7.1 Introduction

The decision opportunity and our values determine the decision objectives. The objectives define the goals that we are trying to achieve. In systems engineering, the objective space includes business/mission objectives, stakeholder objectives, and system objectives. Business/mission objectives are derived from organizational and customer needs. Stakeholder objectives include the goals of other important stakeholders in the system life cycle. Finally, system objectives include the technical objectives necessary for the system to meet business/mission and stakeholder objectives throughout the system life cycle. The systems engineering objectives space spans the life cycle of the system's products and services in both commercial and government enterprises including the business/mission need, concept, requirements, architecture, design, integration, verification, validation, production, deployment, operations, support, and retirement phases of the life cycle.

Defining the value of the system's products and services is one of the most critical tasks of systems engineering. In the previous chapter, we discuss the critical role of understanding the decision opportunity or problem. With this understanding, which may include a partial list of objectives, we next strive to identify the full list of objectives for the system. Of course, the identification of a significant new objective can change our understanding of the opportunity. In addition to improving the opportunity space, systems engineers use objectives as the foundation for developing value measure(s) used to evaluate alternatives and select the best alternative(s).

We believe it is good practice in any trade-off study to consider values and objectives before determining the full set of alternatives. Our experience is that studies focusing on alternative development first, with measures used only to distinguish between those alternatives, often miss several important objectives. This results in a missed opportunity to create a broader and more comprehensive set of alternatives with the potential to create more value.

To identify objectives, it is generally not sufficient to interact with only the decision-maker(s) because, for complex decisions, they may not have a complete and well-articulated list of objectives. Instead, significant effort may be required to identify, define, and perhaps even carefully craft the objectives based on many interactions with multiple decision-makers, diverse stakeholders, and recognized subject matter experts.

The chapter is organized as follows. In Section 7.2, we introduce the concept of Value-Focused Thinking. In Section 7.3, we describe shareholder and stakeholder value as the basis for the decision objectives. In Section 7.4, we describe why the identification of objectives is challenging. In Section 7.5, we list some key questions we can use to identify decision objectives and four major techniques for identifying decision objectives: research, interviews, focus groups, and surveys. In Section 7.6, we discuss key considerations for the financial objective of private companies and cost objectives of public organizations. In Section 7.7, we discuss key principles for developing value measures to measure, at the time of the decision, how well an alternative could achieve an objective. In Section 7.8, we describe the structuring of multiple objectives including objective and functional value hierarchies; four techniques for structuring objectives through the use of platinum, gold, silver, and combined standards; best practices; and provide cautions about risk and cost objectives. In Section 7.9, we describe the diverse approaches used to craft objectives for two illustrative problems. We conclude with a summary of the chapter in Section 7.10.

7.2 Value-Focused Thinking

An important philosophical approach to creating value was introduced by Ralph Keeney in his book entitled “Value-Focused Thinking” (VFT) (Keeney, 1992). To be successful, VFT must interactively involve decision-maker(s), stakeholders, subject matter experts, and analysts to create higher shareholder and/or stakeholder value.

7.3 Shareholder and Stakeholder Value

Decision objectives should be based on shareholder and stakeholder value. Value can be created at multiple levels within an organization. An organization creates value for shareholders and stakeholders by performing its mission (which defines the customers); providing products and services to customers; improving the effectiveness of its products and services to provide better value for customers; and improving the efficiency of its operations to reduce the resources required to provide the value to customers. Defining value is challenging for both private and public organizations. Private companies must balance shareholder value with being good corporate citizens (sometimes called stakeholder value). Management literature includes discussion of stakeholder value versus shareholder value for private companies (Charreaux & Desbrieres, 2001). Public organizations, which operate without profit incentives, focus on stakeholder value, with management and employees being key stakeholders.

Next, we consider shareholder and stakeholder objectives in a private company example and stakeholder objectives in a public organization.

7.4 Challenges in Identifying Objectives

The identification of objectives is more art than science. The four major challenges are (i) identifying a full set of values and objectives, (ii) obtaining access to key decision-makers and stakeholders, (iii) differentiating fundamental and means objectives, and (iv) structuring a comprehensive set of fundamental objectives for validation by the decision-maker(s) and stakeholders.

In a complex decision, especially if it is a new opportunity for the organization, the identification of objectives can be challenging. In a research paper (Bond et al., 2008), the authors concluded that “in three empirical studies, participants consistently omitted nearly half of the objectives that they later identified as personally important. More surprisingly, omitted objectives were as important as the objectives generated by the participants on their own. These empirical results were replicated in a real-world case study of decision-making at a high-tech firm. Decision-makers are considerably deficient in utilizing personal knowledge and values to form objectives for the decisions they face.” To meet this challenge, we must have good techniques to obtain the decision objectives.

