Decision Making on selection of alternate energy resources in a Software Company

1. Decision Making on selection of alternate energy resources in a Software Company Presented By Hamid Amir EM/MSC/048

3. Numetrics Private Limited, Islamabad Pakistan • Fully-owned subsidiary of Numetrics Management Systems • Based in Silicon Valley in USA • A world leader in providing predictive analytics project management software for: • IC • Semi-conductor • Embedded systems organizations • The core engineering center for the worldwide organization • Has setup an offshore office in Islamabad comprising 30 colleagues. Company Introduction

4. Six Steps in Decision Making • Apply the model and make your decision Step 6

5. Decision Making on selection of alternate energy resources in a Software Company

6. Possible Alternatives • Do nothing i e WAPDA electricity and working with 4 hour load shedding • Solar plus WAPDA • UPS plus WAPDA • Generator plus WAPDA

14. Decision making models used Prospect Theory Decision Tree Maximax

15. Decision Making Models Applied Decision theory is an analytic and systematic approach to the study of decision making models. Good decision; logical, considering all available data, alternatives and application of quantitative decision model. Decision Making Environments Certainty:alternatives and outcomes known with certainty -e g interest on income. Risk: alternatives and Probability of occurrence of each outcome known-e g fliping of coin . Uncertainty: Probability of occurrence of each outcome not known-e g election results after 10 years.

16. Decision Making under Risk • Probabilistic decision situation • EMV is the weighted sum of possible payoffs for each alternative. • EOL requires an opportunity loss table; it is the amount lost by not picking the best alternative/solution. • Maximum EMV and Minimum EOL will always give same result. • Sensitivity Analysis investigates how our decision might change with different input data /probability scenario. • Decision Trees used for large sequential decision problems.

17. Decision making under Uncertainty • Probability data not available • Maximax is an optimitic approach/decision criterion as it maximizes the maximum outcome for every alternative • Maximin is a pessimistic approach/decision criterion as it maximizes the minimum outcome for every alternative • Equally Likely (Laplace Criterion) computes the highest average outcome • Criteria of Realism (Hurwicz Criterion) uses the weighted average approach( personal choice of alpha 0-1;alpha close to 1 ;optimistic decision maker ) • Minimax Regret is based on opportunity loss;it finds the alternative that minimizes the maximum opportunity loss with in each alternative

18. Decision Making Models Applied Decision making models under uncertainty Maximin Maximin Minimax Regret Laplace Hurwicz Decision making models under Risk EMV( Expected monetary value) EOL( Expected opportunity loss) Decision Tree Sensitivity Analysis Prospect Theory

19. Decision Model

21. Decison making model under uncertainity

22. Decision making under uncertainty

23. Decision making model under Risk

25. Prospect Theory

26. Decision Tree - 39,804,954.5 5 yrs - 26,536,636 Do Nothing 10 Yrs - 53,073,273 18,417,852.5 5 Yrs 10,909,235 , Solar+WAPDA 10 Yrs 25,926,470 18,612,614 5 Yrs 12,408,409 UPS+WAPDA 10 Yrs 24,816,819 , 20,347,045.5 5 Yrs 12,831,364 Generator+ WAPDA 10 Yrs 27,862,727

27. Decision Making under Uncertainty

28. Decision Making under Risk

29. Conclusion

30. Decision planning • Making a decision without planning is fairly common but does not often end well. • Planning allows for decisions to be made comfortably and in a smart way. • Planning makes decision making a lot more simple than it is. • Decision will get four benefits out of planning: 1. It gives chance to the establishment of independent goals. It is a conscious and directed series of choices. 2. Provides a standard of measurement. It is a measurement of whether you are going towards or further away from your goal. 3. It converts values to action. 4. Allows for limited resources to be committed in an orderly way. Always govern the use of what is limited to you. (e.g. money, time, etc.)

31. Decision making • In the real world, most of our decisions are made unconsciously in our mind. • Decision-making models offer analytical tools which can be combined to provide useful insights. • No perfect model as decision environments vary. Therefore risk preference/profile and decision environment may dictate choice of appropriate model. • Decision planning must be done. • Cognitive Biases must be taken care off. • Objectives must first be established. • Objectives must be classified and placed in order of importance. • Alternative actions must be developed.

32. Alternative must be evaluated against all the objectives. • Alternative that is able to achieve all the objectives is the tentative decision. • Tentative decision be evaluated for more possible consequences. • Decisive actions be taken and additional actions must be taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again. • Selected Decision model steps befollowed to determine an optimal plan. • In a situation featuring conflict, role-playing is helpful for predicting decisions to be made by involved parties.

33. Cognitive and personal biases in decision making • Biases can creep into our decision making processes. • Confirmation bias in psychology- (Scott Plous, 1993) – People tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions. • Premature termination of search for evidence – People tend to accept the first alternative that looks like it might work. • Cognitive inertia – Unwillingness to change existing thought patterns in the face of new circumstances.

34. Selective perception – We actively screen-out information that we do not think is important. (e g prejudice.) • Wishful Thinking – a tendency to want to see things in a positive light, which can distort perception and thinking. • Choice Supportive Bias- occurs when people distort their memories of chosen and rejected options to make the chosen options seem more attractive. • Recency – People tend to place more attention on more recent information and either ignore or forget more distant information. • Repetition bias – A willingness to believe what one has been told most often and by the greatest number of different sources.

35. Anchoring and adjustment – Decisions are unduly influenced by initial information that shapes our view of subsequent information • Group think – peer pressure to conform to the opinions held by the group. • Source credibility bias – A tendency to reject a person's statement on the basis of a bias against the person, organization, or group to which the person belongs. People preferentially accept statement by others that they like .

36. Incremental decision making and escalating commitment – We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions; can be contrasted with zero-based decision makin. • Attribution asymmetry – People tend to attribute their own success to internal factors, including abilities and talents, but explain their failures in terms of external factors such as bad luck. • Role fulfillment – A tendency to conform to others' decision-making expectations. • Illusion of control–People tend to underestimate future uncertainty because of a tendency to believe they have more control over events than they really do.

37. Thank You