Value-Added Decision Making for Managers: 1st Edition (Hardback) book cover

Value-Added Decision Making for Managers

1st Edition

By Kenneth Chelst, Yavuz Burak Canbolat

Chapman and Hall/CRC

578 pages | 219 B/W Illus.

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pub: 2011-10-05
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Developed from the authors’ longstanding course on decision and risk analysis, Value-Added Decision Making for Managers explores the important interaction between decisions and management action and clarifies the barriers to rational decision making. The authors analyze strengths and weaknesses of the best alternatives, enabling decision makers to improve on these alternatives by adding value and reducing risk.

The core of the text addresses decisions that involve selecting the best alternative from diverse choices. The decisions include buying a car, picking a supplier or home contractor, selecting a technology, picking a location for a manufacturing plant or sports stadium, hiring an employee or selecting among job offers, deciding on the size of a sales force, making a late design change, and sourcing to emerging markets. The book also covers more complex decisions arising in negotiations, strategy, and ethics that involve multiple dimensions simultaneously.

Numerous activities interspersed throughout the text highlight real-world situations, helping readers see how the concepts presented can be used in their own work environment or personal life. Each chapter also includes discussion questions and references.

Web Resource

The book’s website at offers tutorials of Logical Decisions software for multi-objective decisions and Precision Tree software for probabilistic decisions. Directions for downloading student versions of the DecisionTools Suite and Logical Decisions software can be found in the appendices. Password-protected PowerPoint presentations for each chapter and solutions to all of the numeric examples are available for instructors.


"[The authors] introduce all concepts and methods using realistic decision-making examples to make them relevant to practitioners. This style also makes the description of the processes easy to comprehend and apply. … I was impressed with the presentation and development of the materials. Because it avoids purely technical topics, this book is easy to read and would make an excellent textbook for a practical course on decision making with multiple objectives and under uncertainty."

—Matthias Ehrgott, The University of Auckland, Interfaces, July–August 2013

Table of Contents


The Case for a Structured Analytic Decision Process

Goal and Overview

The Challenge

Decision Analysis Effectiveness

Do Not Trust Your Gut

Maximize versus Satisfice

Established Biases

What Makes a Decision Difficult?

Symptoms of a Poor Decision Making Process

Transparent and Efficient Decision Making

Framing Decisions with Influence Diagrams

Goal and Overview

Components of an Influence Diagram

Learn by Simple Example: Automation Investment

Divide and Delay Decision: Plan an RSVP Theater Party

Arrows in Complex Influence Diagram: New Product Late-to-Market

Multiple Objective Influence Diagram: Buying a Used Car

Oglethorpe Power Corporation: Actual Case

Influence Diagram Construction: Review

Solving Influence Diagrams

Recent Articles on Influence Diagrams

Common Decision Templates

Goal and Overview

In-House or Outsource (Make or Buy)

Change (Upgrade) or Keep Status Quo

Products: Launch, Portfolios, and Project Management

Project Management: Product Development

Capacity Planning

Technology Choice

Personnel and Organizational Selection: Hire Faculty

Facility Location: Sports Arena

Bidding: Make Offer

Personal: University Selection

Information Gathering: Market Research, Prototypes, and Pilot Plants



Structure Decisions with Multiple Objectives

Goal and Overview

Description of the Overall MAUT Process

Basic Terminology

Fundamental Objectives

Objectives Hierarchy: Examples

Top-Down Approach: Global Facility Location

Bottom-Up Approach: Kitchen Remodeling


Example: Buy a Used Car

Identify Alternatives

Real-World Applications

Structured Trade-Offs for Multiple Objective Decisions: Multi-Attribute Utility Theory

Goal and Overview

Concepts and Terminology

Compare Alternatives

Trade-Off Conflicting Objectives

Single-Measure Utility Function: Proportional Scores

Aggregate Utility: Total Score for Each Alternative

Assessing Weights Revisited: Large Set of Measures

Assess Individual (Single-Measure) Utility Function: Nonlinear Utility Functions and Constructed Measures

Group Decision Making


Contractor Selection for Kitchen Remodeling

Real-World Application: Multi-Attribute Risk Analysis in Nuclear Emergency Management

