The president of a major oil company was recently quoted in The Oil and Gas Journal, as saying that today's circumstances require every oil-company management to "face up to reality and begin making more hard-headed decisions" (italics mine) regarding its day-to-day operations and future capital investment policies. The reasons he cited were the slowed rate of growth in demand and overcapacity in nearly every phase of oil operations. Judging from similar remarks by others in the industry, it appears that the future success of the industry, and particularly, that of individual companies, is going to depend on wise courses of action, or as he puts it, "hardheaded decisions."

I agree. In this paper, I want to talk about such hard headed decision making. What really is a decision? How does one go about collecting information, naming alternatives, assigning gains and losses from alternative actions, formulating criteria, selecting one action? It is difficult enough under conditions of relative simplicity and certainty, but when the decision is complex and the outcomes highly uncertain, the problem is compounded.

DECISION PROCEDURES

In such a situation, a decision maker generally follows one of three courses:

  • Decides solely on the basis of intuition, judgment, hunch, seat of pants, experience, etc.. This is decision making as an art.

  • Decides on the basis of simple, quick calculations and "reasonedjudgment." This is mixed art and scientific thinking.

  • Decides on the basis of some fairly detailed and rigorous procedure, capturing as much information and judgment as possible in mathematical and statistical language so that it may be studied and manipulated by formallogic.

The last decision procedure is what can be called hard-headed decision making. It is what academic people are referring to today as "decisiontheory."

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