Lahore University of Management Sciences

DISC 321 - DECISION ANALYSIS

Fall Semester 2014

Instructor Kamran Ali Chatha

Room No. 4-36, 4th Floor, SDSB Building
Office Hours M/W 2:00 to 3:00pm
Email kamranali@lums.edu.pk
Telephone 042 3560 8094
Secretary/TA TBA
TA Office Hours TBA
Course URL (if any) suraj.lums.edu.pk

COURSE BASICS
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 110 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

COURSE DISTRIBUTION
Core Core
Elective
Open for Student Category
Close for Student Category

COURSE DESCRIPTION (BRIEF)

Decision Analysis is a branch of science that focuses on utilizing quantitative techniques for the purpose for making sound
managerial decisions under various forms of constraints (economic, temporal and behavioral). This course exposes students to the
concepts, methods and techniques of decision analysis to conceptualize real world managerial problems, analyze them and find
workable solutions. The course covers topics such as: decision trees, decision making under uncertainty, value of information, risk
analysis using Monte Carlo simulation, risk attitude, multi-objective decisions, optimization models, matrix games, negotiation
analysis to name a few. A real world project and written case analyses provide avenues for practical learning.
COURSE DESCRIPTION (ELABORATE)
Major objectives of this course are:
(1) To understand basic concepts, methods and techniques of decision analysis;
(2) To develop a capability to use quantitative techniques (in relation to decision analysis) for analyzing and solving real world
managerial problems;
(3) To have a hands on experience of developing spreadsheet models (using Microsoft Excel and an add-on software namely
Palisade Suite) for modeling and analyzing decisions;
Decision Analysis / Science is a branch of science that focuses on utilizing quantitative techniques for the purpose for making sound
managerial decisions under various forms of constraints (economic, temporal and behavioral) faced in the real world problems.
These problems may belong to an organizations functional areas such as finance, operations, engineering, HRM and marketing
functions etc. The problems may also be interdisciplinary in nature in which case function or discipline specific techniques when
applied to solving these problems may not necessarily result into holistic or practical solutions. In such scenarios the techniques
developed within the discipline of decision analysis may provide broader frameworks and concepts that render practical solutions
to such problems.
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There are numerous examples in various disciplines where decision analysis concepts are needed for making sound decisions, for
example in software engineering (e.g. decision about choosing one technology or process over the other), legal decisions (e.g.,
understanding the effects of economic pressures on attributions of responsibility), risk assessments (e.g., assessing risks of nuclear
power or missile tests), marketing (e.g. launching specific product in a market) and managerial decision making (e.g., correcting
biases in the assessment of risk). The decision analysis concepts and frameworks are equally applicable in problems belonging to
many other disciplines as well.
Decision analysis relies heavily on decision theory which is concerned with identifying values of different alternatives, uncertainties
involved, their utilities, and other issues relevant to a given decision, its rationality, and the resulting optimal decision. In order to
exercise these concepts decision theory borrows some of the concepts from probability theory.
In order to achieve aforementioned objectives two major steps have been taken while designing the course: (1) a number of real
world case studies are used in order to better comprehend applicability of decision analysis concepts and techniques in real world
problems. Extended class room discussions on case study analyses will be instrumental in understanding key issues pertaining to
application, managerial concerns, and assumptions around the technique while focusing on the real world problem, (2) a number
of lab sessions have been included in order to develop practical skills of configuring and using spreadsheets for decision analysis.

COURSE PREREQUISITE(S)

Participants should possess basic knowledge of Probability / Statistics and calculus.

Students should have taken DISC-203 or an equivalent course.

COURSE LEARNING OBJECTIVES

Major objectives of this course are:

(1) To expose students basic concepts, methods and techniques of decision analysis;

(2) To learn using quantitative techniques (in relation to decision analysis) for analyzing and solving real world
managerial problems;
(3) To have a hands on experience of developing spreadsheet models (using Microsoft Excel and an add-on
software namely Palisade Suite) for modeling and analyzing decisions

LEARNING OUTCOMES

Decision Analysis Process, and accompanying concepts, methods and techniques.