A second challenge is obtaining access to a diverse set of decision-makers (DMs), stakeholders (SHs), and subject matter experts (SMEs). Sometimes, clients are reluctant to provide the trade-off analysis team access to senior decision-makers and diverse stakeholders who have the responsibilities and breadth of experience essential to providing a full understanding of decision objectives. In addition, it can be difficult to obtain access to recognized experts instead of individuals who have more limited experience. Many times, the best experts resist meetings that take their focus away from their primary responsibilities. In addition, even if we have access, we may not have the time in our analysis schedule to access all the key individuals. To be successful, the analysis team must obtain access to as many of these key individuals as possible in the time allocated for the study.

The third challenge is the differentiation of fundamental and means objectives (Keeney, 1992). Fundamental objectives are what we ultimately care about in the decision. Means objectives describe how we achieve our fundamental objectives. An automobile safety example helps to clarify the difference. The fundamental objectives may be to reduce the number of casualties due to highway accidents and to minimize cost. The means objectives may include to increase safety features in the automobile (e.g., airbags and seat belts), to improve automobile performance in adverse weather (e.g., antilock brakes), and to reduce the number of alcohol-impaired drivers (e.g., stricter enforcement). The mathematical considerations of multiple objective decision analysis discussed in Chapter 2 require the use of fundamental objectives in the value model.

The fourth challenge is structuring the knowledge about fundamental objectives and value measures. This structure should enable decision-makers, stakeholders, and experts to validate that the set of objectives and value measures are both necessary and sufficient to evaluate the alternatives.

7.5 Identifying the Decision Objectives

7.6 The Financial or Cost Objective

The financial or cost objective may be the only objective, or it may be one of the multiple objectives. Shareholder value is an important objective in any firm. In many decisions of private companies, the financial objective may be the only objective or the primary objective. Firms employ three fundamental financial statements to track value: balance sheet, income statement, and cash flow statement. In addition, firms commonly use discounted cash flow (net present value) to analyze the potential financial benefits of their alternatives. For public company decisions, the cost objective is usually a major consideration. The cost can be the full life cycle cost or only a portion of the costs of the alternative.

7.7 Developing Value Measures

In order to quantitatively use the decision objectives in the evaluation of the alternatives, we must develop value measures for each objective that measure the a priori potential value, that is, before the alternative is selected. The identification of the value measures can be as challenging as the identification of the decision objectives. We can identify value measures by research, interviews, and group meetings with decision-makers, stakeholders, and subject matter experts. Access to stakeholders and experts with detailed knowledge of the problem domain is key to developing good value measures.

Kirkwood (1997) identifies two useful dimensions for value measures: alignment with the objective and type of measure. Alignment with the objective can be direct or proxy. A direct measure focuses on attaining the full objective, such as net present value for shareholder value. A proxy measure focuses on attaining an associated objective that is only partially related to the objective (e.g., reduce production costs for shareholder value). The type of measure can be natural or constructed. A natural measure is in general use and commonly interpreted, such as dollars. We have to develop a constructed measure, such as a five-star scale for automobile safety. Constructed measures are very useful but require careful definition of the measurement scales to ensure that we have an interval or ratio scale (see Chapter 2). In our view, the use of an undefined scale, for example, 1–7, is not appropriate for trade-off analysis since the measures do not define value and scoring is not repeatable.

Table 7.1 reflects our preferences for types of value measures. Our first preference is to select a value measure that directly aligns with the objective and has a natural scale. Our second preference is direct and constructed. We prefer direct and constructed to proxy and natural for two reasons. First, alignment with the objective is more important than the type of scale. Second, one direct and constructed measure can replace many natural and proxy measures. When value models grow too large, the source is usually the overuse of natural and proxy measures.

7.8 Structuring Multiple Objectives

Not all problems have only the financial or the cost objective. In many public and business decisions, there are multiple objectives and many value measures. Once we have a list of the preliminary objectives and value measures, our next step is to organize the objectives and value measures (typically called structuring) to remove overlaps and identify gaps. For complex decisions, this can be quite challenging. In this section, we introduce the techniques for identifying and structuring, using hierarchies. The decision analysis literature uses several names: value hierarchies, objectives hierarchies, value trees, objective trees, functional value hierarchy, and qualitative value model.

