DECISION ANALYSIS (DA)

USING SMART
(Simple Multi Attribute Rating Technique)
The Four Basic Rational Processes
(Kepner-Tregoe Approach)
Situation
Analysis (SA)
What is going on?

problem
decision future event

Problem Decision Potential

Analysis (PA) Analysis (DA) Problem
Why did it What should we Analysis (PPA)
happen? do? What lies ahead?

Fishbone, Problem Tree, SMART, AHP, Decision

5 Why, FMEA, KT- Tree, KT-Decision
Problem Analysis, etc Analysis, etc.
 Introduction

• Decision problem that involves a number of objectives tends to overlook making

tradeoff between these objectives. It causes these problems:
 Selection of option that perform well only for particular objective(s)
 Rejection of attractive option since their good performance in some objectives
can’t compensate bad performance in another objective.
 Introduction

For example:
– A laptop is rejected because
of its slow processor speed,
despite its compactness,
reliability, and low price.
– A supplier is chosen because
of his low price, despite his
slow delivery times and poor
after-sales service.
 Introduction

• Those problems rise since decision maker has limited information processing
capacity.
• When face a large and complex problem:
– too much information to handle simultaneously.
So that a decision maker is forced to make simplification

• Main role of our analysis is to enable a decision maker to gain an increased

understanding about faced problem.
– May enable a manager to reduce a large number of alternatives.
 Objectives & Attributes/Criteria

• Objectives
– Preferred direction of movement
– Use terms “minimize” or “maximize”
• Minimize cost or maximize market share.

• Attributes/Criteria
– Measure performance in relation to an objective
– If the objective “maximize the exposure of a television advertisement”
• The attribute: “number of people surveyed who recall seeing the
advertisement”
 Value & Utility

• For each course of action facing a decision maker

– There is a numerical score to measure attractiveness
• Value - if no element of risk/uncertainty
• Utility - if risk/uncertainty involved
 Value
• A numerical score to measure attractiveness that involves no element of risk/uncertainty

• Imagine a pedicab driver (tukang becak) & a billionaire.

– A pedicab driver (probably) prefers to withstand his toothache rather than goes to a
dentist and spends Rp. 300,000.
– However, a billionaire tends to sacrifice his Rp. 300,000 rather than to resist his pain.
– They have different value toward Rp. 300,000.

– This is an extreme example, of course!

– Person is very unique! There is no guarantee that two person with same background will
have same value.
 Utility
• A numerical score to measure attractiveness that involves
risk/uncertainty
• There are two persons, the first person’s salary is Rp. 5
million/month & the second’s is Rp. 50 million/month.
– Do you know “Who Wants to Be a Millonaire” quiz?
– Imagine that each of them is in level Rp. 16 million at this
moment & has no knowledge about the correct answer of next
asked question (to reach Rp. 32 million).
– Correct answer will bring them to level Rp. 32 million, on other
hand, mistake will return them to Rp. 1 million.
– The second person tends to be more eager to bet rather than
the first.
– They have different utility toward this risk! (even, if two persons
have same salary, they may still have different utility).
 An Office Location Problem

• A small printing & photocopying

LOCATION ANNUAL RENT ($)
business must move to new
place. A Addison Square 30,000
• The owner considers 7 possible
locations B Bilton Village 15,000

C Carlisle Walk 5,000

D Denver Street 12,000

E Elton Street 30,000

F Filton Village 15,000

G Gorton Square 10,000

 An Office Location Problem

• Consideration toward some factors:

– Addison Square
• a prestigious location, close to potential customers
• expensive to rent
• an old dark building that won’t be comfortable for staff to work in.
– Bilton Village
• new building that will provide excellent working condition.
• several miles from center town, where most of potential customers are to be found
 8 SMART Stages
Simple Multi-attribute Rating Technique
• Stage 1, identify the decision maker, in our problem is the business owner.
• Stage 2, identify the alternative courses of action, in this problem are 7 possible locations.
• Stage 3, identify the attributes with are relevant to the decision problem, in our case, rent cost,
quality of working condition, size deserve to consider.
– We need set of attributes that can be assessed on a numerical scale.
• Stage 4, assign value to measure performance of each alternative based on chosen attribute.
 8 SMART Stages
Simple Multi-attribute Rating Technique
• Stage 5, determine a weight for each attribute, that reflects their level of importance for the
decision maker.
• Stage 6, for each alternative, take a weighted average of values assigned to that alternatives
– Represents how well an office performs over all the attributes.
• Stage 7, make a provisional decision (elimination of inferior alternatives).
• Stage 8, perform sensitivity analysis, to see how robust the decision.
 SMART-Stage 3
• In our case, we have already passed both stages 1 & 2.
• We then jump to stage 3, to identify the attributes which the
decision maker considers to be relevant with the problem.
– Creating a value tree can be useful
criteria

