Incorporating Risk and Uncertainty in a Multi-Criteria Process

The increasing intensity of competition, the development of more sophisticated tools for decision-making, and advances in information technology (IT) have led organisations to search for more efficient and effective ways to make key decisions. To succeed in rapidly changing competitive business environments firms can no longer ignore decision complexity, which arises from large numbers of alternative possibilities, and conflicting criteria. Traditional theory-based assessment techniques overemphasise quantitative and economic analysis, whereas senior managers often tend to base their final choice on qualitative and non-economic “strategic” factors. In this paper, senior managers of a European communications company made a key corporate decision that involved considerable risk and uncertainty by using Real Options (RO) theory embedded within a Direct-Interactive Structured-Criteria (DISC) Multi-Criteria Decision-Making (MCDM) system. We describe a case that shows how RO scores for the alternatives can, in a holistic manner, feed into the appropriate part the criteria structure effectively, thus combining both the quantitative and qualitative aspects of the decision. The DISC MCDM approach used several decision phases to narrow down the number of alternatives from six to three, and then two. At this point a “Magnifying Glass” approach was used, focusing on and enhancing the financial part of the criteria tree that differentiated the two remaining alternatives, when finally making the decision. These and other aspects of the decision process were selected to be compatible with the decision-makers' own thinking processes, and were informed by nomology, the “Science of the laws of the Mind”