Decision-Making Tools

This chapter presents decision-making approaches and models and also provides an understanding of issues related to risks and methods to analyze the risks. The first problem described in this chapter is with an automaker that wants to select a new vehicle program to maintain its profitability. The manufacturer has 12 possible alternative programs to replace its existing products that the automaker can consider. The first alternative was to consider a vehicle program to produce a small “B” size car with a selling price of about $17,000 and expect to generate about $4.25 billion in revenue by selling 250,000 vehicles over the next 5 years and make $75.0 million profit. Other alternatives considered are 11 programs with different combinations of vehicle size and body styles. The first approach to such problem-solving covered in this chapter is to create a decision matrix of alternatives by possible outcomes and apply different principles to determine the best alternative. The principles that can be applied and described in this chapter are maximum expected value, aspiration level, most probable, Laplace, maximin, maxmax, and Hurwitz’s principle. Other methods covered here are risk matrix, Pugh diagrams, analytical hierarchical method, and failure modes and effects analysis (FMEA).