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Decision-Making….Going beyond…

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1 Decision-Making….Going beyond…
Commonsense, Experience, Judgment, Intuition, Gut-feel, etc… 5/12/2005 A HOLISTIC APPROACH TO DECISION-MAKING Dr. Errol Wirasinghe – 1

2 What do we mean..? Decision Making Problem Solving Implementing
The Three Phases Decision Making Implementing Problem Solving 2

5/12/2005 DECISION MAKING IS NOT PROBLEM SOLVING Problem Solving is unique to the problem [Domain Expert] Decision-making is unique to the person [Human Judgment] Some of our work has shown that problem solvers are not the best decision-makers… 3

Do you know anyone…. who intentionally makes a “bad” decision; one that makes him/her unhappy? From his point of view (at the time he makes the decision)… Can we then agree that at the time we make decisions, we all make “good” decisions? Format Then why do we see so many fiascos? 4 4

5 Is Decisions-Making Complicated. ?
You & your spouse have retired, and are planning on moving to a more appropriate location in the USA. How would you go about deciding on a place to live? 5

6 Complicated Decisions?
City >>> 1 Heat index – Req. AC days 2 Cold index – Req. Heating days 3 State income tax rate% - 4 Average home price - $1000 5 Prop. Taxes (per $1000 of M.V.) 6 Restaurants 7 Doctor's offices and clinics 8 Medical and surgical hospitals 9 Air pollution index 10 Property crime risk 11 Access to family [hrs] Tanta Leigh Hoxni Jackal Seaga Lando Sopel 52 33 29 59 20 15 69 14 25 32 10 42 11 6.0% 8.3% 5.0% 0.0% 9.3% $227 $176 $129 $108 $157 $293 $88 39.0 11.4 15.0 18.0 67.4 13.4 6.6 3681 1177 3464 1532 2312 6073 951 7930 3668 5759 2511 3815 10515 1115 85 27 76 36 130 19 83 104 78 94 88 103 377 112 218 189 306 171 117 6.5 3.5 2.0 1.5 5.0 9.5 6

7 Detergents for Dry Cleaners…
Procurement Decision? Detergents for Dry Cleaners… Factors & Options Wash-Off Rapid-Clean One-Time Twister 1. Time to clean – min. 12 15 10 2. Detergent Cost [$ per lb.] 0.12 0.18 0.19 0.23 3. Energy Consumption Reasonable Low High 4. Water Consumption 5. Stain Removal Good Excellent Selective 6. Damage Excessive by-products None 7. Freshness Fabulous Average 8. Appealing Smell Nice 9. Wrinkle Free Poor Medium 10. Germ & Bacteria Removal Germs good; bacteria poor Bacteria free Germ Free & Bacteria free Your company may be facing a similar problem… 7

8 Information Overload & Choice Overload
5/12/2005 Buying a camera…! Thanks to the Internet, now it is possible to be extremely well informed, and yet be completely wrong at the same time…!” 8

9 Your competition will challenge you with better decisions!
Information Overload Executive’s Dilemma Utilities Inventory Manpower Supplies Distribution Currency Fluctu’ns Budgets Market Satu. Sales Geopolitical Transport Your competition will challenge you with better decisions! Future pricing Competitor mergers Regulatory issues Cash flow Share prices 9

10 Decisions? Multi-criteria decisions? Single criterion decisions? 10

11 We help bridge this divide! We help people make better decisions!
RESEARCH & LITERATURE ON….. DECISION-MAKING SIT AT TWO EXTREMES Mathematicians….: Artificial Intelligence, Neural Networks, Fuzzy Logic, Robotics, etc. Neurobiologists and Behavioral Scientist focusing on the brain and human behavior. Unfortunately, these are beyond the reach of industry professionals We help bridge this divide! We help people make better decisions! 11 11

12 WHY WE MAKE DECISIONS…? Change happens! or We initiate change..!
Because of a process called “CHANGE” Change happens! or We initiate change..! Even a decision not to respond, is driven by our desire to be happy, or self-preservation, seeking a positive outcome… We respond to change because we want to be happy…! Split this into 2 slides Change the title to, “ Some thought provoking questions” 12 12

We initiate change..! CHANGE CONFLICTS.. CAUSES Environment Definitions Interests & Values Roles & Styles Emotions/Feelings Time Perception Knowledge PROB-OPPS.. SOLUTIONS This slide needs a title, leave a space for it, I’ll have to ask Errol Again, content accurate, format needs changing DECISIONS 13 13

