Chapter 13

RESOURCE ALLOCATION AND NEGOTIATION PROBLEMS

The application of decision analysis to problems where a group meets to decide how
resources should be allocated between alternative uses. The problem was characterized by a
small number of objectives but a very large number of possible courses of action. The use of
decision analysis facilitated group participation in the decision process so that the conflict
between centralization and local decision making could be resolved. We then showed how
decision analysis can help decision makers who are involved in negotiations to identify
improved deals which are in the interests of both parties.
THE MAIN STAGES OF THE ANALYSIS
The decision analysis approach to resource allocation problems involves a number of
stages below.
Stage 1 : Identify the resources which are to be allocated, the areas (variables) to which they
can be allocated and the various benefits which it is hoped this allocation will
achieve.
Stage 2 : Identify the possible strategies which are available for each variable.
Stage 3 : For each variable, assess the costs and benefits of the different strategies.
Stage 4 : Assess the within-criterion weights so that each benefit can be measured on a
common scale.
Stage 5 : Assess the across-criteria weights which will enable the values for the different
benefits to be combined on an overall benefit scale.
Stage 6 : Use a computer to calculate the costs and benefits for every package and identify
the efficient frontier.
Stage 7 : Propose a package which appears to achieve the desired objectives within the
constraints of the resources available.
Stage 8 : Use the computer to find if there are packages on the efficient frontier which offer
higher benefits for the same cost as the proposed package (or the same benefits at a
lower cost).

Stage 9 : Perform a sensitivity analysis on the results to identify which other packages would
be worth considering if more or less resources are available and to examine the
effects of changes in the data used in the model.