Palisade Suite for conducting quantitative analyses.
Capability to take managerial decisions.
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UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES
General Learning Goals & Objectives
Goal 1 Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational
context.
Goal 3 Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and management
context.
Goal 5 Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.

Major Specific Learning Goals & Objectives

Goal 7 (a) Discipline Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations (including subject knowledge).
Goal 7 (b) Understanding the science behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker

Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.

Program Learning Goals and Objectives Course Learning Objectives
Goal 1 Effective Written and Oral
Communication
Goal 2 Ethical Understanding and
Reasoning
Goal 3 Analytical Thinking and Problem
Solving Skills
Goal 4 Application of Information
Technology
Goal 5 Teamwork in Diverse and
Multicultural Environments
Goal 6 Understanding Organizational
Ecosystems
Course Assessment Item
Written Case Analyses.
Group Project (Presentation).
To learn using quantitative techniques Written Case Analyses.
(in relation to decision analysis) for Midterm Exam
analyzing and solving real world Final Exam
managerial problems (Obj-2);
To have a hands on experience of
developing spreadsheet models (using
Microsoft Excel and an add-on software
namely Palisade Suite) for modeling and
analyzing decisions (Obj-3);
Written Case Analyses.
Group Project.
 Lahore University of Management Sciences
Goal 7 (a) Discipline Specific Knowledge
and Understanding
Goal 7 (b) Understanding the science
behind the decision-making process
To expose students basic concepts, Class Participation.
methods and techniques of decision Group Project.
analysis (Obj-1);;
To learn using quantitative techniques
(in relation to decision analysis) for
analyzing and solving real world
managerial problems (Obj-2);
To have a hands on experience of
developing spreadsheet models (using
Microsoft Excel and an add-on software
namely Palisade Suite) for modeling and
analyzing decisions (Obj-3);
To understand basic concepts, methods Quizzes
and techniques of decision analysis. Midterm Exam
Final Exam

GRADING BREAKUP AND POLICY

Written Cases Analyses / Assignment(s): 20%
Home Work:
Quiz(s): 10%
Class Participation: 15%
Attendance:
Midterm Examination: 10%
Project: 15%
Final Examination: 30%

The instructor has the right of 5% re-assigning of the criteria.

Class Participation Policy

Class participation grading will be carried out as per the following rules:

a) - 0.5 for being absent from the class.

b) 0.5 for attending the class.
c) 1.0 for little participation in the class discussion (granted for asking questions relevant to a discussion, describing case facts,
giving an opinion or idea in relation to the discussion).
d) 1.5 for good participation in the class discussion (granted for giving a valid contradictory viewpoint or comprehensive argument
or rationale behind a concept).
e) 2.0 for very good participation in the class discussion (granted for hitting multiple ds as mentioned above)
f) 2.5 for excellent participation in the class discussion (granted for bringing to the class and supporting with solid argument some
concepts which even instructor does not know)
Group Project
Students will engage in a group project. The group size will be decided based on course enrollment. Students will identify a decision
situation in an organization and apply course concepts thus formulating and analyzing the problem. Following this they will
synthesize and suggest an appropriate solution to the problem. They will share their solution with the case study organization, and
understand from company personnel the likely problems in implementing their solutions. The feedback obtained from the company
personnel will be incorporated in the final project report. A detailed description on group project will be provided once the course
starts.
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EXAMINATION DETAIL

Yes/No: Yes
Combine Separate: Combine
Midterm
Duration: 3 Hours in the Lab
Exam
Preferred Date:
Exam Specifications: Closed Books / Open Notes

Yes/No: Yes
Combine Separate: Combine
Final Exam Duration: 4 Hours in the Lab
Exam Specifications: Closed Books / Open Notes

DETAILED COURSE OUTLINE

S. SESSION
TOPICS & TEXTS SESSION OBJECTIVES
NO. TYPE
INTRODUCTION

1. Class Topic: Introduction Decision analysis and

Read: PB-Chapter-2: Modeling in a Problem Solving Framework (Sections 2.1, problem solving.
2.2, 2.3, 2.4)

