Value-Focused Supply Chain Risk Analysis
A fundamental premise of Keeney’s book (1992) is that decision makers should not settle for those alternatives that are thrust upon them. The conventional solution process is to generate alternative solutions to a problem, and then focus on objectives. Th
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Value-Focused Supply Chain Risk Analysis
A fundamental premise of Keeney’s book (1992)1 is that decision makers should not settle for those alternatives that are thrust upon them. The conventional solution process is to generate alternative solutions to a problem, and then focus on objectives. This framework tends to suppose an environment where decision makers are powerless to do anything but choose among given alternatives. It is suggested that a more fruitful approach would be for decision makers to take more control over this process, and use objectives to create alternatives, based on what the decision makers would like to achieve, and why objectives are important.
Hierarchy Structuring Structuring translates an initially ill-defined problem into a set of well-defined elements, relations, and operations. This chapter is based on concepts presented in Keeney, and in Olson.2 Before we discuss hierarchies and their structure, we should give some basic definitions. Keeney and Raiffa3 gave the following definitions: Objective – the preferred direction of movement on some measure of value Attribute – a dimension of measurement Keeney and Raiffa distinguish between utility models, based upon tradeoffs of return and risk found in von Neumann-Morgenstern utility theory and the more general value models allowing tradeoffs among any set of objectives and subobjectives. Preferential independence concerns whether the decision maker’s preference among attainment levels on two criteria do not depend on changes in other attribute levels. Attribute independence is a statistical concept measured by correlation. Preferential independence is a property of the desires of the decision maker, not the alternatives available. The simplest hierarchy would involve VALUE as an objective with available alternatives branching from this VALUE node. Hierarchies generally involve additional layers of objectives when the number of branches from any one node D.L. Olson, D. Wu, Enterprise Risk Management Models, C Springer-Verlag Berlin Heidelberg 2010 DOI 10.1007/978-3-642-11474-8_7,
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Value-Focused Supply Chain Risk Analysis
exceeds some certain value. Cognitive psychology has found that people are poor at assimilating large quantities of information about problems. Saaty used this concept as a principle in analytic hierarchy development, calling for a maximum of from seven branches in any one node in the analytic hierarchy process (AHP).4 Desirable characteristics of hierarchies given by Chap. 2 of Keeney and Raiffa (1976) include: Completeness – objectives should span all issues of concern to the decision maker, and attributes should indicate the degree to which each objective is met. Operability – available alternatives should be characterized in an effective way. Decomposability – preferential and certainty independence assumptions should be met Lack of Redundancy – there should not be overlapping measures Size – the hierarchy should include the minimum number of elements necessary. Keeney and Saaty both suggest starting wi
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