Presentation on theme: "The Art of the Trade Study"— Presentation transcript:
1 The Art of the Trade Study Mark A. WilsonStrategy Bridge International, Inc.12020 Sunrise Valley Dr, Suite 100Reston, VA(703)FAX: (703)
2 Real-World Trades How do you deal with: Complexity Conflicting objectives and multiple alternativesOverloadTrying to consider numerous factors at onceImplicit assumptions“Seat of the pants” conclusionsEngineering Team Buy-inDecisions with lukewarm support
3 How do engineers really make decisions? Automatic Processing(Intuition)Analytic Processing(Rational Analysis)How often do you use your intuition to make engineering decisions?
4 The Trouble with Intuition Common Cognitive Biases in Engineering DecisionsGroup ThinkStatus Quo BiasOverconfidence BiasWishful Thinking ErrorsInput BiasConfirming Evidence BiasCommon Effects:Failure to critically examine all alternativesTendency to continue to “do things the way we we’ve done them.”Illusion of control over stochastic eventsOverestimation of probability of desired outcomesIndependent events have no memory.
5 How does “stress” affect decision-making? Principle of “Constancy”Disruption of stable relations with environment is perceived as a “threat” that induces a cognitive response to reestablish stabilityLoss of constancy = stress, which triggers SNS “fight or flight”Effects of StressOccupies working memoryEmotion tends to dominate reasonDisrupts cognitive processes, especially complex information processingEncourages heuristic thinkingAttention is focused on one or two salient cuesDisproportionate weight ascribed to negative informationTendency to lock in and defend the first chosen strategySNS response: digestion shuts down, arteries dilate and blood vessels direct blood to body core and away from extremitiesPNS “backlash” explains why people are very sleepy after very stressful events
6 “Figuring out how to think about the problem” When asked what single event was most helpfulin developing the theory of relativity,Albert Einstein reportedly answered:Framing is about creativity.“Figuring out how to thinkabout the problem”
7 The Master Decision-Making Skill: Framing How you define a problem will largely determine how you will go about solving itFrame = Decision ContextFraming is how you define the problem. It’s the first step in the process, therefore it has tremendous leverage on all the other steps.How you frame the problem defines the set of alternatives you will consider. This is a critically important point.Sounds easy, doesn’t it? But we’re going to show you that it can be trickier than think. Later on I’m going to share some examples of how very intelligent people solved the wrong problem, which wound up costing lots of money, and lost lives as well.Context is the set of alternatives appropriate to a specific situation
8 - Judgment and Choice, Robert Hogarth Helpful QuestionsWhat is your ultimate objective?What is the crux of the issue or problem?How does the decision affect other decisions?What information do we have about similar problems or decisions made previously?How will we implement the solution?Ultimate objective: highest levelAsk someone with a fresh perspective for their opinion“There are no decision aids that can structure a problem automatically. Rather, this crucial phase must be largely achieved through unaided human judgment”- Judgment and Choice, Robert Hogarth
9 Technique: Means Objective Network Station Keepingfor EntireConstellationDecrease RiskOf LosingNew AssetsSystem canExpand withConstellationOptionConfidenceSupportableSolutionOperatorsUnderstandSystemBrainstorm all objectives then ask “why is that important” to tie all objectives back to the “fundamental” reason. Tie together to find the originating concept – because it is!Look at page 44 in text book.System to comeOn line quicklyMaintainS/WMaintainH/WIntegrate intoExistingSystemsProduceAdequateDocumentation
10 Generating Alternatives “Alternatives are the raw material of decision making”-Smart Choices by Hammond, Keeney & RaiffaAfter the problem has been framed, ask:“How can we obtain the desired outcome?”Challenge constraints – look at the problem from new anglesBe creative, let process divergeGather information, if necessaryWithhold judgment until the evaluation phase
11 What methods or techniques do you use to generate alternatives to consider in your trade studies? Failure to recognize a problem in timeProcrastinationFailure to recognize a paradigm shiftPreoccupation with fire-fightingInternal politicsLack of willLack of urgencyOrganizational myopiaInadequate dataToo much dataFailure to delegateIncompetenceIndecisivenessToo many people involved in the decisionDecision bottlenecksPersonal bias or prejudiceInaccurate or incomplete informationArroganceComplacencyFear of mistakesDecision delayed until too lateProblem ignored or hiddenLack of dataNumber of people – too manyHidden agendaLack of authorityResistance to changeHow do you ensure that you are not considering the same old alternatives while falling into a “status quo” trap?
