Multiple Objective Decisions Involving Multiple Stakeholders L. Robin Keller, MBA, Ph. D Professor of Operations & Decision Technologies University of California, Irvine Editor-in-Chief, Decision Analysis Jay Simon, Ph. D Defense Resources Management Institute Naval Postgraduate School Yitong Wang Operations & Decision Technologies University of California, Irvine Tutorial, INFORMS Annual Conference, October 2009 1 1
“Today, I’m going to tell you all you’ll need to know about ‘decision analysis. ’” BERRY’S WORLD reprinted by permission of Newspaper Enterprise Association, Inc. From Society for Medical Decision Making Newsletter, Sept. 1996 2 2
The Structure of “Smart Choices” Problem Objectives Alternatives Consequences Tradeoffs 3 3
Do A? Work on the Right Problem: Do B? The way you frame the problem determines how you find a solution • Which bookkeeping software should we use? OR • How should we keep our books? Be flexible, “play” with the problem, talk to others, seek advice Include all major stakeholders to create “buy-in” Working on the wrong problem is one of the main reasons why a decision analysis is not implemented 4 4
Do A? Specify Your Objectives Do B? Obj. 1 Obj. 2 A decision is a means to an end Objectives play a central role (“value-focused thinking”) • If you don’t care, you don’t have a problem • If you don’t know where you’re going, you might end up somewhere else Objectives guide all phases of the decision making process (including what information to seek and what other people to involve) Be creative and think without constraints 5 5
A Single Set of Objectives DESCRIBE YOUR IDEAL JOB 6 6
STRUCTURE FUNDAMENTAL OBJECTIVES IN OBJECTIVES HIERARCHY Obtain ideal job Max. Salary Max. Base Salary Max. Bonus Convenient Location Closest Proximity to Friends Min. Travel Time in Daily Commute Max. Long-term Potential Max. Interest in Job Tasks Max. Opportunity to Move Up 7 7
Properties of Hierarchy of Objectives 1. The objectives on the lowest level of the hierarchy can be used to evaluate possible consequences by creating a scale to measure them. Max. SALARY Max. BASE SALARY Max. BONUS It is wise to specify the direction (maximize/minimize/maintain) that makes your attainment of the objective better. A consequence with a specific job might be a salary level of $100, 000 and a bonus level of $50, 000. Do not put the different possible salary levels at the bottom of the hierarchy. 2. We will see that you can attach a rating to how good the level is (i. e. , salary level of $100, 000). The rating may be qualitative (+, -, 0 in Star. Kist case) or numerical (from -2 to +2 in INFORMS merger). 8 8
“It’s not hard to make decisions when you know what your values are. ” Roy Disney Decision Analyst Ralph Keeney advises us to practice Value-Focused Thinking about what we value as expressed in our objectives 9 9
Keeney’s Personal Objectives Maximize my quality of life 1. Enjoy life 2. Be intellectually fulfilled 3. Enhance the lives of family and friends 4. Contribute to society Keeney (1992), Value Focused Thinking 10 10
Keeney’s Professional Objectives Maximize the contribution of professional activities to… my quality of life 1. Maximize enjoyment 2. Maximize learning 3. Provide service 4. Enhance professional career 5. Maximize economic gain 6. Build good professional relationships 7. Minimize the time required 7. 1. Minimize time required where I live 7. 2. Minimize time required away from home Keeney (1992), Value Focused Thinking 11 11
Objectives for Keeney’s son’s name 1. Single spelling 2. Not a unisex name 3. Reasonable initials 4. Understandable pronunciation 4. 2. With last name 4. 3. With middle and last name 5. No obvious “unwanted” nickname 6. Not unique 7. Not extremely common 12 12
