A CASE IN ON-LINE DECISION ANALYSIS FOR PRODUCT PLANNING1

This report presents an application of quantitative decision-analytic techniques to consider an opportunity for capital investment in a new product. Decision analysis is a well-established technique for evaluating major decisions in which substantial resources and time are available for the analysis and the problem is definitely formulated at the outset. This case study, however, illustrates how decision-analytic techniques can be used on-line to improve decision making in a situation in which time and resources are limited, and the manager's perception of the problem changes in response to feedback from the analysis. The basic decision problem was whether or not the AIL division of Cutler-Hammer, Incorporated should purchase a six-month option on a flight-safety system patent. The president of AIL had only a few weeks in which to make a decision. The analytic approach focused on a probabilistic discounted earnings model. This model was refined over a two-week period through a sequence of iterations which incorporated the results of both direct and indirect assessments of probabilities and values. The analysis affected the company's decision process by providing a vehicle for structuring the ongoing communication between AIL's president and his advisors, and by focusing their attention on the most important issues. In the end, the analysis facilitated a unanimous decision from the decision-making group not to purchase the option, but to consider participating in the license as a subcontractor at a later date. This strategy had not been considered at the outset.