costs benefits

turnover working condition

rent electricity cleaning closeness to visibility image size comfort car

customer parkin
g
 SMART-Stage 3
• Starting of categorization from both costs & benefits is an
optional.
Categorization between benefits and benefits
costs

costs benefits

No categorization between benefits

benefits
and costs (skip Stage 7)

cost comfort convenience on the move image

benefits
No cost criteria (skip Stage 7)

effectiveness of the system ease of implementation

 SMART-Stage 3
• Annual rent, electricity cost, & cost of having regularly
cleaned is clearly can be assessed with numerical number.

costs

rent electricity cleaning

 SMART-Stage 3
• Potential for improving turnover & staff working condition still
need to specify
• They couldn’t be understood easily
• The others may have different perception toward them
Must be more detailed

benefits

turnover working condition

closeness to visibility image size comfort car

customer parking
 SMART-Stage 3
• Closeness of the office to potential customers is easily understood.
• Visibility of the site, much business is generated from people who
see the office while passing by.
• The image of the location, a decaying building in a back street may
convey a poor image and lead to a loss of business.
• Attributes size, comfort, & car parking facilities can be understood
well.

benefits

turnover working condition

closeness to visibility image size comfort car parking

customer
 SMART-Stage 3
• Special attention should be given to:
– Completeness, all attributes which are relevant have been
included
– Operationality, can be evaluated & compared
– Decomposability, can be specified to more operational
level
– Absence of redundancy, no attribute duplication
– Minimum size, the smaller the size then the easier to
analyze
• it takes tradeoff between completeness & minimum
size
 SMART-Stage 4
Measuring how well the options perform on each attribute
• Find out how well those locations’ performance based on
each attributes.
Location Annual Rent ($) Annual Cleaning Annual Electricity
Cost ($) Cost ($)
Addison Square 30,000 3,000 2,000
Bilton Village 15,000 2,000 800
Carlisle Walk 5,000 1,000 700
Denver Street 12,000 1,000 1,100
Elton Street 30,000 2,500 2,300
Filton Village 15,000 1,000 2,600
Gorton Square 10,000 1,100 900
 SMART-Stage 4
Measuring how well the options perform on each attribute
• Cost can be represented through currency used.
• Size can be measured with floor area in square feet,

• How could we measure attribute such as “image” & “comfort”?

Direct Rating
• In next Direct Rating example we will consider about measurement
of “image”.

• Value Function is used to transfer “actual value” to the order that is

more appropriate to decision maker’s preference
• Recall the case between pedicab driver & billionaire
 SMART-Stage 4
Measuring how well the options perform on each attribute
1. Direct Rating (for Abstract Value)
100 Addison Square
I. Addison Square 90 Elton Street
II. Elton Street 80
70 Filton Village
III. Filton Village
60
IV. Denver Street
50
V. Gorton Square 40
VI. Bilton Village 30 Denver Street
VII. Carlisle Walk 20 Gorton Square
10 Bilton Village

a. Rank image for those 0 Carlisle Walk

location b. Assign them value within

range 0-100
We have interval scale for
the improvement
between location
 SMART-Stage 4
Measuring how well the options perform on each attribute
2. Value Function (Transferring Actual Value/Dealing with DM’s Preference)
Location Size
(Floor Area in ft2)
Elton Street 1,500
Addison Square 1,000
The larger the area
Denver Street 800
 the more attractive
Gorton Square pr 700
efe
Bilton Village rre 550 • Carlisle Walk & Filton
d Village have same
Carlisle Walk 400
preference level.
Filton Village 400