7.8.1 Value Hierarchies

The primary purpose of the objectives hierarchy is to identify the objectives and the value measures so we understand what is important in the problem and can do a much better job of qualitatively and quantitatively evaluating the alternatives. This may be the result of an enterprise-level business case analysis. Most decision analysis books recommend beginning with identifying the objectives and using the objectives to develop the value measures. For complex systems, decisions we have found that it is very useful to first identify the system functions that create value (Parnell et al., 2011). Functional analysis, central to both enterprise business processes and systems engineering, is the starting point for modeling the functional value hierarchy. For each function, we identify the fundamental objectives we want to achieve for that function. For each objective, we identify the value measures that can be used to assess the potential to achieve the objectives. In each application, we use the client's preferred terminology. For example, functions can be called missions, capabilities, activities, services, tasks, or other terms appropriate to the level of the decision analysis. Similarly, objectives can be called criteria, evaluation considerations, or other terms. Value measures can be called any of the previously mentioned terms (see Chapter 2).

The terms objectives hierarchy and functional value hierarchy are used in this book to make a distinction between the two approaches. The functional value hierarchy is a combination of the functional hierarchy from systems engineering and the value hierarchy from decision analysis (Parnell et al., 2011). In decisions where the functions of the alternatives are the same, or are not relevant, it may be useful to group the objectives by categories to help in structuring the objectives.

Both hierarchies begin with a statement of the primary decision objective as the first node in the hierarchy. An objectives hierarchy begins with the objectives in the first tier of the hierarchy, (sometimes) subobjectives as the second tier, and value measures as the final tier of the hierarchy. A functional value hierarchy uses functions as the first tier, (sometimes) subfunctions as the second tier, objectives as the next tier, and values measures as the final tier of the hierarchy. The value hierarchy integrates the enterprise business case analysis objectives hierarchy with the business process or systems engineering functional analysis.

Consider Figure 7.1. When the randomly ordered objectives hierarchy is logically organized by functions, the objectives and measures make more sense to the decision-makers and, many times, we identify the missing objectives (and value measures). The benefit of identifying the functions is threefold. First, a logical structure of the functional objectives hierarchy is easier for the decision analyst to develop. Second, it may help identify additional objectives (and value measures) that might be missed in the objectives hierarchy. Third, the logical order helps the decision-makers and stakeholders understand the hierarchy and provide suggestions for improvement.

In either the objectives hierarchy or functional hierarchy, we can create the structure from the top-down or from the bottom-up. Top-down structuring starts with listing the fundamental objectives on top and then “decomposing” into subobjectives until we are at a point where value measures can be defined. Top-down structuring has the advantage of being more closely focused on the fundamental objectives, but often, we initially overlook important subobjectives. Bottom-up structuring starts by discussing at the subobjective or subfunctional level, grouping similar things together, and defining the titles at a higher level for the grouped categories. Value measures are then added at the bottom of the hierarchy. Bottom-up structuring has the advantage of discussing issues at a more concrete and understandable level, but if we are not careful, we may drift from the fundamental objectives in an attempt to be comprehensive. In theory, both approaches should produce the same hierarchy. In practice, this rarely happens.

7.9 Illustrative Examples

In this section, we provide military and homeland security examples of value models for trade-off analyses.

7.9.1 Military Illustrative Example

The following functional value hierarchy was developed for an illustrative trade-off analysis study. The example is also used in Chapter 9. The Army is interested in the Squad of the future. The purpose of the study is to have the future Army squad achieve overmatch against enemies in complex environments. Five functions are identified and presented in a logical time sequence in Figure 7.2. Two subfunctions are identified for the Command and Control Squad.

Figure 7.2 also identifies the objectives for each function or subfunction if the function is divided into subfunctions. For each objective, at least one value measure is identified. Two types of value measures are used: direct natural measures on an interval scale (e.g., speed in mph) and constructed interval scales (e.g., secured connectivity).

7.10 Summary

Decision objectives are based on shareholder and stakeholder value. Crafting objectives and value measures is a critical step in the trade-off analyst's support to the decision-maker and helps qualitatively define the value we hope to achieve with the decision. We described the differences between Value-Focused Thinking and Alternative-Focused Thinking. We recommend the use of Value-Focused Thinking for trade-off analyses. It is not easy to identify a comprehensive set of objectives and value measures for a complex decision. We describe the four techniques for identifying decision objectives: research, interviews, focus groups, and surveys. Research is essential to understand the problem domain and to determine applicability of different decision analysis modeling techniques. Interviews are especially useful for senior leaders. Focus groups work well for stakeholder representatives. Surveys are especially useful to obtain public opinion. We note that the financial or cost objective is almost always an important objective. Next, we describe the important role of hierarchies in structuring objectives and providing a format that is easy for decision-makers and stakeholders to review and provide feedback. We present objectives and functional hierarchies. We recommend functional value hierarchies for complex system decisions. We define four standard techniques for structuring objectives: Platinum (senior leader interviews), Gold (documents), Silver (meetings with stakeholder representatives), and Combined (using all three). The combined standard is the most common. Two examples are provided illustrating approaches to identifying objectives and value measures.

