A risk-based decision making heuristic for engineering design in product development

Abstract

The process of engineering design requires making decisions. This dissertation involves dealing with risks inherent in engineering design from a process and decision-making perspective. Engineering decision-making transpires through a number of different decision constructs - experiential, scientific, expected value, optimization, and intuitive aggregation for instance - but they all need to take into account the element of risk. Engineering risk uses both qualitative and quantitative methods to deal with such areas as safety, probability, and cost benefit analysis. The risk in question for this method is project development risk rather than societal risk. This paper introduces the Risk-adjusted Value Ratio (RAVR) heuristic as a decision-making tool that combines elements of cost-benefit analysis with elements of traditional Expected Value for risk tempering design decisions. The methodology defines the ratio in terms of expected benefits to expected costs. This ratio is used as a stand-alone evaluation tool between alternatives, as a sensitivity analysis tool, or as a driver for decision-making when using an optimization strategy. It can be used both quantitatively and qualitatively. The RAVR heuristic is shown to accommodate all decision-maker risk preference levels except for risk-seeking, where traditional Expected Value decision-making provides only risk-neutral results. Case studies are provided which demonstrate the RAVR heuristic's various uses as well as its strengths and weaknesses.