Decision And Risk Analysis
From MoxyWiki
Decision Analysis or Decision and Risk Analysis is the discipline comprising the philosophy, theory, methodology, and professional practice necessary to address important decisions in a formal manner. [1]
In an interesting editorial in the Harvard Business Review entitled What Kind of Decision Is It? (November 2007), Thomas Stewart observes that “More than anything else, however, leaders help the people around them make sense of the world in which they find themselves. Inspiring, strategizing and acting all depend on sense-making.”
Justifiable and theoretically sound decision and risk analysis (D&RA) supports that 'sense-making'.
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The structure of decision situations
Strategic decisions and tactics depend heavily on context. (Harvard Business Review, October 2006) This statement describes the structure of a Decision Situation.
To the extent that strategic thinking is separated from key facets of the decision context, or that strategic intent and the formulation of tactics to implement the intent become disconnected, the risk of poor decision outcomes is increased.
Decision-making versus decision analysis
It can be said of decision-making that it generally involves responding to “…real open world problems where some things may be true, some may be false and some may be unknown”. In this ‘Open World’ decision situation, “…actions in the future and/or issues of relevance and completeness are central”. (to quote Fletcher and Davis et. al.)
For sound decision outcomes to be derived in the face of ”…inherent vagueness, or lack of information, either in linguistic description or in other circumstances surrounding the situation …”, strong reliance is placed on processes such as qualitative analogical reasoning.
The complexities inherent to the decision-making task necessarily restrict the opportunities for broad participation; only a limited set of decision-makers can be engaged. The prerogative must be reserved for the entity accountable for the consequences of the decision (in business, the Board of Directors).
In order that decision-makers can receive coherent input in support of their carrying out the task for which they are accountable, a ‘closed’ – albeit ‘fuzzy’ – World’ decision situation must be constructed, within which a quantitative decision analysis process can be conducted efficiently and effectively.
The decision problem typology of Fletcher and Davis et. al. frames the ‘closed world’ nature of decision analysis, and the 'open world' nature of decision-making.
