TOPIC # 7

Decision Admitting Uncertainty

Ables, Rhod Peter P.

Diones, Mark Joseph C.
Dura, Edzel Loyd B.
Umbao, Jamicah Cake A.
BSEE 102D
 Outline

❖ Sensitivity Analysis
❖ Two approaches in analyzing Sensitivity
Analysis
❖ Decision Analysis Model
❖ Decision Tree
 LEARNING OBJECTIVES

I. To define the sensitivity and decision analysis

II. To determine the two approaches of the
sensitivity analysis
III. To understand how the decision tree works
 DISCUSSION

Sensitivity Analysis
Sensitivity Analysis is a tool used in financial modelling
to analyze how the different values of a set of independent
variables affect a specific dependent variable under certain
specific conditions. In general, sensitivity analysis is used in
a wide range of fields, ranging from biology and geography to
economics and engineering.
 DISCUSSION

Sensitivity Analysis

The process of estimating how target

variables change in relation to changes in
input variables.
 DISCUSSION

Two approaches in analyzing

Sensitivity Analysis

• Local sensitivity analysis

• Global sensitivity analysis
 DISCUSSION

Two approaches in analyzing

Sensitivity Analysis
Local sensitivity analysis is derivative based (numerical or
analytical). The term local indicates that the derivatives are taken
at a single point. This method is appropriate for simple cost
functions, but not feasible for complex models, like models with
discontinuities do not always have derivatives.
 DISCUSSION

Two approaches in analyzing

Sensitivity Analysis

Global sensitivity analysis is the second approach

to sensitivity analysis. This approach uses a global
set of samples to explore the design space.
 DISCUSSION

Decision Analysis Models

Decision Analysis is a form of decision-making that involves
identifying and assessing all aspects of a decision, and
taking actions based on the decision that produces the most
favorable outcome.
 DISCUSSION

The Decision Analysis Process

• Identify the decision situation and understand

objectives
• Identify alternatives
• Decompose and model the problem
-model of problem structure
-model of uncertainty
-model of preferences
 DISCUSSION

The Decision Analysis Process

• Choose the best alternative

• Implement the chosen alternative
 DISCUSSION

Decision Analysis Models

Decision Tree is a support tool with a tree-like structure

that models probable outcomes, cost of resources,
utilities, and possible consequences. Decision trees
provide a way to present algorithms with conditional
control statements. They include branches that represent
decision-making steps that can lead to a favorable result.
 DISCUSSION

DECISION TREE
 DISCUSSION

DECISION TREE
 CONCLUSION

One method that helps decision makers

with more than simply finding a solution to a
problem is sensitivity analysis. It offers
pertinent insight into the issues related to
the model being referenced. The decision-
maker gains a good understanding of how
responsive his optimal solution is to any
adjustments in the input values of one or
more parameters.
 CONCLUSION

The process of decision analysis is

examining each component of a choice,
making decisions based on those that result
in the best outcomes, and act accordingly.
Models are employed in decision analysis to
assess the favorability of alternative
outcomes. Models called decision trees
show the likelihood of certain outcomes in
contrast to alternatives.
 REFERENCES

• Introduction to Decision Analysis. studylib.net. (2022). Retrieved from

https://studylib.net/doc/5810351/introduction-to-decision-analysis.
• What is Sensitivity Analysis?. Corporate Finance Institute. (2022). Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/modeling/what-is-
sensitivity-analysis/.
• Garg, S. (2022). Sensitivity analysis. Slideshare.net. Retrieved from
https://www.slideshare.net/ShivangiGarg22/sensitivity-analysis-66063896.
• Sensitivity Analysis: Meaning, Uses, Methods of measurement. EduPristine. (2022).
Retrieved 3 August 2022, from https://www.edupristine.com/blog/all-about-
sensitivity-analysis.
• Decision Analysis (DA). Corporate Finance Institute. (2022). Retrieved 3 August
2022, https://corporatefinanceinstitute.com/resources/knowledge/other/decision-
analysis-da/.
• Decision Tree. Corporate Finance Institute. (2022). Retrieved 3 August 2022, from
https://corporatefinanceinstitute.com/resources/knowledge/other/decision-tree/.
• Sensitivity Analysis. (2020). [Image]. Retrieved from
https://m.youtube.com/watch?v=o6-HCOG1Cp4&t=21s.
Thank you!!!