treated? Chapter 4

31. Uses of a Objectives Hierarchy • Facilitate communication • Better understand breadth of important considerations. • Captures multiple perspectives. • Guide information collection • Focuses information collection on important evaluation considerations. • Chunk into pieces to facilitate collection of subjective data. • Help identify alternatives • Where alternatives are not all pre-specified. Chapter 4

32. Guidelines for a Objectives Hierarchy Complete & Concise • Significant Concerns • Can Be Measured or Estimated at Reasonable Cost • Decomposable • Easily Understood by All Trade Study Participants • Do not make distinct measures if measures simply add together (e.g. two types of variable cost) • As few as possible: Often 10 or fewer measures • 15 - 20 measures for MAJOR studies • Non-redundant or overlapping • Meaningful Differentiation • Directly Relevant Chapter 4

33. Objectives => Measures (one or more) • Types of measure scales: • Natural: In general use with common interpretation. • Dollars, weight, mpg, time units • Constructed: Developed for a particular MAUT. A) Descriptive phrase describes each level • Words with specific meaning  subjective data for alternative • Levels must be unambiguous and carefully defined. B) Group numeric measure to make meaningful Do Not create scales that are too Complex to be efficiently used or too Simple to be meaningful. Chapter 4

34. Constructed Scale: With PhrasesGlobal Facility Location  Trade Union Environment Chapter 4

35. Nearness to Family (College – Job) Constructed Scale: Group DataMinimize or Maximize – Not always clear Nearer to house is better • Within half hour drive • Half hour to one hour • One hour to two hours • Two hours to five hours • More than 5 hours drive Farther away is Better More than 5 hours drive Two hours to 5 hours One hour to 2 hours Half hour to 1 hour Within half hour drive Chapter 4

36. Constructed Scale: Nearness to FamilyNot Monotonic function of distance  Create Monotonic Scale Nearer to house is better but not Too close • One hour to two hours • Half hour to one hour • Two hours to five hours • Within half hour drive • More than 5 hours drive Chapter 4

37. Activity: Kitchen Re-modelerConstructed Scale • Describe Measure – min or max • __________________________________ • Create at least 3 groupings with phrases 1._____________________________ 2._____________________________ 3.______________________________ Chapter 4

38. Measure Type: Yes or No Feature • A desired property or attribute may either be present or not be present. • Only two measure levels • 0 (no) or 1 (yes) • 0 (A) or 1 (B) • Examples • Vehicle has ABS brakes or not • High school diploma • Technology is computer controlled or not • Fixed monthly charge for debit card Chapter 4

39. Activity: Constructed Scale & Yes/NO Decision Context: BUY a HOUSE • Describe a measure that might be yes or no. • __________________________________ Chapter 4

40. Measures – Hard or Subjective data available? • There is no value to a measure without some way of estimating its value for each alternative • Personnel Decisions • What can you find out? • How does prior performance relate to new more difficult job? • Company performance • Quality • Customer Service • Travel lodging  available rating info on internet • What measure(s) would you use. • ACTIVITY  Go to Internet Chapter 4

41. Expand Mr. Frail’s Bulb Decision Context • Often decision context too narrowly defined • Not just bulbs – Office Lighting System • Types of fixtures now a factor • Control of fixture beyond just on or off? • Need for light  Type of activity • Impact eye strain • Importance of true color • Light type - Fluorescent • standard fixtures – new bulbs that screw in • special fixtures. • High Ceiling – Need electrician to change bulb Chapter 4

42. Structure the MAUT: Objectives Hierarchy Office Lighting System Select the Best Lighting System Flexibility Flexibility # of Bulbs Replaced Longevity Performance Amount of Light Eye Strain Quality of Light Investment $$ Cost Investment Operating $$ Operating Chapter 4

43. Structure the MAUT: Identify Objectives of Lighting System in High Ceiling Office • Objectives & Measures • Minimize cost • operation cost • investment cost (may include fixture) • Maximize Performance • Minimize eye strain • amount of light (lumens) • quality of light (fluorescent or incandescent) • Maximize longevity (replacement hassle) • Number of bulbs replaced per year (categories) • Maximize flexibility of light level • Flexible or not Chapter 4

44. Binary Measure: Light Type - Quality • Incandescent (1,0) or Fluorescent light (0,1) • Which one is most preferred – depends on context • Office, kitchen, living room or basement • For most people (Office) • Fluorescent type light: Most preferred level (1) • Incandescent type light: Least preferred level (0) • For some people who have migraine • Incandescent type light: Most preferred level (1) • Fluorescent type light: Least preferred level (0) • For Mr. Frail • Fluorescent type light: Most preferred level (1) • Incandescent type light: Least preferred level (0) Chapter 4

45. Table 4.6: Customer satisfaction measure

46. Table 4.7: Ease of use of a computer

47. Activity — Create measures for house purchase Describe a constructed measure _______________________________ Describe a yes or no measure _______________________________

48. Table 4.8: Contractor’s level of experience

49. Table 4.9 – Time to Deliver: Grouped Measure

50. Figure 4.6: Objectives hierarchy for buying a used car