Selection of Best Conformal Coating Process

Nonlinear Additivity: Multiplicative Form

Research Issues with Weight Elicitation

Value and Risk Management for Multi-Objective Decisions

Goal and Overview

Synthesize Weighted Sum

Comparison of Two Alternatives

Robustness of a Decision Using Sensitivity Analysis

Value Enhancement with Hybrid: Lighting Example

Better Alternative through Value Enhancement: Kitchen Remodeling

Value Enhancement: Warehouse Selection

Value Enhancement and Risk Management: Process Selection

Risk Analysis and Management

MAUT and Subject Matter Experts: Process


Multiple Objective Decisions with Limited Data: Analytical Hierarchy Process

Goal and Overview

AHP Procedure Details and Snow Blower Example

Commercial Snow Throwers Selection

Select a Job

Software Selection

Growth of AHP Pair-Wise Comparison Effort

Comparison of AHP versus MAUT

Application Capsule: Compare AHP with MAUT: A Case Study


Value-Added Risk-Management Framework and Strategies

Goal and Overview

Overview of the Risk Management Process

Risk Identification

Risk Quantification

Systems Risk Analysis

Risk Mitigation Framework

Risk Communication, Perception, and Awareness

Alternative Risk Mitigation and Elimination Strategies

Spreadsheet Simulation for Decisions with Uncertainty

Goal and Overview

Using @Risk Spreadsheet Simulation

Project Acceleration Investment

Profit Forecasting for Drug Development

Global Sourcing Risk Analysis

Real-World Applications @Risk

Decisions with Uncertainty: Decision Trees

Goal and Overview

Early Users of Decision Trees


Influence Diagrams and Schematic Trees

Constructing and Analyzing a Simple Decision Tree

Risk Profile/Cumulative Risk Profile

Complex Symmetric Decision Tree: Make or Buy

Asymmetric Tree: Design Change

Sequential Decisions

Robustness of Optimal Solution through Sensitivity Analysis

Real-World Applications

Structured Risk Management and the Value of Information and Delay

Goal and Overview

Identify High-Impact Variables

Risk Profiles and Structured Risk Management

Make or Buy Example: Discrete Decision Tree Analysis

Perfect and Imperfect Information

Imperfect Information: Bayes’ Theorem

Conditional Decisions and Information Seeking Trees: Flu Virus Detection Technology

Contingent Contracts Reduce Risk

Real Options

Risk Attitude and Utility Theory

Goals and Overview

Utility Theory: Concepts and Terminology

Utility Function Assessment

Change the Risk Equation: Insurance and Risk Sharing

Case Study: Phillips Petroleum and Onshore U.S. Oil Exploration

Utility Theory: Practical and Theoretical Challenges

Current Research in Utility Theory


Forecast Bias and Expert Interviews

Goals and Overview

Motivational and Personal Biases

Point Estimate and Narrow Ranges: Overconfidence

Faulty Probability Reasoning

Availability and Representativeness

Confirmation and Interpretation Bias

Expert Interview: How to Identify and Reduce Bias

Research into Probabilistic Forecasts

Decision Bias

Goal and Overview

Sunk Cost and Escalation of Commitment

Framing Bias

Status Quo and Omission Bias




Groupthink, Optimism, and Miscellaneous Biases


Value-Added Negotiations

Goal and Overview

Understanding Negotiations

Challenges to Effective Negotiation

Managing the Negotiation Process

Negotiating a Deal

Negotiating a Dispute

Agents and Multiparty Negotiations

Negotiating across Border

Negotiating Ethically


Ethical Decisions

Goal and Overview

Ethical Decision-Making Framework


Biases, Myopia, and Don’t Want to Know

Pressures Undermine Ethical Balance

Short Cases

Strategic Direction, Planning, and Decision Making

Goal and Overview

Strategic Planning

Elements of Strategic Decisions

Situation Assessment: SWOT Analysis

Basic Tools: Decision Hierarchy and Strategy Table

Strategy Development Steps for Large Organizations

Scenario Planning

Appendix A: Instructions for Downloading the DecisionTools Suite

Appendix B: Instructions for Downloading Logical Decisions


Exercises and References appear at the end of each chapter.

About the Authors

Kenneth Chelst is a professor of operations research and director of engineering management programs in the Department of Industrial and Systems Engineering at Wayne State University. An Edelman Award finalist, he is also co-principal investigator of the NSF-funded Project MINDSET and a senior consultant for the International City and County Management Association. He earned a Ph.D. in operations research from MIT. His research interests include engineering management, emergency service management, global engineering, and the use of operations research to enhance K-12 mathematics education.

Yavuz Burak Canbolat is a senior manager in the Decision Support Group at Abbott Laboratories. He was previously an associate manager in decision analysis for Merck & Co., Inc., and an instructor in the Industrial Engineering Department at Qafqaz University. He earned a Ph.D. in industrial engineering from Wayne State University. His research interests include decision analysis and operations research techniques in R&D portfolio evaluation and management, strategic planning, financial and economic analysis, global operations and logistics, risk analysis, and capacity planning.

Subject Categories

BISAC Subject Codes/Headings:
BUSINESS & ECONOMICS / Operations Research
TECHNOLOGY & ENGINEERING / Operations Research