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Lecture 01

This document provides an introduction to the course DSME 6620 Decision Models and Applications. It discusses the origins and goals of scientific decision making, including examples from WWII. Popular decision making tools are listed such as statistics, optimization, simulation, and decision analysis. The document also discusses judgmental bias and how rules of thumb can systematically lead managers to biased outcomes when inappropriately applied.

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Zhu K
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24 views

Lecture 01

This document provides an introduction to the course DSME 6620 Decision Models and Applications. It discusses the origins and goals of scientific decision making, including examples from WWII. Popular decision making tools are listed such as statistics, optimization, simulation, and decision analysis. The document also discusses judgmental bias and how rules of thumb can systematically lead managers to biased outcomes when inappropriately applied.

Uploaded by

Zhu K
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DSME 6620

Decision Models and Applications

Lecture One

Course Introduction

1
DSME 6620
Decision Models and Applications

Agenda

• Introduction to scientific decision making

• Why scientific? Judgmental bias

2
DSME 6620
Decision Models and Applications

About Scientific Decision Making

• Scientific decision making, which is also widely


termed “management science”, is a discipline that
attempts to solve decision making problems in the
business field by applying mathematics, statistics,
and computers.

• The roots of scientific decision making trace to a


branch of applied mathematics called “Operations
Research” (OR).

• The beginning of OR has been attributed to the


military services in WWII: The British and
American military management called upon a large
number of scientists to help with strategic and
tactical problems.

• In the industrial boom that followed WWII, many


firms became interested in operations research as
business management became increasingly complex
– Scientific Decision Making was born …

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DSME 6620
Decision Models and Applications

Well-Known OR Work in WWII

Aircraft Attacks Against German Submarines


Problem:  German Submarines (U-boat) were escaping
aircraft attacks
 2% to 3% kill probability in early 1941

Questions:  What is the “best” depth to set bomb to


explode?
 What is the “best” lethal radius?

Depth in Feet ?

Lethal radius?

Result: By 1945 the attack kill probability has risen to over


40%
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DSME 6620
Decision Models and Applications

Successful Applications Today


Function Description Examples
Supply chain Simulate and optimize supply chain Apple, Dell, Wal-
flows; reduce inventory and stock-outs Mart, Amazon

Customer Identify customers with the greatest Harrah’s, Capital


selection, loyalty, profit potential; increase likelihood One, Barclays
and service that they will want the product or
service offering; retain their loyalty

Pricing Identify the price that will maximize Progressive,


yield, or profit. Marriot
Human capital Select the best employees for particular New England
tasks or jobs, at particular Patriots, Oakland
compensation levels A’s, Red Sox

Product and Detect quality problems early and Honda, Intel


service quality minimize them
Financial Better understand the drivers of MCI, Verizon
performance financial performance and the effects
of nonfinancial factors
Research and Improve quality, efficacy, and where Novartis, Amazon,
development applicable, safety of products and Yahoo
services

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DSME 6620
Decision Models and Applications

Procedure of Decision Making

Real World

Experience,
Intuition
Business
Decisions
Situation

Interpretation
Abstraction

Model
Improvement

Decision-Making
Results
Model

Computer
Application

Symbolic World
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DSME 6620
Decision Models and Applications

Dialogue on Decision Making

Interviewer: Do you make regular mathematical


programming runs for scheduling the refinery?
Analyst: Oh yes!
Interviewer: Do you implement the results?
Analyst: Oh no!
Interviewer: Well, that seems odd. If you don’t implement
the results, perhaps you should stop making the runs.
Analyst: No. No. We wouldn’t want to do that!
Interviewer: Why not?
Analyst: Well, what happens is something like this: I make
several computer runs and take them to the plant manager.
He is responsible for this whole multimillion-dollar
plumber’s paradise. The plant manager looks at the runs,
thinks about them for a while, and then sends me back to
make more runs. This process continues until, finally, the
plant manager screws up enough courage to make a
decision.

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DSME 6620
Decision Models and Applications

Popular Decision Making Tools

• Statistics
– Regression
– Time Series Forecasting

• Optimization
– Linear Programming
– Integer Programming
– Nonlinear Programming

• Decision analysis

• Simulation

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DSME 6620
Decision Models and Applications

Why Scientific?
Judgmental Bias

• Managers oftentimes develop rules of thumb to


reduce the information-processing demands of
decision making.

• These rules of thumb provide managers with


efficient ways of dealing with complex problems
that would require a significant proportion of the
time for producing good decisions.

• However, these rules of thumb may lead managers


to systematically biased outcomes. Such judgmental
bias occurs in situations in which the rules of thumb
are inappropriately applied by an individual in
reaching a decision.

• Then, a quiz to see the judgmental bias.

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