I trust none of us wants to make wrong decisions. But we also know that decisions are not that easy to make, and many factors play a role in deciding whether option A is better or option B is better. On top of things, the environment is not totally predictable. If the environments are predictable, it will become easier to decide whether A is right or B is right.
This blog talks about a technique called Decision Analysis, giving us a brief insight into how not to make wrong decisions.
Decision analysis techniques support decision-making in complex, difficult, or uncertain situations. Decision analysis techniques examine and model possible consequences of different decisions. While using Decision analysis techniques, business analysts should understand.
- Goals, values, and objectives relevant to the decision problem.
- Nature of decision to be made.
- Areas of uncertainty that affect a decision.
- Consequences of each possible decision
Activities for decision analysis
There are 2 types of decision matrices.
Simple decision matrix:
Each alternative option is checked against each criterion in a simple decision matrix. One needs totally a number of criteria matched for each alternative. Alternative with maximum tally is the preferred alternative. check out the “cbap training” article
Weighted decision matrix:
In the Weighted decision matrix, options are assessed against weighted criteria. Stakeholders assign weights based on their importance. The higher weighting, the more important criterion. The weighted rank formula is the Sum of (Weight i * Rating i)
Decision trees include Decision nodes – Different strategies, Chance nodes – Define uncertain outcomes, Terminator or end nodes – Identify final outcomes.
For each outcome, calculate the value by multiplying the outcome with probability. Then, sum up values for each branch of decision-making. The branch with the higher value is the preferred path.
- Determines the expected value of alternative scenarios.
- Assesses the importance placed on different alternatives.
- Assesses options based on objective criteria than emotions.
- Compare financial and non-financial outcomes.
- Requires knowledge of probability.
- Information may not be available on time to make a decision.
- Tendency to treat results of decision analysis as more certain than they actually are.
Worked out Example
The governance, Risk, and Compliance (GRC) management system is developed for the IT and ITES domain. The primary objective of the Governance, Risk, and Compliance (GRC) management system is to help companies implement Governance, Quality, and Information Security Management Systems in an integrated manner. It has various features, one of which is to plan and track projects and programs using standards such as CMMI, ISO 9001, ISO 27001, etc.
Through this example, let us see how the organization comes to a conclusion on whether to purchase the solution or build it in-house.
The criteria taken into account and the weights assigned to each criterion can be seen below:
|Adaptability to our needs||5||5||3|
|Cost of solution||3||2||5|
|Ongoing maintenance cost||3||5||3|
|Time to implement||2||2||5|
Due to better fitment with organizational needs, the system was decided to be developed in-house.
Thus, a weighted decision matrix assesses options in which each criterion is weighted based on importance. The higher the weighting, the more important the criterion. In this example, the criteria are weighted on a scale of 1-5, where 5
indicates the best match.
In-house option = 5*5+3*2+3*5+2*2+2*5 = 79
Buy option = 5*3+3*5+3*3+2*5+2*2 = 48
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