It’s good to be getting back to covering all 49 BABOK® Guide techniques, and this entry is about Decision Analysis. I’m going to prioritize the order of techniques, and will cover the most widely-referenced techniques in the BABOK® Guide first. They are most likely to be referenced on the CBAP® and CCBA® exams because of the number of tasks that reference them. Decision Analysis supports 10 tasks in the BABOK® Guide, one of the most common, so we predict you will run into it on your exam.
The following contains excerpts are from the CBAP® Certification Study Guide, our book to help CBAP® and CCBA® candidates prepare for their exam.
Decision Analysis is a technique to help make decisions when faced with a limited number of choices. It provides a formal process for making decisions when faced with complex, competing alternatives. I’ve used it widely in and outside of business analysis. My wife and I used it when we bought our first house. I’ve also used it to make hiring decisions and to prioritize projects to undertake.
Among the most important decisions we BAs participate in are to help the business make wise investment choices. There are two key components of decision analysis:
a) Cost-Benefit Analysis – Used to compare benefits of a proposed solution against the costs of obtaining them.
b) Financial analysis – employed to quantify costs and benefits, and to estimate market assets.
The financial valuation techniques listed in the BABOK® Guide are often heavily influenced by the financial practices preferred in an organization. There are not likely any questions on the CBAP® or CCBA® exam that require you to perform calculations (although we don’t know that for a fact), but these techniques are a likely candidate for a “list of lists” or a “definition” question.
Some key things to take into account for effective decision analysis include: a) organization values, goals, and objectives, b) the type of decision to be made (e.g., investments, policies, goals, etc.), c) areas of uncertainty that surround the decision, and d) consequences of each alternative decision.
The BABOK® Guide lists these elements to consider for decision analysis:
Financial Outcomes – Generally a mathematical depiction of outcomes is required for decision analysis. Types the BABOK® Guide mentions are (with details following):
- Discounted Cash Flow: future value on cash flows, discounted to a present value
- Net Present Value: future value a project might bring, less its calculated value today
- Internal Rate of Return: hypothetical annual yield of an investment
- Average Rate of Return: average ratio of money earned or lost over some time period
- Pay Back Period: length of time for an investment to pay for itself, usually expressed in months or years
- Cost-Benefit Analysis: quantifying costs and expected benefits of a project.
Non-Financial Outcomes – Used when an outcome can’t be easily expressed financially, but can be objectively compared. Examples include reduced customer complaints, increased morale, etc. Without a metric, a ranking method needs to be specified.
The BABOK® Guide includes the element of uncertainty to cover decisions where it is impossible to know which outcome will occur. (Frankly, that would apply to most decisions, unless the outcome is a foregone conclusion. Then, why even have a decision?) Reasons given for uncertainty include lack of information, and dependencies out of our control. A decision tree is a common tool for mapping the alternatives of uncertain decisions, using a percentage likelihood and financial impact of a choice.
When a decision involves conflicting objectives or results, trade-offs may become necessary. For instance, to satisfy the need for long-term maintenance and changes, a custom software application may be chosen. Two significant trade-offs would be the increased time and cost to build it. When conflicts occur, no single variable such as cost will suffice to influence a decision.
To sum up, Decision Analysis applies to many tasks in the BABOK® Guide, and you are likely to see it show up in the CBAP® and CCBA® exams. It is a major technique to help with cost-benefit and financial analysis, both of which apply to Enterprise Analysis. But, the technique also applies to any task in which a decision has to be made, such as planning the BA Approach or Requirements Management process, Managing Solution Scope (essentially getting requirements approval), and Prioritize Requirements, to name a few. We might say you should “decide” to study Decision Analysis!
1) Get a copy of the BABOK® Guide by downloading it from the IIBA®.
2) Read about all the BABOK® Guide techniques in our CBAP® Certification Study Guide.