Decision analysis: a methodology for solving complex problems in the utility industry, benefit-cost analysis, siting, and long-range planning

The decisions made by utility company executives have become increasingly more complex, due to an uncertain economy, environmental regulations, public and government attitudes about energy conservation, and fuel availability problems. This paper discusses the concepts of decision analysis, includes references for further information, and shows the usefulness of decision analysis methods in dealing with problems confronting utilities. Decision analysis systematically incorporates the preferences and judgments of the decision maker, experts, and responsible affected parties in order to select the optimum solution. The process of decision analysis includes these five steps: 1) defining the problem; 2) determining the consequences of each alternative; 3) establishing likelihoods of the possible consequences; 4) determining the preference structure; and 5) synthesizing the information. Decision analysis is preferred over benefit-cost analysis because it is theoretically sound, operationally reasonable, and is a more systematic method for evaluating alternate courses of action. This analysis method also has a broad spectrum of applicability. It can be applied to very specific problems, e.g., power plant siting, as well as to general problems, e.g., assessing alternative long-range strategies for developing uranium sources. (13 references) (BYB)