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Decision theory in maintenance decision making

Article  in  Journal of Quality in Maintenance Engineering · March 1995

DOI: 10.1108/13552519510083138

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 Decision theory
Decision theory in in maintenance
maintenance decision making decision making
A.T. de Almeida
Companhia Hidro Electrica do São Francisco, Recife, Brazil, and 39
G.A. Bohoris
University of Birmingham, Birmingham, UK

Introduction
The basis of decision theory was developed from the theory of games. The
relation between decision theory and games theory can be better perceived
through the similarity of the basic ingredients of each. More specifically, the
decision theory is a particular case of games theory, which, in its simplest form,
is a two-person game. In decision theory nature takes the role of one of the two
players. Besides the similarities, however, there are a number of differences
between games theory and decision theory. More noticeably, in the former,
players are trying to maximize their winnings simultaneously, while in the
latter, nature chooses a state without any particular objective. Furthermore, in
the former players are assumed to be intelligent adversaries, while, in the latter
nature is assumed to make a choice once and for all. In this case, information
about nature’s choice can be obtained more easily.
Since the 1950s, decision theory has been a very active area of research in
several fields such as economics, statistics, psychology, engineering. As a
result, decision theory has become a useful tool to many professionals including
engineers[1]. It is the main purpose of this article to demonstrate a further use
of decision theory in maintenance engineering and management.
In simple terms, decision theory provides a logical framework for solving
real-life problems. It is concerned with the identification of an action which is
expected to provide maximum benefits to the decision maker. Smith[1]
summarized the benefits of decision theory into the following:
(1) The decision maker’s best course of action is derived based on his/her
objectives and knowledge of the problem.
(2) The decision maker communicates to the other specialists the best
course of action and justifies why the chosen action is optimal.
(3) A framework is provided within which the decision maker’s ideas can be
critically evaluated and modified, especially if new information is to be
incorporated or other than common decisions have to be made.

Decision theory – basic ingredients

The process of decision making involves, in the main, the following:
Journal of Quality in Maintenance
(1) The circumstances and basic laws governing the environment for Engineering, Vol. 1 No. 1, 1995,
pp. 39-45. © MCB University Press,
a particular problem analysed. In decision theory terms these 1355-2511
JQME circumstances and laws are referred to as the state of nature, denoted by
1,1 θ. The state of nature is not under the decision maker’s control. The set
of all possible states of nature is denoted by θ, indicating the set of all
possible conditions in which a system can be found by a probabilistic
behaviour.
Depending on the particular problem studied, θ can be either discrete
40 or continuous. This distinction results in a completely different treatment
of the problem. Sometimes in the formulation stage of a problem, θ is
assumed to be discrete as a simplification procedure. This is made
possible by dividing the continuous θ into ranges represented by a
discrete set θ1, θ2, …, θk. For example, in maintenance if a continuous θ
is associated with the failure rate λ of a repairable system, the decision
maker is concerned with the values of λ which would signify either
unreliable hardware (θ1 : λ ≥ λ0) or a reliable one (θ2 : λ < λ0).
(2) The set of possible actions from which the decision maker may select a
particular course of action. Effectively this is the set of all the
alternatives A available to the decision maker and a specific action from
this set is denoted by α. While A can be either discrete or continuous, it
is, very much like θ, very often simplified to a discrete action space:
A = (α1, α2,…, αm).
(3) The consequence ρij, also called the outcome or the pay-off, is the result
from the decision maker taking a given action αj in the face of a given set
of circumstances θi. The set of possible consequences is denoted by R.
Table I illustrates a very simple deterministic case where A, θ and R are
all discrete.
The consequence ρ is normally expressed in terms of the conditional
probability P(ρ|θ, α). It is determined by seeking the relation between ρ
and θ given α . This is normally done by derivations based on
assumptions about the probabilistic behaviour of the variables ρ and θ.
These assumptions are established based on typical characteristics of
the system, previous knowledge, or the results of experiments.

