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84 Part I • Decision Making and Analytics: An Overview

scenarios
A scenario is a statement of assumptions about the operating environment of a particu-
lar system at a given time; that is, it is a narrative description of the decision-situation
setting. A scenario describes the decision and uncontrollable variables and parameters
for a specific modeling situation. It may also provide the procedures and constraints for
the modeling.
Scenarios originated in the theater, and the term was borrowed for war gaming and
large-scale simulations. Scenario planning and analysis is a DSS tool that can capture a
whole range of possibilities. A manager can construct a series of scenarios (i.e., what-if
cases), perform computerized analyses, and learn more about the system and decision-
making problem while analyzing it. Ideally, the manager can identify an excellent, possibly
optimal, solution to the model of the problem.
Scenarios are especially helpful in simulations and what-if analyses. In both cases,
we change scenarios and examine the results. For example, we can change the anticipated
demand for hospitalization (an input variable for planning), thus creating a new scenario.
Then we can measure the anticipated cash flow of the hospital for each scenario.
Scenarios play an important role in decision making because they:
• Help identify opportunities and problem areas
• Provide flexibility in planning
• Identify the leading edges of changes that management should monitor
• Help validate major modeling assumptions
• Allow the decision maker to explore the behavior of a system through a model
• Help to check the sensitivity of proposed solutions to changes in the environment,
as described by the scenario

Possible scenarios
There may be thousands of possible scenarios for every decision situation. However, the
following are especially useful in practice:
• The worst possible scenario
• The best possible scenario
• The most likely scenario
• The average scenario

The scenario determines the context of the analysis to be performed.
errors in Decision Making

The model is a critical component in the decision-making process, but a decision maker
may make a number of errors in its development and use. Validating the model before it
is used is critical. Gathering the right amount of information, with the right level of preci-
sion and accuracy, to incorporate into the decision-making process is also critical. Sawyer
(1999) described “the seven deadly sins of decision making,” most of which are behavior
or information related.

sectiOn 2.5 revieW QuestiOns

1. Define optimization and contrast it with suboptimization.
2. Compare the normative and descriptive approaches to decision making.
3. Define rational decision making. What does it really mean to be a rational decision
maker?
4. Why do people exhibit bounded rationality when solving problems?

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