7.11 Key Terms

1. Combined Standard: An objective identification process that uses the Platinum (senior leader interviews), Gold (documents), and Silver (meetings with stakeholder representatives) standards.
2. Focus Groups: Decision objectives are obtained through a facilitated discussion and interaction of 6 to 12 group members.
3. Fundamental Objectives: The most basic objectives of the system. For example, reduce driving deaths.
4. Functional Value Hierarchy: A hierarchy displaying the decision purpose, functions to be met by the system, fundamental objectives for each function, and value measure(s) for each objective that will be used to evaluate the alternatives.
5. Gold Standard: An objective identification process that uses an approved document.
6. Interviews: A meeting with a leader or subject matter expert using a series of planned questions and follow-on discussion to identify the decision objectives.
7. Life Cycle Cost: The total cost of an alternative across all stages of the alternative life cycle. Sunk costs should not be included when evaluating alternatives.
8. Means Objective: Describes how we can achieve a fundamental objective. For example, “increase use of safety belts” is a means objective for “reduce driving deaths.”
9. Net Present Value: The calculation of the present worth from a sequence of cash flows using a discount rate.
10. Objective Identification: The process of identifying potential decision objectives.
11. Objective Structuring: The process of organizing decision objectives and value measures into a hierarchical structure.
12. Objectives Hierarchy: A hierarchy displaying the decision purpose, the decision objectives, and the value measures that will be used to evaluate the alternatives.
13. Platinum Standard: An objective identification process that uses interviews with senior leaders.
14. Risk: The likelihood of an undesired outcome and the consequence of the undesired outcome.
15. Shareholder Value: Value is defined in financial terms understandable to shareholders.
16. Stakeholder Value: Value is defined by meeting the objectives of the stakeholders.
17. Silver Standard: An objective identification process that uses meetings with stakeholder representatives.
18. Survey: A prepared list of questions that is sent to stakeholders to help identify functions, objectives, and/or value measures.

7.12 Exercises

1. 7.1 Distinguish between Value-Focused Thinking (VFT) and Alternative-Focused Thinking. Why do the authors recommend the use of VFT in systems engineering trade-off analyses?
2. 7.2 Shareholder and stakeholder values. Consider an organization that you have worked in. If you have never worked, consider the university you attend.
   1. a. List the shareholder values, if appropriate.
   2. b. List the stakeholder values.
3. 7.3 Fundamental versus means objectives.
   1. a. Distinguish between the two types of objectives.
   2. b. Provide an example of each type of objective.
   3. c. Which type of objective should we use in value hierarchies? Why?
4. 7.4 The chapter presented four techniques for stakeholder analysis to develop a value hierarchy: research, interviews, focus groups, and surveys.
   1. a. Discuss the advantages and disadvantages of each technique.
   2. b. Identify the types of information you would try to obtain using each technique.
   3. c. Identify when you would use each technique.
5. 7.5 Categorize the value measures below based on the four categories in Table 7.1.

   Objective	Value Measure(s)	Category
   Maximize fuel efficiency	Miles per gallon
   Minimize impact on environment	Miles per gallon
   Maximize safety in crash	National Highway Traffic Safety Administration (NHTSA) 5-star crash test rating
   Maximize automobile safety	National Highway Traffic Safety Administration (NHTSA) 5-star crash test rating
   Maximize vehicle safety	Number of seat belts Vehicle stopping distance Depth of tire tread remaining

6. 7.6 Consider the Deepwater Horizon drilling rig accident in April 2010 that caused the largest oil spill in US waters.
   1. a. Identify the stakeholders involved in drilling oil in the Gulf of Mexico.
   2. b. Identify the shareholder and stakeholder values that became evident for British Petroleum and the other companies involved in the accident.
   3. c. Develop a functional value hierarchy for a trade-off analysis for oil rig concepts. Identify business, stakeholder, and system objectives.
7. 7.7 Identify a systems engineering trade-off analysis that you will be performing.
   1. a. What life cycle phase is the system in?
   2. b. Write a one sentence description of the decision opportunity.
   3. c. Will you use an objectives hierarchy or a functional value hierarchy? Why?
   4. d. Which of Keeney's 10 questions would be the most useful?
   5. e. Which of the four standards would you use to develop the value hierarchy?
   6. f. Develop a hierarchy for your trade-off study.

References

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