Decision Analysis Reading List

Former colleague, Duncan John of StrategicFit, asks, “What books would you recommend for someone starting out as a decision analysis consultant?” It’s a great question. Here are a few of my suggestions.

Decision Analysis for the Professional

Decision Analysis for the Professional (3rd ed, 2001), by Peter McNamee and John Celona, started life as a manual for the SuperTree decision analysis software package. The 3rd edition has been rewritten to be software-neutral and now incorporates the dialogue decision process (DDP) and the concepts of decision quality. Between this and Making Hard Decisions (see below), DAftP is the more practical, and hence better, book for the ordinary professional working with a decision analyst, or as a first text for a trainee decision analyst wanting to learn about decision diagrams and decision trees, and how these tools should be used in real-world consulting engagements.

Mathematical theory is nicely relegated to the “Advanced Topics” section and well written for those with a non-advanced mathematical education. I would have liked at least some mention of Monte Carlo simulation as an alternative to decision trees, but then it is only in the last year or so (DAftP was last updated in 2001) that Monte Carlo simulation has become a realistic alternative to simple decision tree analysis, largely abetted by the development by Sam Savage of the DIST standard for encoding probability distributions.

Unfortunately, the book is not cheap. Strategic Decisions Group (SDG) sells it via Amazon.com for $95. I have copies for sale via Amazon.co.uk at £65. Alternatively, talk nicely to David Matheson at SmartOrg or Bruce Judd at SDG, or attend one of Bruce’s excellent DDP courses when he’ll give you a copy. I will also give you a copy if you get me to deliver a DA or modelling course or an Excel Modelling Masterclass.

Making Hard Decisions

Making Hard Decisions, by Robert Clemen, is a more academic-style textbook. It is divided into three equal-sized sections on modelling decisions, uncertainty and preferences. The decision section includes structuring with decision diagrams and decision trees and the process of developing sensitivity analysis and solving the decision problem. The book has been updated a few times, but its recommendations regarding software are inevitably out of date.

The uncertainty section is a good introduction to probability theory and the rules for manipulating probabilities. It describes how one might assess real-world probabilities of future events and continuous distributions, and overcome bias, but in a less practical way than DAftP. The book seems to rely instead on theoretical probability models and introduces the bionomial, Poisson, exponential, normal and beta distributions, material that is entirely lacking from DAftP. It also has a chapter on Monte Carlo simulation, which again DAftP does not cover.

The preferences section is an academic and thorough discussion of utility theory and multi-attribute decision-making. However, it does not really do justice to the complex multi-dimensional trade-offs that occur in real situations.

For a university course I might use this book. For training business people, I much prefer DAftP.

Rethink Reinvent Reposition

For a book with no mathematics or analytics, but with a great description of the decision analysis process applied to a difficult problem, try Rethink Reinvent Reposition, by Leo Hopf and William Welter. The authors provide a practical outline of the steps to make and embed the decision whether and how to renew a business that has plateaued, and to start the process of making it happen. Read my full review.

Besides these three, what books would you recommend?