When a decision maker has successfully and accurately defined the problem and generated alternatives, he or she can then conduct analysis useful to evaluating and assessing each. This typically involves analysis of quantitative data such as costs or revenues. Qualitative data is also used to be sure that considerations such as consistency with strategy, effects on relationships, or ethical implications are taken into account.
A first step in analysis is identifying all the sources of data needed to understand the various alternatives and their potential outcomes. Finding this data often involves research if relevant data do not exist. The results of data analysis are typically gathered, summarized, and synthesized as the basis for discussions and deliberations by decision makers.
There are a few approaches that can be used to help structure the analysis and assessment of potential decision alternatives. These range from simple tools such as lists of pros and cons to more complex models such as decision trees and influence diagrams, which can capture more variables and include more data.
A decision tree specifies alternatives visually and creates paths of subdecisions to be made or uncertainties to be considered in order to estimate the outcome of a given choice. It includes a value for each alternative, such as a financial outcome, and notes the probabilities that each outcome will occur. Decision trees sometime include the results of financial analysis such as net present value, which determines the present or current value of a stream of incoming cash flows that a project will bring in sometime in the future. One limitation to using decision trees is that they can become highly complicated as decisions become more complex or outcomes involve greater numbers of variables.
Another tool that decision makers can use to analyze alternatives is an influence diagram. An influence diagram is a compact graphical and mathematical representation of a decision situation. It groups sets of variables into things that are known and factors that are uncertain and links them to the choice to be made and the criteria for assessing it. Influence diagrams are directly applicable in group decisions because they allow incomplete sharing of information among team members to be modeled and for estimates to be made explicitly.
In the scenario depicted by the influence diagram above, a person is choosing between vacation alternatives. Her goal is a satisfactory vacation, which will be influenced by how good the weather is. She cannot have direct knowledge at the time of the decision what the weather will be, but she can gather information on the weather forecast or other climate patterns to help her make the choice of vacation location.