14 Change, Decisions.. and Happiness..
Thus we see.. the relationship… Change, Decisions.. and Happiness.. “It is not the strongest of the species that survive, or the most intelligent, but the one most responsive to change.” Charles Darwin…. 14

15 Psychologists & Behav. Economists
Studying Human Behavior related to decision making 15

16 1. THE PARADOX OF CHOICE The western dogma is that more choices and greater freedom leads to greater happiness! – is it really true?? ** Video: 1C - Paradox of Choice (5.24), Barry Schwartz 16

Our judgments are inherently tied to the environment. ** Video: 3A - Illusions - Table and Cube Illusion (2.47), Dan Ariely 17

18 Would you like to touch this animal?
Perception 18

19 Would you like to change your mind?
Perception 19

20 New York Plastic Surgeon Darrick Antell looked at the jaw line of CEOs
5/12/2005 PERCEPTION! Only 14.2% of white US males are over 6.0’ tall. Yet, 58.7% of CEOs of Fortune 500 companies are white, male and 6.0’ tall! New York Plastic Surgeon Darrick Antell looked at the jaw line of CEOs About 90% of the Top CEO’s had a “prominent” chin vs. 40% for the general population… CONCLUSION When it comes to decision-making, perception still reigns 20

21 5/12/2005 RELYING ON NUMBERS Why is a $12.00 stock a “good buy” for one person, and a “sell” for another..? Good/Bad…? DOCTORS All decisions are driven by qualitative interpretations of quantitative data….! 21

22 When we have too many options – …. we settle for the default option.
4. COGNITIVE ILLUSIONS When we have too many options – and we cannot decide – …. we settle for the default option. ** Video: 4A - Cognitive Illusions - Default Option (5.29); Dan Ariely Video: 4B - Cognitive Illusions – Forced; Comparisons (4.41), Dan Ariely 22

23 Decision Making – Natural Pitfalls!
Informed decisions? Tendency to avoid complexity Comparisons Shifting comparisons Ghost offerings Default options Perceptions Priming 23

24 Do you believe you might be making sub-optimal decisions?
Show of hands please… Do you believe you might be making sub-optimal decisions? Remove the Stop icon Place his logo at the bottom I’d like to change the question on the slide from, Do you agree…. to ….Why do you think that The text box at the bottom doesn’t make sense, the two sentences don’t make sense. Instead of, “We help people make better decisions, I’d rather say, “We teach people how to make better decisions. Are we ready? 24 24


26 Factors that influence the decision Options or likely solutions
The Decision Making Process Objective Process Criteria Factors that influence the decision Candidates Options or likely solutions The Decision… 26 26

27 Let us start with the ….. OBJECTIVE: THE VIETNAM WAR
The Army did a great job training our soldiers to have superb “marksmanship” skills [Objective].. Subsequently a new objective.. To provide training in “Killing Skills…” Six months later… The Army revealed that 100% of the soldiers had fired at the enemy. Yet, surveys revealed that only 25% of soldiers actually fired at the enemy...! Do you see the value of a well-defined objective? 27


Set out to develop a high-yield plant… After 18 months and several million $$ they developed a super plant..! Sadly this plant needed more space… They went after the wrong objective. … to increase the YEILD PER PLANT! The objective should have been.. Increase the YEILD PER ACRE! Walgreens … profit per customer.. Eckerd… profit per store.. Do you see the value of a well-defined objective…? 29

30 CRITERIA Vital element in any decision-making operation
Selecting the most relevant criteria Determining the significance of each criterion (Too many criteria can be counter-productive) 30

31 What factors caused high oil prices…
Euro vs. US $ CRITERIA Step – 2 Oil Price $/bbl What factors caused high oil prices… 31

32 Ranking Techniques Common techniques used to prioritize or rank a set of candidates [based on feelings]… : Distribution, Scaling, Decision Trees, Matrix, Pairwise comparison.. Bayesian Models Monte Carlo Techniques Fuzzy Logic Expert Systems Neural Networks Artificial Intelligence; etc. 32

33 (Decision Tree Technique)