Objectives for Keeney’s son’s name 8. Not religious 9. Not named after anyone 10. Has a nice rhythm 10. 1. With last name 10. 2 With middle and last names 11. Nice-sounding in foreign languages 12. Appealing (i. e. , you feel predisposed to talk to or meet the person) 13. No “ee” sounds 13 13
Objectives for Keeney’s son’s name 8. Not religious 9. Not named after anyone 10. Has a nice rhythm 10. 1 With last name 10. 2 With middle and last names 11. Nice-sounding in foreign languages 12. Appealing (i. e. , you feel predisposed to talk to or meet the person) 13. No “ee” sounds Keeney (1992), Value Focused Thinking The Winning Name is Gregory 14 14
Do Create Good Alternatives A Do B Do C No decision can be better than the best alternative Use your objectives to create alternatives Don’t get stuck with “obvious” alternatives (they might be obvious, but they might fall short of being the best) Look for combinations of alternatives (think win-win) 15 15
Understand the Consequences Do A Do B Do C Knowing where you want to go (objectives) and having means to get there (alternatives) allows you to describe and understand your destinations Lay out all consequences in a spreadsheet that describes how each alternative performs on each objective Study the consequences, they might help you consider more objectives and create more alternatives 16 16
Grapple With Your Tradeoffs Usually no one alternative outperforms all others on each objective Finding the best (albeit not perfect) alternative requires tradeoffs Tradeoffs depend on how you prioritize your objectives You can make these tradeoffs by weighting objectives by their importance 17 17
Perspectives of Multiple Stakeholders can help… -identify mutually agreeable alternatives -foresee opposition to decisions -design new & better alternatives -understand the evolution of past decisions from multiple perspectives 18 18
Multiple-Stakeholder Decision Making The Star. Kist Tuna Fishing Decision Stakeholders San Diego Tuna Fishing Fleet http: //www. sandiegohistory. org/journal/81 fall/images/piva. jpg http: //www. earthisland. org/index. php/donate / Competitors Monika I. Winn and L. Robin Keller, “A Modeling Methodology for Multi. Objective Multi-Stakeholder Decisions: Implications for Research, " 19 Journal of Management Inquiry, vol. 10, no. 2, June 2001, 166 -181.
DECISION ALTERNATIVES Legal Quota Maintain current practices and stay within legal limits Limited Mortality Step up efforts to reduce the number of dolphins killed Zero-Mortality No fishing associated with setting nets on dolphins 20 20
Decision Alternatives Rated with Star. Kist’s “Business-As-Usual” Objectives Hierarchy 21 21
Decision Alternatives Rated for Fishing Fleet 22 22
Decision Alternatives Rated for Environmental Interest Groups 23 23
Star. Kist’s “Strategic Planning” Objectives Hierarchy 24 24
Star. Kist’s “Crisis Mode” Objectives Hierarchy Star. Kist’s (1991) Dolphin Safe Policy "Star. Kist will not buy any tuna caught in association with 25 dolphins in the Eastern Tropical Pacific. " 25
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MERGER DECISION ANALYSIS OF POTENTIAL MERGER OF OPERATIONS RESEARCH SOCIETY OF AMERICA (ORSA) AND THE INSTITUTE OF MANAGEMENT SCIENCES (TIMS) L. ROBIN KELLER AND CRAIG W. KIRKWOOD, “The Founding of INFORMS: A Decision Analysis Perspective, ” Operations Research, Vol. 47, No. 1, January-February 1999, 16 -28. http: //www. informs. org 28 28
ORSA/TIMS COOPERATION ALTERNATIVES SEP: SEPARATION OF ORSA & TIMS SQ: STATUS QUO PARTNERSHIP SM: SEAMLESS MERGER M 2: MERGE WITH ORSA/TIMS AS SUB-UNITS M 3: MERGE WITH NO ORSA/TIMS SUB-UNITS; SUB-UNITS ARE REPRESENTED ON BOARD 29 29
