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Course: Decision Analysis Models and Applications (PhD in Engineering and Management, PhD in Engineering and Public Policy)

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Decision Analysis Models and Applications, 2011 1

Course: Decision Analysis Models and Applications (PhD in

Engineering and Management, PhD in Engineering and Public Policy)

Lecturers

Carlos A. Bana e Costa (Responsible)

Carlos A. Bana e Costa is a Full Professor of Decision and Information at IST, DEG, and a Researcher at the Centre for Management Studies of IST (CEG-IST). He is also head of I&D projects at CEG-IST. Professor Bana e Costa's primary interests are in the fields of Management and Decision Sciences, namely Multicriteria Decision Analysis and Decision Conferencing. He has widely published in these areas (http://web.ist.utl.pt/carlosbana/bin/papers.htm) and he co-authored the MACBETH approach for decision-aiding (http://www.m-macbeth.com). He has also been developing consultation in public strategic decision-making processes, policy appraisal and bid and suppliers' performance evaluation worldwide, following the socio-technical facilitation perspective shared by the members of the International Decision Conferencing Forum. He is also a senior partner of BANA Consulting (http://www.bana-consulting.pt).

Webpage: http://web.ist.utl.pt/carlosbana/bin/index.htm Email: carlosbana@ist.utl.pt

Mónica Oliveira

Monica Oliveira is an Assistant Professor at IST, DEG, and a Researcher at the CEG-IST. Monica has been carrying out research in the area of management of health care systems, whose main interests are in health care planning and financing and in resource allocation in health care. Monica has published in journals in the areas of health economics, health policy and health care management, has participated in several health policy projects sponsored by the European Commission, and has been involved in advisory boards from the Portuguese Ministry of Health. Webpage: http://web.ist.utl.pt/monica.oliveira/ Email: monica.oliveira@ist.utl.pt

Course material

Course material available in the following Fenix webpage:

https://fenix.ist.utl.pt/disciplinas/maad-2/2010-2011/2-semestre/teaching-material-for-the-dama-course with material protected by the password (to be announced in class)

Objectives

This course provides an introduction to models, processes and tools for helping to structure and explore decisions characterized by multiple objectives, uncertainty, complexity and differences of opinion. Based on theoretical and methodological concepts of decision-making and decision aid

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Decision Analysis Models and Applications, 2011 2 research, the course has an emphasis on the practice of decision sciences. It uses illustrations of real-world decision analysis and decision conferencing applications in organisations, and employs several case-studies (supported by specialised decision support software) to build students' skills in decision modelling and analysis.

Program

Weeks Dates Topic Content

2-4 10th, 17th, 24th February

Introduction to Decision Analysis

What is Decision Analysis? Basic concepts. Decision-making strategies and traps in private and public contexts. Schools of thought. A Taxonomy of Decision Analysis models. Decision Analysis with groups: Decision conferencing and Features of requisite decision modelling. 5-8 3th, 10th, 17th, 24th March Multi-Criteria Value Measurement

Value and utility theory. Building a model of values. Value trees and descriptors of performance. The additive value model. Techniques for building value functions. Techniques for weighting criteria. Sensitivity and robustness analysis. The MACBETH approach. 9 31st

March

Structuring Approaches Value-focused thinking. Problem structuring methods.

10 7th April Resource Allocation, Prioritization and Budgeting

The generic model structure for resource allocation and the Commons Dilemma. Value for money prioritization.

11-13 14th, 28th April, 5th May

Modelling Risk and Uncertainty

What is Risk Analysis? Basic concepts. Scenario building. Decision trees and influence diagrams. Value of information and control. Bayesian belief networks. Probability modelling and expert judgment. Simulation. Risk attitude and Multicriteria Utility theory.

14 12th May (double session)

Presentation and Discussion of Case Studies by Students.

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Decision Analysis Models and Applications, 2011 3

Bibliography

Topic: Introduction to Decision Analysis

Phillips, L.D. (2005) Decision analysis in 2005. OR47: Keynote and Tutorials. Parnell, G. (2009) Decision Analysis in One Chart, Decision Line, 20-24.

Howard, R. (1973) Decision Analysis in Systems Engineering in Miles, Jr., R. F. (Ed.). Systems concepts: Lectures on contemporary approaches to systems. New York: John Wiley.

