7.5 Decision making 285
Summary
• Decision making, on a practical level, can
be assisted by assessing consequences.
• Consequences are measured in terms of:
(1) their seriousness / importance / value /
utility; (2) their likelihood / probability / risk.
Judging the impact of consequences on a
decision means balancing these two factors
against each other.• Decision trees demonstrate a formal
methodology for decision making.
They work best when the values and
probabilities are quantifiable.So what does the exercise tell us? It suggests
that going ahead with the project would
probably be more profitable than selling by
about $500,000. This is not very much, in
modern business terms; certainly not enough
to make Zenergies’ decision an easy one. The
board might say that with such small
margins it would be better to take the safer
course of selling, which at least could not
end in a loss. On the other hand it might
argue that since the odds look about equal,
the risk is worth taking. Calculations like
these assist decision making, but they don’t
guarantee success.
Other factors
As observed earlier, real-life decisions generally
involve many more factors than we have
considered in this simplified example. Nor are
direct financial consequences the only factors
which may need to be taken into account.
There may be environmental issues at stake. The
current way in which shale gas is extracted – a
process known as induced hydraulic
fracturing, or ‘fracking’ for short – is believed
by some scientists to increase the risk of
earthquakes. Public opinion, fear of lawsuits,
or even ethical principles may deter Zenergies’
board members from getting involved in shale
gas. Considerations such as these are the
subject of the next chapter.