34 A government committee is considering the economic benefits of a program of preventative flu vaccinations. Option 1: Vaccinate the entire population at a cost of $7.0M. The vaccination is assumed to be 100% successful, with no additional treatment costs. Option 2: One alternative open to the committee is to institute an "early-warning" monitoring scheme (costing $3M) which will enable it to detect an outbreak of flu early and hence institute a rush vaccination program (costing $10M because of the need to vaccinate quickly before the outbreak spreads). Again assume a 100% success with the rush vaccination. Option 3: If vaccinations are not introduced then the estimated cost to the government if flu strikes in the next year is $7M with probability 0.1, $10M with probability 0.3 and $15m with probability 0.6. Assuming the probability of flu striking in the next year is 0.75, what recommendations should the committee make to the government if their objective is to maximize expected monetary value (EMV)? Example 1: Vaccination Option 1: (Vaccinate entire population) Cost of $7.0M. Program is assumed to be 100% successful, with no additional treatment costs. WHO studies indicate that there is a 75% likelihood of a Flu striking next year! A government committee is considering three (3) options to manage the situation. Option 2: (Monitoring early-warning) Spend $3.0M to detect an outbreak; Then institute a rush vaccination program before the outbreak spreads (costing $10M). Assume a 100% success. Option 3: (Do not vaccinate) Cost if flu strikes: $7M (Prob. 10%), $10M (30%) and $15M (60%). 34

35 35

36 Example 2: Bid Submission
Disney World… tender for 200,000 special shirts. Your company is trying to decide whether to bid… Cost of visit: $10,000. >>> Accept/Reject: 50/50 .. If qualified >> Cost of preparing bid: $5,000 Labor, Material & Shipping : $127,000… Possible bid prices: $155,000 (90% chance of winning) $170,000 (75% chance of winning) $190,000 (35% chance of winning) What should you do? 36

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38 SIMPLEX’s cost per computer is $8,000.
Example 3: Competitive Bidding SIMPLEX Computer Company & COMPLEX Computers, Inc., are the only bidders…. SIMPLEX market intelligence shows that COMPLEX is likely to bid $10,000, $9,000, or $8,000 per computer. .. SIMPLEX’s cost per computer is $8,000. However the bid is complicated because they are working on a new process that is likely to bring the cost down significantly. 38

39 SIMPLEX…. The NEW manufacturing Process….
With the proposed new manufacturing process, the cost per computer is likely to be…. $5,000 (P=25%); or $7,500 (P=50%); or $8,500 (P=25%) SIMPLEX is considering bid prices of… $9,500; or $8,500; or $7,500; per computer….    If SIMPLEX decides to bid, they must include the $1,000,000 cost of development because of the requirement that a prototype computer be included with the bid. This $1,000,000 will be totally lost regardless of whether SIMPLEX wins or loses the bidding competition…. Question : Should SIMPLEX submit a bid, and if so, what should they bid? 39

40 40

41 Example 3: Insurance Decision
A Company has to decide if they should insure their warehouse (valued at $300,000), against vandalism... Probability of damage 20% 30% 50% Extent of damage (losses) $150K $ 90K $ 30K Crime statistics: Probability of any damage is 10% [There is a 90% chance – no damage at all…] Insurance Quotes: Policy from Company “A”: Annual cost $2,000; ….would pay 90% of loss, after a $20,000 deductible. Policy from Company “B”: Annual cost of $1,800; ….would pay 80% of loss, without a deductible…. What should he do? Insure with one of the companies, or not insure at all? 41

42 42


44 4. Matrix Method But my brother owns a Mitsubishi dealership..! Ex: The Fleet Manager of a car rental company buying cars Candidates Criteria 1. Reliability [+] 2. Price [-] 3. Miles/Gallon [+] Total/Rank.. >> Criteria Weights.. 48 32 20 100% Honda Accord Toyota Camry Nissan Altima Mitsubi. Gallant 35 30 20 15 20 15 30 35 25 48 x x x 25 = 28.20% 24.20% 23.40% 44

45 Matrix Method [Biased] Let us look at a better method!
Helping family! Candidates Criteria Reliability [+] Price [-] Fuel Economy [+] Total/Rank> Criteria Weights 15 35 50 100% Honda Accord Toyota Camry Nissan Altima Mitsibi. Gallant 35 30 20 15 25 Forced… 24.75% 22.25% 26.00% 27.00% Let us look at a better method! 45