α1 α2
Table I.
Consequences for a θ1 ρ11 ρ12
simple decision θ2 ρ21 ρ22
problem

α1 α2
Table II.
Expected gains for a θ1 U (θ1, α1) U (θ1, α2)
simple decision θ2 U (θ2, α1) U (θ2, α2)
problem
(4) The loss and util ity functions L( ρ ) = L( θ , α ) and U( ρ ) = U( θ , α ) Decision theory
respectively quantify the loss or the gain incurred from each in maintenance
consequence. There is no real difference between these two functions decision making
since L(ρ) = –U(ρ). Normally statisticians prefer to use loss functions,
while decision theorists and engineers usually express the quantification
of ρ in terms of gains or utility. Table I can be also presented as in Table II.
The final expression for the utility function U(θ, α) is obtained from 41
U(ρ) through the conditional probability P(ρ|θ, α) as follows:
U (θ , α ) ≡ U [ P ( ρ |θ , α )] = E [U ( ρ )] ⋅
In other words, U( θ , α ) is the expected value of U( ρ ) and can be
calculated as follows if ρ is continuous:
U (θ , α ) = ∫0+∞U ( ρ )P ( ρ |θ , α )d ρ⋅ (1)
Otherwise, if ρ is discrete:
U (θ , α ) = ∑U ( ρ )P ( ρ |θ , α ) ⋅ (2 )
ρ
(5) The multi-attribute utility theory (MAUT) is closely related to multi-
criteria decision making and allows quantification and aggregation of
multiple objectives even when these objectives are composed of
conflicting attributes, or when they are subjective. More specifically, the
multi-attribute utility theory is related to the case where the consequence
ρ is a vectorial variable, i.e. there is more than one attribute for ρ = (ρ',
ρ", …). For example, in the case of a power-generating company, ρ might
be associated with two conflicting attributes, the interruption time (TI)
of power supply (ρ' = TI), and the cost (C ) to maintain this power supply
( ρ " = C ). In that case if U( ρ ') and U( ρ ") are single-attribute utility
functions then, if ρ' and ρ" are additive independent, the multi-attribute
(additive) utility function is:
U ( ρ ' , ρ ") = k1U ( ρ ' ) + k2U ( ρ ")
where k1 and k2 are scaling constants and k1 + k2 = 1. If, however, ρ' and
ρ" are not mutually independent, then:
U ( ρ ' , ρ ") = k1U ( ρ ' ) + k2U ( ρ ") + k3U ( ρ ' )U ( ρ ")
where k3 is another scaling constant and k1 + k2 + k3 = 1.
In general, the multi-attribute utility theory strikes a trade-off so that
the optimization procedure obtains the best combination of the
consequences (TI and C) by the choice of an appropriate action.
(6) Elicitation and consistency checking. The elicitation of the utility function
involves the understanding and modelling of the preference structure of
the decision maker regarding the consequence ρ. Cultural differences
and varying company policies are very influential here. Normally, the
JQME utility function U(ρ ) is obtained from a procedure which frequently
1,1 involves the following two steps:
● Modelling the multi-attribute utility function.
● Modelling the conditional utility function for each attribute, which
effectively is a measure of the preference for each value of ρ.
42 To ensure that no errors have been committed in the elicitation procedure
a number of consistency checks are available in decision theory. One of
the most popular checks consists of paired comparisons of the various
consequences. That is, the value of the utility function U( ρ ', ρ ") is
compared with the decision maker’s preferences when all the possible
consequences are considered.
(7) Optimization. The purpose of decision theory is to obtain an optimum
solution to a given problem. Once the basic ingredients have been
established, the fundamental question “how to choose the action α so
that the consequence ρ will provide maximum benefits to the decision
maker?” arises. The optimal solution in decision theory can be obtained
by applying a number of procedures according to the characteristics of
the ingredients of the problem. The two main ones are the following:
● The Minimax principle. This is applied when no data or information
is available. The optimization consists of choosing the action αj
which minimizes the maximum loss L( θ i, α j) for any θ i that the
nature might choose. Then, the solution is found from:
 
min  max L(θ ,α . (3 )
α  θ 

● The Bayesian approach. This is applied when some prior (experts’)

knowledge π ( θ ) on θ is available. The optimization consists of
choosing the action αj whose expected utility is maximum, i.e.:

max { E [U (θ , α )]} where E [U (θ , α )] = ∫θ π (θ )U (θ , α )dθ ⋅ (4 )

α

Since in maintenance there is frequently some experience which can be

“translated” into a form of prior knowledge, this work focuses on cases
where the Bayesian approach is likely to be more applicable.
(8) Sensitivity analysis to investigate the robustness of the solution, or
alternatively the sensitivity of the obtained solution to the assumptions
made. Normally, these assumptions are related to prior probabilities and
utility functions[1-4]. The sensitivity analysis results in one of the
following:
● A significant variation in the utility function or prior probabilities
does not affect the optimum solution obtained. In this case the
 solution is seen as a robust result, giving more confidence to the Decision theory
decision maker. in maintenance
● Small variations in the utility function or prior probabilities decision making
significantly alter the solution obtained. This would suggest the
need to carry out a further study on the assumptions made for the
utility and/or prior functions.
43
With the aid of sensitivity analysis, the analyst is able to verify which
function needs to be elicited more precisely. This could show how much
more effort should be diverted towards the preference and probabilistic
modelling. It has been observed, however, that for many problems the
Bayes solution is robust against large variations in the prior probabilities
π(θ)[2]. This means that very often the optimal solution does not depend
very strongly on the accuracy of the elicited π(θ).

A maintenance decision model

The maintenance decision problem considered
Maintenance decision making may take place in several contexts with different
types of systems in terms of technology, repairability, reliability and availability
requirements, etc. The decision model described in this article deals with a very
general maintenance problem, encompassing all those possible alternatives,
and is characterized by the following:
● The decision maker has at least two courses of action to choose.
● There is frequently some uncertainty about the values of the variables
describing the behaviour of the system and the environment, with regard
to reliability and maintenance. Therefore, owing to the lack of accurate
data, subjective experts’ knowledge is used instead.
● The decision maker has a structure of preferences to be modelled
regarding the consequences of his/her choice.
● The aim is to obtain the optimum maintenance action based on the
maximization of a utility function which combines reliability/availability
and costs for each possible action.