ORSA/TIMS MERGER OBJECTIVES FIVE MAIN CATEGORIES IMPROVE COST EFFICIENCY ENHANCE QUALITY OF PRODUCTS ESTABLISH STRONG EXTERNAL IMAGE MAINTAIN SCOPE/DIVERSITY OF FIELD IMPROVE OPERATIONS Elicited stakeholders’ objectives & combined them into 1 hierarchy 30 30
ADD BRANCHES TO MAIN CATEGORIES IMPROVE COST EFFICIENCY MAINTAIN ALLOCATE WELL MAINTAIN EFFICIENT REVENUES AND EFFICIENT USE OF FUNDS EXPENSES USE OF TIME EXPLOIT ECONOMIES OF SCALE BALANCE DUES RATE & FEEFOR-SERVICE REMOVE DOUBLED DUES 31 31
1. 1 Maintain efficient use of funds 1. Improve cost efficiency of TIMS/ORSA operations 1. 2 Allocate well revenues/expenses to activities/entities 1. 3 Maintain efficient use of time of volunteers 2. 1 Provide high quality main and specialty conferences 2. Enhance the quality of ORSA and TIMS products 2. 3 Provide appropriate career services 2. 4 Provide support for sub-units VALUE MAXIMIZE OVERALL 2. 2 Provide high quality publications 2. 5 Provide other member services 3. Establish a strong & coherent external image of field 3. 1 Increase visibility and clout of OR and MS 3. 2 Foster professional identity 4. 1 Maintain/improve membership composition 4. Manage the scope and diversity of the field 4. 2 Create strong relationships with other societies 5. 1 Maintain/improve quality of governance process 5. Maintain/improve effectiveness of ORSA and TIMS operations 5. 2 Maintain/improve quality of operation output 32 32
VALUE RATING SCALE 2: SEEN BY AVERAGE MEMBER AS IMPROVED 1: SEEN BY OFFICERS AS IMPROVED BUT NOT BY AVERAGE MEMBER 0: NO CHANGE -1: SEEN BY OFFICERS AS WORSE -2: SEEN BY AVERAGE MEMBER AS WORSE 33 33
INTERPRETATION OF “MEASURABLE” VALUE RATINGS STRENGTH OF PREFERENCES IS REFLECTED IN DIFFERENCES OF VALUES DEGREE OF IMPROVEMENT FROM 0 TO 1 IS THE SAME AS FROM 1 TO 2 34 34
JUDGED VALUE RATING SCORES JUDGED VALUE RATING ON ALTERNATIVES OBJECTIVES SEP SQ SM M 2 M 3 1. IMPROVE COST EFFICIENCY 1. 1 MAINTAIN EFFICIENT USE OF FUNDS 1. 1. 1 EXPLOIT ECONOMIES OF SCALE -2 0 1 -1 1 1. 1. 2 BALANCE DUES RATE AND -2 0 1 -1 0 2 1 2 FEE-FOR-SERVICE 1. 1. 3 REMOVE DOUBLED DUES 35 35
WEIGHTS FOR OBJECTIVES SUM OF WEIGHTS IS 1 OO% FOR ALL LOWEST LEVEL OBJECTIVES OBJECTIVE’S WEIGHT DEPENDS ON RANGE ATTAINABLE ON OBJECTVIVE Use a SWING WEIGHT Interpretation Assume a weighted Additive Model (check independence conditions required for additive model) DECISION MAKER JUDGES WEIGHTS ON OBJECTIVES 36 36
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COMPUTE WEIGHTED AVERAGE OF VALUE RATINGS MULTIPLY OBJECTIVE’S WEIGHT TIMES VALUE RATING ON EACH OBJECTIVE SUM UP OVER ALL OBJECTIVES (Use SUMPRODUCT function in Excel) RECOMMENDED OPTION IS ONE WITH HIGHEST OVERALL VALUE 38 38
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RESULTS OF MERGER DECISION ANALYSIS OFFICERS TENDED TO PREFER MERGER 3 ALTERNATIVE, WITH SUB-UNIT BOARD REPRESENTATION VOCAL OPPONENTS WOULD COMPROMISE ON SEAMLESS MERGER, WITHOUT SUB-UNIT BOARD REPRESENTATION, AS LONG AS NEW NAME RETAINS “OPERATIONS RESEARCH” 40 40
OUTCOME OF DECISION OFFICERS PRESENTED SEAMLESS MERGER RECOMMENDATION TO MEMBERS VOTED TO MERGER TOOK PLACE JAN. 1 ST, 1995 NAME IS INSTITUTE FOR OPERATIONS RESEARCH AND THE MANAGEMENT SCIENCES (INFORMS) 41 41
Home Depot Case Sell Land? Feng, T. , L. R. Keller, X. Zheng. 2008. Modeling Multi-Objective Multi-Stakeholder Decisions: A Case-Exercise Approach. INFORMS Transactions on Education 8(3) 103 -114, (online: http: //ite. pubs. informs. org/). http: //www. informs. org/site/ITE/article. php? id=66, supplemental files: Home. Depot. Teaching. Note. pdf (for instructors), 42 42 Home. Depot. Case. xls , Summaryof. Home. Depot. Case. xls.