For example, for the decision maker improvement from 1000 ft2 to 1,500
ft2 isn’t as attractive as 500 ft2 to 1,000 ft2.
 we should transfer actual size to decision maker’s value
 SMART-Stage 4
Measuring how well the options perform on each attribute
2. Value Function (Transferring Actual Value/Dealing with DM’s Preference)
Location Size (ft2)
100 0
val 90 0
Elton Street 1,500
ue
80 0
Addison Square 1,000
70 0
Denver Street 800 60 0
50 0
Gorton Square 700
40 0
Bilton Village 550 30 0
20 0
Carlisle Walk 400
101500 1500
0 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500
Filton Village 400 0 0
400 500 600 700 800 900 1000 1100 1200 1300 1400 1500
floor area (ft2)

After interviewing the decision maker, we get:

v(400) = 0; v(500) = 25; v(700) = 50; v(1,000) = 75; v(1,500) = 100
 SMART-Stage 4
Measuring how well the options perform on each attribute

If value of all attributes is converted to range [0, 100] then:

Location Closeness Visibility Image Size Comfort Car Parking

Addison Square 100 60 100 75 0 90

Bilton Village 20 80 10 30 100 30

Carlisle Walk 80 70 0 0 10 100

Denver Street 70 50 30 55 30 90

Elton Street 40 60 90 100 60 70

Filton Village 0 0 70 0 80 0

Gorton Square 60 100 20 50 50 80

 SMART-Stage 5
Determining weight of the attributes
best
100 0
I. Closeness to customer
90 0
II. Visibility best
80 0
III. Image best
IV. Size 70 0

V. Comfort 60 0

VI. Car-parking facilities 50 0

a. Ranking level of importance of 40 0
best
each attribute 30 0
best
 assigning the most 20 0
best
preferred with weight 10 0
100. 0 0
worst worst worst worst worst worst
b. Comparing the rest attributes with the most preferred
How much important:
improvement from the worst improvement from the worst
alternative to the best compare to alternative to the best alternative
alternative of visibility, of closeness to customer
 SMART-Stage 5
Determining weight of the attributes
best
100 0 Location Original Normalized
Weights Weight
90 0
best Closeness to 100 0.32
80 0 customers
best
70 0
Visibility 80 0.26
60 0
50 0 Image 70 0.23

40 0 Size 30 0.10
best
30 0
best Comfort 20 0.06
20 0
best
10 0 Car-parking 10 0.03
facilities
0 0
worst worst worst worst worst worst
closeness visibility image size comfort car-parking
to facilities
customer

normalized weight = original weight * 100% (rounded to nearest number)

total original weight
 SMART-Stage 6
Calculating aggregate of weighted value

Example calculation of weighted value for location Addison Square

Attribute Value Normalized Value x
Weight Normalized
Weight
Closeness to customers 100 0.32 32

Visibility 60 0.26 15.6

Image 100 0.23 23

Size 75 0.10 7.5

Comfort 0 0.06 0

Car-parking facilities 90 0.03 2.7

Total 80.8
 SMART-Stage 6
Calculating aggregate of weighted value

Location Closeness Visibility Image Size Comfort Car Aggregate of

(0.32) (0.26) (0.23) (0.10) (0.06) Parking Weighted
(0.03) Value
Addison Square 100 60 100 75 0 90 80.8

Bilton Village 20 80 10 30 100 30 39.4

Carlisle Walk 80 70 0 0 10 100 47.4

Denver Street 70 50 30 55 30 90 52.3

Elton Street 40 60 90 100 60 70 64.8

Filton Village 0 0 70 0 80 0 20.9

Gorton Square 60 100 20 50 50 80 60.2

 SMART-Stage 7
Provisional decision: trading benefit vs cost
2. If the owner has difficulty in comparing the weight for both benefit & cost

Location Total Aggregated

Cost ($) Benefit
100 0
A Addison Square 35,000 80.8
90 0
A
80 0 x
B Bilton Village 17,800 39.4
E
70 0 x

value of benefit
C Carlisle Walk 6,700 47.4 G
60 0 x
D
x C
D Denver Street 14,100 52.3 50 0 x
B
40 0 x
E Elton Street 34,800 64.8
30 0 F
x
F Filton Village 18,600 20.9 20 0

1500 10 0
G Gorton Square 12,000 60.2
0 0
40,000 30,000 20,000 10,000 0
cost

: efficient frontier : preferred direction : dominated area

 SMART-Stage 7
Provisional decision: trading benefit vs cost
3. If the owner has difficulty in choosing the most preferred efficient frontier point