The maintenance decision model

In order to deal with this kind of problem a maintenance decision model (MDM)
has been built. It includes:
● the specification of the necessary variables and their interrelationship;
● the specification of the criteria needed to obtain the optimal solution;
● preference modelling, which is divided into two parts: the elicitation of
the unidimensional utility functions; and the elicitation of the multi-
attribute utility function;
● the elicitation of the prior probability distributions;
● optimization and presentation of results;
● sensitivity analysis.
JQME More specifically the model includes the following steps:
1,1 Step 1. Problem definition. The basic structure of the problem is established.
Objectives, alternatives and the associated uncertainties are detailed here.
Typical problems are the derivation of the optimum maintenance action, the
detailed description of a maintenance contract, etc.
Step 2. Necessary information. Here the basic ingredients, i.e. the action space
44 A, the state of nature θ, and the consequences X are defined. In the case of the
optimum maintenance action in the problem introduced in item 5 (multi-attribute
utility theory) of the “decision theory” section, A could be the set of possible
maintenance actions, θ' and θ" could represent the maintainability of the system
and the reliability of its constituent components respectively, and X′ and X′′
could be the unavailability of power supply TI and the maintenance cost C.
Step 3. Preference el icitation. Given the set of consequences the
preferences are modelled and the corresponding utility functions are
obtained. For the simple example the unidimensional utility functions U(TI)
and U(C ) are obtained first and then the multidimensional utility function
U(TI, C ) is derived.
Step 4. Probabilistic modelling of the state of nature. With the state of nature
known, efforts are then concentrated on obtaining all possible information
(data, experts’ estimates, and other prior knowledge) about θ in order to reduce
uncertainties.
Step 5. Optimization. To derive the action α whose expected utility is
maximum (equation (4)).
Step 6. Sensitivity analysis. To investigate the robustness of the solution by
varying the utility functions and the prior distributions used.
The maintenance decision model, at its current stage of development, allows
for:
(1) unidimensional utility functions which can be of linear, exponential and
logistic form;
(2) either additive or multi-linear, multi-attribute utility functions;
(3) description of the basics A, θ and X as follows:
● reliability functions which can be either exponential or Weibull;
● repair time distributions which can be exponential, Weibull, and
gamma.
(4) variable attitudes towards risk.

A practical application
CHESF – Companhia Hidro Electrica do São Francisco
CHESF is in the business of power generation and bulk electricity transmission
in the north-east region of Brazil. This region includes nine federation states
and covers an area of about 1,200,000km2. To secure power supply for this
rather large market, CHESF has several power-generating plants, a
transmission system of approximately 15,000km transmission lines, and more
than 70 integrated stations distributed throughout the whole region.
 The communications needs of the company, including the operation, Decision theory
maintenance, and management of the electric power supply, are supported by a in maintenance
private telecommunication system owned by CHESF. This system is composed
of approximately 2,000 pieces of equipment also distributed throughout the
decision making
whole region. The practical application discussed in this article (see multi-
attribute utility theory in the “decision theory” section) has been carried out in
CHESF’s telecommunication system. 45
Results
The implementation of the maintenance decision model presented in this article
in CHESF provided a well-defined, easy-to-use framework for the selection of
the optimum action for the maintenance problem considered. Further to that,
the following have been realized in CHESF:
● Preferences concerning typical maintenance decision variables have
been better modelled.
● Prior knowledge about reliability and maintainability has been more
accurately derived and more consistently utilized.
● The confirmation of the results obtained in the optimization procedure
has been made possible through the sensitivity analysis which evaluated
the robustness of the model.

Conclusions
This article has presented a review of some basic decision theory concepts and
discussed their applicability in maintenance. As a result, a maintenance
decision model has been built and the steps for its application in practice have
been detailed. Finally, the real-life use of the model has been demonstrated by
applying it to a maintenance strategy problem in a power generation company.
The numerous benefits realized by CHESF suggest that such a model has a
viable future in maintenance as a reliable framework for maintenance decision
making.
References
1. Smith, J.Q., Decision Analysis – A Bayesian Approach, Chapman & Hall, London, 1988.
2. Berger, J.O., Statistical Decision Theory and Bayesian Analysis, Springer-Verlag, Berlin,
1985.
3. Kadane, J.B., Robustness of Bayesian Analysis, North-Holland, Amsterdam, 1984.
4. Keeney, R.L. and Raiffa, H., Decision with Multiple Objectives; Preferences and ValueTrade-
offs, John Wiley & Sons, Chichester, 1976.

Further reading
Almeida, A.T., Souza, F.M.C. and Bohoris G.A., Preference Elicitation in Reliability Engineering,
IFORS/IFAC Workshop on Support Systems for Decision and Negotiation Process, 24-26 June
1992, Warsaw, pp. 11-16.
Raiffa, H., Decision Analysis, Addison-Wesley, Reading, MA, 1970.

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