2. Lab Topic: Using Spreadsheet for Probability & Probability Distributions Revision of probability
Read & Practice Solved Examples: distributions.
(1) AWZ-Chapter-5: Probability and Probability Distribution (Sections 5.1, 5.2,
5.3, 5.4, 5.5, 5.6)
(2) AWZ-Chapter-6: Normal, Binomial, Poisson, and Exponential Distributions
(Sections 6.1, 6.2, 6.3, 6.7)

MODELING DECISIONS

3. Class Topic: Decision Analysis Making Influence

Case: Athens Glass Works Diagrams.
Read: CLEMEN-Chapter-3: Structuring Decisions pp43-65

4. Class Topic: Decision Trees Making and analyzing

Case: Freemark Abbey decision trees.
Read: (1) Decision Trees for Decision Making
(2) CLEMEN-Chapter-3: Structuring Decisions pp69-83

5. Class Topic: Sensitivity Analysis Role of sensitivity analysis

Case: Dhahran Roads (A) in decision modeling,
analyzing and making.
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Read: (1) CLEMEN-Chapter-5: Sensitivity Analysis pp174-192
(2) Cash Flow and Time Value of Money

6. Lab Topic: Using Spreadsheet for Decision Trees Making decision trees
Read & Solve Problems: using spreadsheet.
AWZ-Chapter-7: Decision Making under Uncertainty,
Section-7.3, (Solve Problems 36 and 37 given at the end of the chapter)

MODELING UNCERTAINTY

7. Class Topic: Decision Making under Uncertainty Making decisions in

Case: Georges T-Shirts probabilistic situations.
Read: CLEMEN-Chapter-4: Making Choices pp111-145

8. Class Topic: Value of Information The influence of

Case: Integrated Siting Systems, Inc. availability of information
on decision.
Read: CLEMEN-Chapter-12: Value of Information, pp496-509

9. Lab Topic: Spreadsheet Modeling for Decision Making under Uncertainty Practicing probabilistic
Read & Practice Solved Examples: decisions using
spreadsheets.
AWZ-Chapter-7: Decision Making under
Uncertainty, Section-7.4, 7.5 (Examples 7.2, 7.3, 7.4)

10. Lab Topic: Simulation Modeling with Spreadsheets Understanding RISK as a

Read & Practice Solved Examples: package to model
decisions using
AWZ-Chapter-16: Introduction to Simulation
simulations.
Modeling, Sections 16.4, 16.5, and 16.6 along with accompanying examples.

11. Lab Topic: Simulation Modeling with Spreadsheets Understanding RISK as a

Read & Practice Solved Examples: package to model
decisions using
AWZ-Chapter-17: Simulation Models, Sections 17.2, 17.3, 17.5 and
simulations.
accompanying Examples)

12. Class Topic: Monte Carlo Simulations Understanding Monte

Case: (1) Calambra Olive Oil (A) Carlo simulation method.
(2) Calambra Olive Oil (B)
Read: CLEMEN-Chapter-11: Monte Carlo Simulation pp 459-487

13. Class Topic: Risk Analysis in Monte Carlo Simulations Practicing Monte Carlo
Case: Sprigg Lane (A) simulation method.
Read: Probability Distributions and Simulation
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MIDTERM EXAM

MODELING PREFERENCES

14. Class Topic: Risk Attitude Understanding the

Case: Risk Preference Utility Caselets influence of manager risk
attitude on decisions.
Read: CLEMEN-Chapter-13: Risk Attitude, pp 527-555

15. Class Topic: Risk Attitude Understanding the

Case: Risk Analysis for Merck & Company: Product KL-798 influence of manager risk
attitude on decisions.
Read: CLEMEN-Chapter-13: Risk Attitude, pp 527-555

