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Multi-criteria decision-making tools (MCDM)
In view of the deficiency of economist methods, another body of thinking has developed, for instance in operations analysis, ending up with alternative methods referred to as multi-criteria decision-making tools (MCDM). They are multi-criteria in contract to econometric theory's single criterion: money. John Friend and Allan Hickling's book is one of the best and most pragmatic books on the topic of MCDM, and they have even built a software tool to support their method. If you search the web, you'll find a host of competing projects and tools, so have your choice.
John Friend and Allan Hickling
With the above mentioned elements of TIM, we try to create a toolkit. A toolkit is a container with different tools, which fit our purpose. I have already mentioned that I have little confidence in economic theory and methods in our profession. I shall refrain from a theoretical debate, but ask you to read John Friend and Allan HicklingÕs excellent book on "Strategic Planning Approach" in which they start with a good discussion of the philosophical background.. (http://www.ifm.eng.cam.ac.uk/dstools/choosing/strach.html)
We could say that the economist's methods has only one tool and container, namely money. I -with many others- insist that we know too little about the numerical parameters of our opportunities, so we are forced to make assumptions about time ranges (what will the interest rate be over the next 10 years? What will the profit margin be in a given industry?). Try and read Ian Pearson's interesting book: Business 2010 (article 18) and you'll know what I mean!
Statisticians will tell you that when you do so, you increase the margin of insecurity in the power of prediction of your economic model. When you start to multiply and combine several such parameters, the precision of the model is lost and the purpose of the exercise defeated. Furthermore, if we talk about something, which is truly new, how from a philosophical point of view can we say anything relevant about customer behaviour, readiness to pay etc. other than gestimates? In my slide show I have some good examples of how poorly many well known businesses were capitalized when they reached the market place. In another wording, I suggest that horse-betting is easier or less risky than investing in new technology.
With horse-races, we normally know who the actors are, we even get expertsÕ words concerning the odds for success. We also know the race-track, can foresee (weather) conditions etc. Compared to this, in betting on an invention we donÕt know who the actors are, who the competitors might be, on which race-ground the race is to take place. In a way, the good practitioner attempts to increase his/her insight into an opportunity, so it becomes equal to the horse-betters
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