100 0 A G

90 0 $ 35,000 80.8 $12,000 60.2

A
80 0 x $5,300 12.8
$ 6,700 point
C
70 0
47.4 $414/point
value of benefit

G
60 0 x
$12,000 $23,000 20.6
C point
50 0 x G
60.2 $1,117/point
40 0
30 0
20 0
10 0
Decision maker compares C & G:
0 0
40,000 30,000 20,000 10,000 • If his extra value point < $ 414
Cost ($)  Carlisle Walk
• If his extra value point ≥ $ 414
Decision maker compares G & A:  Gorton Square
• If his extra value point < $ 1,117  Gorton Square
• If his extra value point ≥ $ 1,117  Addison Square
 SMART-Stage 8: Sensitivity Analysis

Sensitivity analysis is:

• a method to observe stability of solutions when level of importance for particular
attributes is changed.
• a gauge to measure robustness of solutions.
• the study of effect of input perturbation toward output.
 SMART-Stage 8: Sensitivity Analysis
• Sensitivity analysis between turnover vs working condition

benefits

costs benefits

turnover working condition

rent electricity cleaning closeness to visibility image size comfort car

customer parkin
g
 SMART-Stage 8: Sensitivity Analysis
Turnover = 0
Location Original Normalized
Weights Weight
Closeness to 0 0
customers
Visibility 0 0

Image 0 0

Size 30 0.5

Comfort 20 0.333

Car-parking 10 0.167
facilities

normalized weight = original weight * 100% (rounded to nearest number)

total original weight
 SMART-Stage 8: Sensitivity Analysis
Location Closeness Visibility Image Size Comfort Car Parking Aggregate of
(0.32) (0.26) (0.23) (0.10) (0.06) (0.03) Weighted Value
Addison Square 100 60 100 75 0 90 80.8
Bilton Village 20 80 10 30 100 30 39.4
Carlisle Walk 80 70 0 0 10 100 47.4
Denver Street 70 50 30 55 30 90 52.3
Elton Street 40 60 90 100 60 70 64.8
Filton Village 0 0 70 0 80 0 20.9
Gorton Square 60 100 20 50 50 80 60.2

Location Closeness Visibility Image Size Comfort Car Parking Aggregate of

(0.00) (0.00) (0.00) (0.50) (0.333) (0.167) Weighted Value
Addison Square 100 60 100 75 0 90 52.53
Bilton Village 20 80 10 30 100 30 53.31
Carlisle Walk 80 70 0 0 10 100 20.03
Denver Street 70 50 30 55 30 90 52.52
Elton Street 40 60 90 100 60 70 81.67
Filton Village 0 0 70 0 80 0 26.64
Gorton Square 60 100 20 50 50 80 55.01
 SMART-Stage 8: Sensitivity Analysis
Working condition = 0
Location Original Normalized
Weights Weight
Closeness to 100 0.4
customers
Visibility 80 0.32

Image 70 0.28

Size 0 0

Comfort 0 0

Car-parking 0 0
facilities

normalized weight = original weight * 100% (rounded to nearest number)

total original weight
 SMART-Stage 8: Sensitivity Analysis
Location Closeness Visibility Image Size Comfort Car Parking Aggregate of
(0.32) (0.26) (0.23) (0.10) (0.06) (0.03) Weighted Value
Addison Square 100 60 100 75 0 90 80.8
Bilton Village 20 80 10 30 100 30 39.4
Carlisle Walk 80 70 0 0 10 100 47.4
Denver Street 70 50 30 55 30 90 52.3
Elton Street 40 60 90 100 60 70 64.8
Filton Village 0 0 70 0 80 0 20.9
Gorton Square 60 100 20 50 50 80 60.2

Location Closeness Visibility Image Size Comfort Car Parking Aggregate of

(0.40) (0.32) (0.28) (0.00) (0.00) (0.00) Weighted Value
Addison Square 100 60 100 75 0 90 87.2
Bilton Village 20 80 10 30 100 30 36.4
Carlisle Walk 80 70 0 0 10 100 54.4
Denver Street 70 50 30 55 30 90 52.4
Elton Street 40 60 90 100 60 70 60.4
Filton Village 0 0 70 0 80 0 19.6
Gorton Square 60 100 20 50 50 80 61.6
 Location Aggregate of Weighted Value Aggregate of Weighted Value Aggregate of Weighted Value
(Turnover = 0) (Original) (Working Condition = 0)
Addison Square 52.53 80.8 87.2
Bilton Village 53.31 39.4 36.4
Carlisle Walk 20.03 47.4 54.4
Denver Street 52.52 52.3 52.4
Elton Street 81.67 64.8 60.4
Filton Village 26.64 20.9 19.6
Gorton Square 55.01 60.2 61.6