16. Lab Topic: Incorporating Risk Attitude Practicing risk attitude

Read & Practice Solved Examples: using spreadsheet.
(1) CLEMEN-Chapter-13: Read section named Modeling Preferences Using
PrecisionTree on page-546 and solve Problem therein.
(2) AWZ-Chapter-7: Decision Making under Uncertainty, Section-7.6, Example
7.5.
(3) AWZ-Chapter-7: Decision Making under Uncertainty, and solve Problems:
77, 79, 80

17. Class Topic: Structuring Multi-Objective Decisions Understanding multi-

Case: William Taylor and Associates (A) objective decisions and
structuring them.
Read: CLEMEN-Chapter-15: Conflicting Objectives I: Fundamental
Objectives and the Additive Utility Function pp599-621

18. Class Topic: Additive Utility Function Additive utility function

Case: Sleepmore Mattress Manufacturing; Plant Consolidation as a method of analyzing
multi-objective decisions.
Read: CLEMEN-Chapter-15: Conflicting Objectives I: Fundamental
Objectives and the Additive Utility Function pp599-621

19. Class Topic: Multi-attribute Utility Models Multiplicative utility

Case: Whirlpool Research and Engineering (A) & (B) function as a method of
analyzing multi-objective
Read: CLEMEN-Chapter-16: Conflicting Objectives II: Multi-attribute Utility
decisions.
Models with Interactions pp644-659

OPTIMIZATION MODELS

20. Class Topic: Optimization Value Decision analysis for

Case: Salmones Puyuhuapi; Production Planning optimization or goal
programming.
Read: Introduction to Optimization Models (Section before Integer
Programming)
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21. Class Topic: Mixed Linear/Integer Programming Decision analysis for
Case: JCG Global Air Services optimization of integer
functions.
Read: Intro. to Optimization Models (Section on Linear & Integer Programming)

22. Class Topic: Using Linear Programming; Results and Sensitivity Sensitivity analysis in
Case: Chandpur Enterprises Limited: The Steel Division optimization problems.
Read: Intro. to Optimization Models (Section on Sensitivity Analysis and Beyond)

STRATEGIC INTERACTIVE DECISIONS

23. Class Topic: Matrix Game Analysis Modeling and analyzing

Case: Lesser Antilles Lines: The Island of San Huberto (A) game theoretic situations
using decision models.
Read: (1) Structuring competitive analysis
(2) Competitor Analysis

24. Class Topic: Matrix Game Analysis Modeling and analyzing

Case: Germania Fluggesellschaft MBH (A) & (B) game theoretic situations
using decision models.
Read: (1) Structuring competitive analysis
(2) Competitor Analysis

25. Class Topic: Negotiation Analysis Modeling and analyzing

Case: Kelly Solar negotiations using
decision models.
Read: None

26. Class Topic: Bidding and Auctions Modeling and analyzing

Case: Bidding For Hertz; Leveraged Buyout bidding and auction
problems using decision
Read: A note on sealed bid auctions
models.

SUMMARY

27. Class Topic: A Comprehensive Case Revision.

Case: Airbus and Boeing: Super Jumbo Decisions
Read: None

28. Class Project Presentations Project presentations.

FINAL EXAM
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TEXTBOOK(S)/SUPPLEMENTARY READINGS
Following books are recommended for this course however, students are strongly encouraged to consult any other resources such
as: books, journals, magazines, sharing personal experiences to enhance their learning.

[AWZ]: Albright, S.C., Winston, W.L., and Zappe, C., 2006, Data Analysis & Decision Making With Microsoft Excel, 3e, Thomson,
South-Western, ISBN: 0-324-40083-7.

[CLEMEN]: Clemen, R. T., 2001, Making Hard Decisions: An Introduction to Decision Analysis with Decision Tools, Duxbury Press,
Thomson Learning, ISBN: 0-534-36597-3.

[PB]: Powell, S.G., and Baker, K.R., 2009, Management Science The Art of Modeling with Spreadsheets, John Wiley & Sons Inc.,
ISBN-13: 978-0-470-39376-5.

[ASW] Anderson, Sweeney & Williams, Statistics for Business and Economics.