Morton, A., Fasolo, B. (2008). Behavioural Decision Theory for Multi-Criteria Decision Analysis: a guided tour. Journal of the Operational Research Society, 60, 268–275.

Russo, J., Schoemaker, P.J.H. (1989) Decision traps, Doubleday Business.

Hammond, J.S., Keeney, R.L., Raiffa, H. (1999) Smart Choices: A Practical Guide to Making Better Decisions, Harvard Business School Press.

Edwards, W., Miles Jr., R. F., von Winterfeldt, D. (Eds.) (2007), Advances in Decision Analysis: From Foundations to Applications, Cambridge: Cambridge University Press.

Phillips, L. (2007) Decision conferencing. In Advances in Decision Analysis. In W. Edwards & R. F. Miles Jr. & D. von Winterfeldt (Eds.), Advances in Decision Analysis: From Foundations to Applications (pp. 232-252). Cambridge: Cambridge University Press.

Phillips, L.D. (1984) A theory of requisite decision models. Acta Psychologica, 56, 29–48. Keeney, R. L. (1996) Value-focused thinking: Identifying decision opportunities and creating alternatives, European Journal of Operational Research, 92, 537-549.

Goodwin, P. and G. Wright (2010). Decision Analysis for Management Judgment. Chichester, John Wiley.

Topic: Multi-criteria value measurement

Belton, V., Stewart, T.J. (2001) Multiple Criteria Decision Analysis: An Integrated Approach, Springer.

Keeney, R. L., Raiffa, H. (1993) Decisions with Multiple Objectives: Preferences and Value Trade-offs. Cambridge: Cambridge University Press, 2nd ed.

Bana e Costa, C. A., De Corte, J.-M., Vansnick, J.-C. (2003) MACBETH, Working Paper LSEOR 03.56, London School of Economics of Political Science.

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Decision Analysis Models and Applications, 2011 4 Bana e Costa, C. A., De Corte, J.-M., Vansnick, J.-C. (2010) MACBETH (Measuring Attractiveness by a Categorical Based Evaluation Technique), In: J.J. Cochran (Ed.), Wiley Encyclopedia of Operations Research and Management Science, Wiley.

Bana e Costa, C. A., Chagas, M. (2004). A career choice problem: an example of how to use MACBETH to build a quantitative value model based on qualitative value judgments. European Journal of Operational Research, 153(2), 323-331.

Bana e Costa, C., Lourenço, J. C., Chagas, M. P., Bana e Costa, J. C. (2008). Development of reusable bid evaluation models for the Portuguese Electric Transmission Company. Decision Analysis, 5(1), 22-42.

Bana e Costa, C. A., Beinat, E. (2005) Model-structuring in public decision-aiding, Working paper LSEOR 05.79, London School of Economics and Political Science.

Stevens, S. S. (1946) On the Theory of Scales of Measurement, Science, 103, 2684, 677-680 Nunnally, J.C., Bernstein, I.H. (1994). Psychometric Theory, 3rd ed. (Chapter 1).

Bana e Costa, C.A., Fernandes, T.G., Correia, P.V.D. (2006) Prioritisation of public investments in social infrastructures using multicriteria value analysis and decision conferencing: a case study, International Transactions in Operational Research, 13, 279–297.

Topic: Structuring methodologies

Keeney, R.L. (1992) Value-Focused Thinking: A Path to Creative Decisionmaking, Harvard University Press.

Belton, V. (1999) Multi-Criteria Problem Structuring and Analysis in a Value Theory Framework; V. Belton. In Gal, Tomas; Stewart, Theodor J.; Hanne, Thomas (Eds.) Multicriteria Decision Making Advances in MCDM Models, Algorithms, Theory and Applications, Series: International Series in Operations Research & Management Science , Vol. 21.

Bana e Costa, C.A., Ensslin, L., Corrêa, E.C., Vansnick, J.-C. (1999) Decision Support Systems in action: Integrated application in a multicriteria decision aid process, European Journal of Operational Research 113, 315-335.

Bana e Costa C.A. (2001) The use of multi-criteria decision analysis to support the search for less conflicting policy options in a multi-actor context: case study, Journal of Multi-Criteria Decision Analysis, 10, 2, 111-125.