100 0 100 0
90 0 90 0
80 0 80 0
Value of benefit

Value of benefit
70 0 70 0
60 0 60 0
50 0 50 0
40 0 40 0
30 0 30 0
20 0 20 0
101500 1500
0 1500 1500 1500 1500 1500 1500 1500 1500 1500 10 0
1500
0 0 0
0 10 20 30 40 50 60 70 80 90 100
weight placed on
 SMART-Stage 8: Sensitivity Analysis

100 0 100 0
90 0 90 0
80 0 80 0

Value of benefit

Value of benefit
70 0 70 0
60 0 60 0
50 0 50 0
40 0 40 0
30 0 30 0
20 0 20 0
101500 1500
0 1500 1500 1500 1500 1500 1500 1500 1500 1500 10 0
1500
0 0 0
0 10 20 30 40 50 60 70 80 90 100
weight placed on
turnover
• As long weight of total turnover < 52.1  Elton Street is the most attractive
• When weight of total turnover > 52.1  Addison Square is the most attractive
 SMART-Stage 8: Sensitivity Analysis
• What if you want to do sensitivity only for visibility ?

benefits

costs benefits

turnover working condition

rent electricity cleaning closeness to visibility image size comfort car

customer parkin
g
 SMART-Stage 8: Sensitivity Analysis
Visibility = 0 Visibility = 100
Location Original Normalized Location Original Normalized
Weights Weight Weights Weight
Closeness to 100 0.43 Closeness to 0 0
customers customers
Visibility 0 0
Visibility 80 1.0
Image 70 0.30 Image 0 0

Size 30 0.14 Size 0 0

Comfort 20 0.09 Comfort 0 0

Car-parking 10 0.04 Car-parking 0 0

facilities facilities

normalized weight = original weight * 100% (rounded to nearest number)

total original weight
POTENTIAL
PROBLEM
ANALYSIS (PPA)
The Four Basic Rational Processes
(Kepner-Tregoe Approach)
Situation
Analysis (SA)
What is going on?

problem
decision future event

Problem Decision Potential

Analysis (PA) Analysis (DA) Problem
Why did it What should we Analysis (PPA)
happen? do? What lies ahead?
 The Future

• Looking into the future helps to identify

and assess threats and opportunities.
• The first step in a Potential Problem
Analysis is to feel concern about the future
of some project, situation, or event.
• Only when managers share a common
method can this activity be effective.
 Potential Problem Analysis
• PPA is the pattern of thinking that enables us to change and
improve the future; rather than allow the future to arrive
entirely on its own terms.
• PPA is a voluntary act of prudence
• PPA is used less often and less thoroughly than the other
Rational Processes
 Potential Problem Analysis
• Success and survival depend on being able to anticipate
change, to avoid being swallowed up by its negative effects,
and to seize the benefits it offers.
• PPA is a systematic process for uncovering and dealing with
potential problems and opportunities that are reasonably likely
to occur.
 PPA Basic Questions

• Potential Problems
– Focus on undesirable deviations
– What could go wrong?
– What can we do about it now?
 PPA Techniques
1. Identify Potential Problems
2. Identify consequences for the Potential Problems
3. Identify causes for the Potential Problems
4. Prepare preventive actions to address the potential problems
5. Prepare contingency actions to reduce the effects if
preventive actions fail or not possible
 PPA for Addison Square
POTENTIAL CONSEQUENCE POSSIBLE PREVENTIVE CONTINGENT
PROBLEM CAUSE ACTION ACTION
Cannot pay Expelled from Rent is so Negotiate for a Rent smaller
rent property expensive longer term, space for front
lower rent office and
move back
office to
cheaper
location
Low cash flow Create Change
after moving to promotional business model
new office program
Uncomfortable High employee Old dark Refurbish the Move to
office turnover building office with another
bright color location
and new
furniture
Thank you !