Decision Analysis for Product Development

Abstract

The decision analysis described considers four major installation development alternatives upon which management decisions were required. The analysis has a number of phases. The technical-economic system is first modeled deterministically to describe the characteristics of the business. The deterministic model, or expected value business model, is then exercised in a sensitivity phase to determine what parameters are most influential to the outcomes. The analysis uses present worth methods for the time preference for money. Pricing strategies and market feedback capability are included. Adjunct businesses that develop as a result of the original business have been modeled in the deterministic model. The deterministic or nominal value outcomes show a clear progression of improvement over a 20 year period for the more technically advanced installation developments. The cost of development is an influential contributor to deterministic outcomes. The influence on near term outcomes of development costs was sufficient to make the issue of time value of outcomes very significant. The value of identifying the short term and long term outcomes on the basis of the time value of outcomes becomes identifiable as a significant contribution to decision making. The thinking which contributed to choosing the parameters used in the uncertainty analysis proved to be an important means of clarifying the issues surrounding what uncertainty analysis of a given development alternative venture really consists of.