Background Home Depot proposed to open a retail store in San Juan Capistrano, CA to offset Lowe’s move to San Clemente. The new store would be located on a 15. 26 acre property in a strip of industrial land. Home Depot had purchased two acres of this land. The rest of the land was owned by the city, and would need to be acquired. 43 43
Background The city would get $9 Million if it sells Home Depot the 13 acres. Many were concerned that a “big box store” would destroy its historical small town feeling. Nearby residents also worry that a Home Depot would cause traffic jams, pollute the air, produce noise and block ocean breezes. 44 44
Stakeholders The city of San Juan Capistrano: likes the potential revenue, but concerned with interests of multiple stakeholders Competing local small businesses: will be influenced by the arrival of Home Depot in terms of profit, etc. Complementary local small businesses: will definitely be affected in terms of profit, etc. Home Depot Nearby residents: concerned with the possible adverse impacts on their quality of life Other area residents: will enjoy the convenience, but may 45 suffer from the possible increased traffic flow 45
Alternatives for Land Use • Build Home Depot • Don’t develop the land • Build a recreational vehicle park • Build specialty retail facilities 46 46
Spreadsheet Structure for Each Stakeholder 47 47
A Sample Spreadsheet to Evaluate the Home Depot Case Home Depot in San Juan Capistrano? Excel file (Home. Depot. Case. xls) Make sure to choose "enable the macros" when you open the spreadsheet. If you still have the problem of adjusting the sliders due to the security level after that, please go to the menu of "tools->macro->security", switch the security level from high to medium, save the file, then close the file and finally reopen the file and it should work. 48 48
Fill in table with new entries Promote convenience of shopping 49 49
Complementary Local Small Businesses. Representative Hierarchy of Objectives 50 50
Moving Sliders on Weights Dynamically Changes Graph 51 51
Moving Sliders on Weights Dynamically Changes Graph 52 52
What do you think: Yes or No? Sell Land? (City voters voted on this issue in November 2002. ) 53 53
Example Home Depot Case Perspectives Overall Values Option 1 Build Home Depot Option 2 Don't develop the land Option 3 Build RV Park Option 4 Build specialty retail City of San Juan Capistrano 4. 5 4. 2 5. 6 Competing Local Small Businesses 0. 6 3. 0 5. 0 8. 0 5. 7 3. 5 1. 0 5. 2 1. 4 4. 2 6. 2 3. 8 0. 8 3. 6 Complementary Local Small Businesses Home Depot Nearby Residents Other Area Residents 10. 0 9. 4 Data from Executive Education session, February 2009. UC Irvine Merage 54 54
Each Alternative from Different Stakeholders’ Viewpoints 55 55
Each Stakeholder’s View of Different Alternatives 56 56
Added References Feng, T. , L. R. Keller. 2006. A multiple-objective decision analysis for terrorism protection: Potassium iodide distribution in nuclear incidents. Decision Anal. 3(2) 76– 93. Hammond, J. S. , R. L. Keeney, H. Raiffa. 1999. Smart Choices: A Practical Guide to Making Better Decisions. Harvard Business School Press. Keeney, R. L. 1992. Value-Focused Thinking— A Path to Creative Decision Making. Harvard University Press, Cambridge, MA. Keller, L. R. , C. W. Kirkwood, N. S. Jones. 2009. Assessing stakeholder evaluation concerns: An application to The Central Arizona water resources system, Systems Engineering (Forthcoming- Expect in Vol. 12(4)). 57 57
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