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Decision Analysis Models and Applications, 2011 5

Topic: Resource Allocation, Prioritization and Budgeting

Phillips, L.D., Bana e Costa, C.A. (2007) Transparent prioritisation, budgeting and resource allocation with multi-criteria decision analysis and decision conferencing, Annals of Operations Research, 154, 1, 51-68.

Kirkwood, C. W. (1997). Strategic decision making: multiobjective decision analysis with spreadsheets. Belmont, Duxbury.

Liesiö, J., Mild, P., Salo, A. (2008). Robust portfolio modeling with incomplete cost information and project interdependencies. European Journal of Operational Research, 190(3), 679-695.

Lourenço, J.C., Bana e Costa, C.A., Morton, A. (2008, 28-30 June). Software packages for multi-criteria resource allocation. Paper presented at the IEEE International Engineering Management Conference, IEMC - Europe 2008, Estoril, Portugal.

Lourenço, J.C., Bana e Costa, C.A. (2009) PROBE - A multicriteria decision support system for portfolio robustness evaluation, LSEOR 09.108, Working Paper, London School of Economics and Political Science.

Topic: Modelling Risk and Uncertainty

Clemen, R. T., Reilly, T. (2003) Making Hard Decisions With Decision Tools Suite Update 2004. Duxbury.

Morgan, M. G., Henrion, M. (1990) Uncertainty: A Guide to Dealing with Uncertainty in Quantitative Risk and Policy Analysis. Cambridge: Cambridge University Press.

Ringland, G. (2006). Scenario Planning - Managing the Future. England, John Wiley & Sons. Shoemaker, P. J. H. (1995) Strategic planning: A tool for strategic thinking, Sloan Management Review, 25-40.

Kaplan, S. (1997) The Words of Risk Analysis, Risk Analysis, 17(4), 407-417.

Jensen, F.V. (1996) An Introduction to Bayesian Networks, UCL Press, London (chapter 2).

Howard, R. A., Matheson, J. E. (2005). Influence diagrams. Decision Analysis, 2(3), 127-143. Eppel, T., von Winterfeldt, D. (2008) Value-of-Information Analysis for Nuclear Waste Storage Tanks, Decision Analysis, 5(3), 157-167.

Hoffmann, S., Fischbeck, P., Krupnick, A., McWilliams, M. (2007) Elicitation from Large,

Heterogeneous Expert Panels: Using Multiple Uncertainty Measures to Characterize Information Quality for Decision Analysis, Decision Analysis, 4, 2, 91-109.

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Decision Analysis Models and Applications, 2011 6 Mannes, A. E. (2009) Are We Wise About the Wisdom of Crowds? The Use of Group Judgments in Belief Revision, Management Science, 55(8), 1267-1279.

Kynn, M. (2008) The ‘heuristics and biases’ bias in expert elicitation, Journal of Royal Statistical Society A, 171, 1, 239-264.

Shephard, G., Kirkhood, C. (1994) Managing the judgmental probability elicitation process: A case study of analyst-manager interaction, IEEE Transactions on Engineering Management, 41, 4 Kirkwood, C. W. (2004) Approximating Risk Aversion in Decision Analysis Applications, Decision Analysis, 1, 51-67.

A. Morton, M. Airoldi, L. D. Phillips (2009) Nuclear Risk Management on Stage: A Decision Analysis Perspective on the UK’s Committee on Radioactive Waste Management, Risk Analysis, 29(5), 764-779.

Matos, M. (2007) Decision under risk as a multicriteria problem, European Journal of Operational Research, 181(3), 1516-1529.

Figueiredo, M. S. M., Oliveira, M. D. (2009). Prioritizing Risks based on Multicriteria Decision Aid Methodology: Development of Methods applied to ALSTOM Power, Proceedings of the IEEE International Conference on Industrial Engineering and Engineering Management, 1-4, 1568-1572.

Evaluation

The evaluation includes the following components: • 3 assignments (50%):

o Individual summary, presentation and critical discussion of one paper in class; o 2 assignments developing models using the software M-MACBETH, Precision Tree,

@Risk and/or PROBE. • Final exam (50%).

References

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