12 AHP Methodology in Trade Studies Prioritizes multiple tangible and intangible criteria:In most decisions, intangibles such aspolitical factors andsocial factorstake precedence over tangibles such aseconomic factors andtechnical factorsIt is not the precision of measurement on a particular factorthat determines the validity of a decision, but the importancewe attach to the factors involvedAHP assigns importance to all the factors and synthesizesthis diverse information to make the best decisionAHP is useful when the complexity of the synthesis required exceeds our cognitive abilitiesAllows ignoring the absolute numbers and comparing the “feelings” about the relative importance of the various parameters.Real decisions are not objective measures.Example: the decision to use aluminum instead of a titanium alloy for the Boeing 777 wings was not the technically preferred alternative.
13 The Analytic Hierarchy Process (Saaty- 1971)GOALCRITERIAPower of AHP: assigning weights based on pair-wise comparisons to create ratios. Or can do ratings model.Ratings model – relative weights of criteria then evaluate how well an alternative satisfies a criteria. Set a rating scale (make sure it is defined).ALTERNATIVES
14 Remember Our Means Objective Network? Station Keepingfor EntireConstellationDecrease RiskOf LosingNew AssetsSystem canExpand withConstellationOptionConfidenceSupportableSolutionOperatorsUnderstandSystemSystem to comeOn line quicklyMaintainS/WMaintainH/WIntegrate intoExistingSystemsProduceAdequateDocumentation
15 Establish a Fundamental Objectives Hierarchy Decision FrameSelect a NewTelemetry SolutionOperabilityMaintainabilityReliabilityOptionConfidenceScheduleRiskGrowthPotentialMay not want to include prices as a criteria since it will be considered in the final decision making.
16 AHP Approach How does AHP capture human judgments? AHP does not require you to make an absolute judgment or assessment.Process uses relative assessment between two items at a time.In relative measurement a preference, judgment is expressed on each pair of elements with respect to the common “parent” element.19
17 Simplified AHP Criteria Weighting Matrix TechniqueCompare a list of items to one another to determine relative importanceUsesDeveloping criteria weightsReveals high impact factorsAnalytic Hierarchy ProcessHigh Impact means they drive the decision. E.g., a factor with a 2% weight is inconsequential compared to one with 40%Fundamental benefit of pair wise – it is easier (1-1) and harnesses intuition.FactorAFactorB
18 Example Top Level Criteria Weights 1 Equal importance3 Moderate importance of one over another5 Strong or essential importance7 Very strong or demonstrated importance9 Extreme importance2,4,6,8 Intermediate valuesDr. Tom Saaty, originator, software tool “expert choice”Compare rows to columns1 = Equal5 = strong preference9 = extreme preferenceDo half the matrix, then fill in the inverse on the other side.Across the median blanks are the inverse.Weight column: row total divided by grand total. This gives you the relative weighting.Might throw out safety because it is under 5% - makes one less calculation and will not affect the outcome.
19 Select Telemetry Solution GOALSelect Telemetry SolutionOperability13%Maintainability10%Reliability20%OptionConfidence39%ScheduleRisk3%GrowthPotential15%Supplier AGFE OptionSupplier B
22 Summary of AHP Advantages Easy to use in trade studiesOrganizes, prioritizes and synthesizes complexity within a rational frameworkBreaks down tangible and intangible criteria into manageable componentsFosters critical discussion and examination of implicit assumptions when used with diverse groupsMakes it possible to deal with conflicts in perception and in judgment
23 Summary Why have a consistent trade study methodology? Why use AHP? Overcome negative aspects inherent with intuition (cognitive biases)Permit decision traceabilityBuild justification and help others understand reasoningImprove your trade study processWhy use AHP?Does not require absolute assessmentsPermits comparisons of tangible and intangible factorsFosters rich dialog among engineering team membersStraight-forward and easy to use