The Evolution of

Decision Analysis
By

Ali Abbas
aliabbas@stanford.edu

Lecturer
Department of Management Science and Engineering
Stanford University

Presentation Contents
1. History of Decision Analysis
2. Applications from practice
3. The Decision Education Foundation

Decision Analysis: Applied Decision

Theory, 1966
In 1966, Ronald Howard
coined the term decision
analysis as a formal procedure
for the analysis of decision
problems.
Early structure of the Decision
Analysis Cycle.

How did it start?

Doctoral work in Markov decision processes (Policy
Iteration).
Met Myron Tribus at MIT and was introduced to the
probabilistic traditions of Laplace, Jeffreys, Cox, and Jaynes.
Invited by Bill Linvill to become a Visiting Professor at
Stanford for 1964-1965.
Invited to present a course on Markov Decision Processes at
the General Electric nuclear power division in San Jose in
1965.
After a few sessions, an engineer in the course, Howard
Cook, asked if he could apply these concepts to an actual
decision problem.
The decision was whether a super heater should be added to
their current power reactor.
Ron replied, Why not?

Ronald Howard

Stanford Research Institute (SRI) Decision

Analysis Group

Established 1966

Joint program with Stanford University - Engineering

Economic System Department

Many of the early practitioners did internships with this

group and/ or joined it as permanent staff.

In 1968 the SRI group wrote two

publications that were best sellers at the
time.

In 1966, Ron wrote a paper:

Information Value Theory
This enabled calculation of the Value of Perfect
Information and Value of Imperfect Information as
well as the value of testing.

Special Issue: IEEE Transactions

Systems Science and Cybernetics, 1968

In 1968, in a conversation at Harvard, Ron

convinced Howard Raiffa that Decision
Analysis is the right name for the field.

*Some of Howard Raiffas Contributions:

Statistical Decision Theory
Conjugate Prior Distributions
Multiattribute Utility

In 1968, in a conversation at Harvard, Ron

convinced Howard Raiffa that Decision
Analysis is the right name for the field.

*Some of Howard Raiffas Contributions:

Statistical Decision Theory
Conjugate Prior Distributions
Multiattribute Utility

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By 1976 research contracts led to

envisioning of automated aids, including
influence (decision) diagrams.

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Decision diagrams are graphical representations

of decision situations. They contain..
Uncertainty Node

Decision Node

Deterministic Node

Value Node

F(x,y)

y
12

The original influence diagram dealt with

unrest in the mid-east still a current
problem.

13

Here is that initial diagram

(Signal flow graph of uncertainty)

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Other notable early applications.

New Drug Product Development

Mars Contamination from Earth

Earth Contamination from Mars

Mine Opening Decision

Petrochemical Plant Investment

Exxon R&D Portfolios

Hurricane Seeding

Forest Fires

Synthetic Fuels

Nuclear Reprocessing
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Decision Analysis Spread

Spin off of several individual to Decision Focus Inc (DFI)

Another spin off to Applied Decision Analysis (ADA)

Key figures founded Strategic Decisions Group (SDG) in

1981
Ronald Howard, Jim Matheson, Carl Spetzler, Jeff Foran & others
Many tools and applications developed in practice.

40 Students conducted research and graduated with PhDs at

the Stanford Decision Analysis program.

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Classification of Decision Problems

Organizational Complexity
Many parties in conflict
Individual and organizational
differences

Values, desires, and

motivation
Initial convictions
Fundamentally different
frames
Personalities and
competencies
Degrees of power and
resources

High

Facilitative
Leadership

Dialogue
Decision
Process
(DDP)

Low

Decide
Now

Traditional
Decision
Analysis

Group dynamicshuman
nature in groups

Low

High

Analytical Complexity

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Uncertainty
Dynamics
Many interrelated factors
Many alternatives
Multiple, interrelated decision criteria
Source: Strategic Decisions Group

Dialogue Decision Process developed at

SRI in the late 1970s:
Dialogue Decision Process
Decision
Board

Project
Team

Recognize
Situation

Approve
Frame

Approve
Alternatives

Make
Decision

Frame

Alternatives

Evaluated
Alternatives

Assess
Situation

Develop
Alternatives

Evaluate
Alternatives

Approve
Plan

Plan

Plan for
Implementation

Getting the decision makers involved

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Source: Strategic Decisions Group

Applications

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In 1988, General Motors decided to design

an all new, fifth-generation Corvette.

Corvette logo goes here

Source : SDG
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Three norms were used because the

decisions were both organizationally and
analytically complex.
1. Use a common decision process, teach people how
to use it, and then continuously improve it.
2. Involve the right people in a decision dialogue.
3. Use powerful tools to improve communication,
creativity, and analysis.

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An almost perfect car, says Automobile

magazine editor. A big boys toy that
First Wives club may co-opt.

Time, April 14, 1997

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In March, 2000, the Society of Automotive

Engineers selected the C5 Corvette the
best engineered car of the 20th Century.

Without a disciplined decision making process it probably would have been

a marketing disaster.
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Stanford- GM Research Project

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GM Vehicle Development Process

General idea
High Level definition

Engineering and styling

decisions

Stanford CRL Effort

High Level Program Targets

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Charter

Imperatives*

Vehicle Concept

y
d
u
t
S
e
t
t
e
Corv

Initial
Design
Concepts

Comprehensive
Business Case
for the vehicle
Given the imperatives

VPI
Vehicle Program
Initiation
Go to contract
after that

Decision Education Foundation

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The teaching team relied on a variety of

techniques to bring the material to life
Lecture and
discussion

The teaching team: Carl Spetzler, Ali Abbas, Steve Tani, Kim Keller, and Josh Cohen.

Interactive
activities

Students
enjoyed
analyzing
decisions
from a
variety of
media.

Decisions in pop
culture
Term projects
Homework

A student group presents its term project.

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The teaching team discovered that failing to

recognize a decision situation is the biggest
failure mode
Being Reactive
Cruising Along
Stimulus

Automatic
response

Being Pro-active

Stimulus

Conscious
Choice

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Chos
e
Resp n
onse

Decision analysis adds clarity to Hamlets

dilemma: To be or not to be
Suffer the slings
and arrows of
outrageous fortune
Be

A. Bear the
ills we have

Not Dream
Take arms against
a sea of troubles
Not Be

1-p

Dream

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Bear whips and scorns of time

oppressors wrong
proud mans contumely
pangs of disprizd love
laws delay
insolence of office
spurns that patient merit
of the unworthy takes

B.

End the heartache

and the thousand
natural shocks that
flesh is heir to;
a consummation
devoutly to be wished

C. Ills we know not of

The Decision Education Foundation

This Summer Make Math
Come Alive for Your Students
Decision Analysis Math in the Real World
A Two-week Course for High School Mathematics Teachers
August 4-15, 2003
On the Campus of Stanford University
Academic Credit Offered

Use math to address real issues in students lives!

Especially applicable to Algebra l and ll and Prob/Stat, but useful for all classes.

Enrolling in the Decision Skills class has been one of the best decisions I have ever made. Brian Wu, Student

Better DecisionsBetter Lives

For more information, fill out the form at www.sdg.com/defsurvey

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Decision Analysis is being applied professionally in

many industries like oil and gas, power generation
and distribution, automobile manufacturing,
insurance, financial institutions, complex medical
decisions, and to teach teens to lead better lives.

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Thank You!

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Acknowledgements
Ronald Howard
Jim Matheson
Steve Barrager
Wei Chen

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