Why decision analysis? How to properly handle situations that are of uncertain nature? What are the tools used by business people to analyze the uncertainty, so that one can better make decision? I am trying to brought up several practical elements in regards to these questions.
Why decision analysis?
Making decision can be a very simple intuition process. However, it becomes much more complicated when the consequence of decision is really big, or, when the decision need to withstand critical eyes of many people.
Let’s assume that you, a company owner, just learned about a promising oil reservoir lying under the seafloor of Gulf of Mexico. However, the process of petroleum development involves hundreds of millions to billions of upfront investment before you get the first drop of oil (that is your return of investment). You are not so sure whether the oil recovered in the future can give you enough return of investment and make the company keep running. What should you do with this opportunity?
That is the real challenge that all oil companies need to face to everyday. Nevertheless, there are many other similar occasions for other policy makers and decision makers. In general, big risks, big influence and exposure to people’s critics lead to the emergence of a practice so-called decision analysis.