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Approaches to displaying information to assist decisions under uncertainty

M.E. Kreye, Y.M. Goh, L.B. Newnes and P. Goodwin

Omega, 2012, vol. 40, issue 6, 682-692

Abstract: The estimation of the costs of a product or project and the decisions based on these forecasts are subject to much uncertainty relating to factors like unknown future developments. This has been addressed repeatedly in research studies focusing on different aspects of uncertainty; unfortunately, this interest has not yet been adopted in practice. One reason can be found in the inadequate representation of uncertainty. This paper introduces an experiment, which engages different approaches to displaying cost forecasting information to gauge the consideration of uncertainty in the subsequent decision-making process. Three different approaches of displaying cost-forecasting information including the uncertainty involved in the data were tested, namely a three point trend forecast, a bar chart, and a FAN-diagram. Furthermore, the effects of using different levels of contextual information about the decision problem were examined. The results show that decision makers tend to simplify the level of uncertainty from a possible range of future outcomes to the limited form of a point estimate. Furthermore, the contextual information made the participants more aware of uncertainty. In addition, the fan-diagram prompted 75.0% of the participants to consider uncertainty even if they had not used this type of diagram before; it was therefore identified as the most suitable method of graphical information display for encouraging decision makers to consider the uncertainty in cost forecasting.

Keywords: Uncertainty; Cost forecasting; Decision making (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.omega.2011.05.010

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