Clearly define your objective… Identify all relevant criteria… Conduct criteria segregation… Identify all available candidates/options.. Gather information (Judgment table)… Assign weights to obligatory criteria… Rank candidates… AHP AHP AHP AHP = Analytic Hierarchy Process 46

What is AHP? Is AHP reliable? Who is using AHP? 47

48 Wikipedia Worldwide Applications of AHP
AHP conference where 19 countries participated… Site selection Sub-contractor selection [bid evaluation/procurement] Recruiting Univ. Faculty [Univ. of Pennsylvania] Manage US Watersheds Closure of US military bases (2005) Study of overall software quality [Microsoft] Offshore manufacturing plants [Univ. of Cambridge] Railroad projects in Korea Risks of cross-country pipelines [Soc. of Civil Eng.] Agro industry [Archer Daniels Midlands] Seismic evaluations [Shell Oil Co.] Reducing impact of global climate change [Fondacione Eni Enrico Matter] Is there anyway to zoom in the content with a button click instead of using the text boxes. 48 48

Imagine you are at an Airport Lounge By the way, I forgot to mention that I didn’t like the formatting of the slide counter in the bottom right Just clean up. Note: This research was initially conducted at Cornell University. The pictures themselves are from prior public beauty pageants. 49 49

Ladies… Distribute 100 points among these ladies to reflect their beauty! Difficult? Probably not! 50

Ladies… Distribute 100 points among these ladies to reflect their beauty! A bit more difficult? 51

52 Requires much more attention?
Distribute 100 points among these ladies to reflect their beauty. Requires much more attention? 52

53 BACK TO THE PAIR Would you say that a “pair” was the easiest to handle? Would you agree… that as the number of contestants increased, it became increasingly more difficult to make a reliable judgment? 53

54 RECRUITING! Let us think of some criteria!
Candidates: Harry Sands Joy Bergmann Quincy Williams Jane Smarts Dick Davis Roger Smith Maria Lopez Citizenship Education Languages Age Sex Family status Foreign exposure Present employment Directed work experience Related work experience Salary expectation Availability Management ability Management aspirations Leadership potential Temperament Willingness to travel Self motivated Computer Skills You had difficulty with just one criterion…? Communication skills Presentation skills Unwavering courage Self control Sense of justice Definiteness of decision Organizational skills Willing to do more Pleasing personality Master of detail Assume responsibility Team player skills Follow instructions Free of other commitments Health & Physical condition Personal habits Hobbies & Interests Integrity & Honesty…. Multiple Decision-Makers: V.P. Marketing Dir. H.R. Mngr. Bus. Dev... Aside from the colors and overlays. Let’s keep the build as it is, except can we make the background a blank or lighten it. 54 54

Data & Inform. (Objective) Context Information Criteria and Candidates Solution Technique Used Expertise The quality of your decision will depend on (raw materials & skill-set): Do not judge the quality of a decision, by the outcome! However, the outcome will depend on the implementation: Appropriate Timing Adequate Resources Commitment to Execution Changing Circumstances…. Format 55 55


Bias & Risk Exposure You the Decision-Maker The Environment Need a picture 57 57

Case Study: A hotel chain is considering hiring a Business Development Manager. Criteria (6): Availability (2 weeks) Leadership Salary Self Motivated Team Player Temperament Candidates (4): Jane Kathy Sue Mary Remove the exclamation mark. The title should read, Validating Your HR Decision 58 58


60 “If we are willing to wait longer, who should we hire…”
V.P. HR asks you.. “If we are willing to wait longer, who should we hire…” Overall Optimum Ranking Jane (Availability) 60

61 “What if we are willing to pay whatever it takes…”
Overall Optimum Ranking Sue (Salary) 61

Case Study: An Engineering Contractor is considering opening a branch office in Asia. Criteria (6): Language US Relationships Market Opportunities Real Estate Costs Bureaucracy Taxation Candidates (5): Sydney Singapore Beijing Kuala Lumpur New Delhi Remove the exclamation mark. The title should read, Validating Your HR Decision 62 62


This company formed a joint-venture with an Indian conglomerate, [experts on navigating the bureaucratic system] 64

Planting thoughts.. Also known as “priming” the mind… ** Video: 5 - Priming the Mind (3.10), Malcolm Gladwell 65

66 PRIMING THE MIND WHAT DID WE LEARN “Priming” can have serious implications with regard to TEAM meetings. Our way of thinking can be directed. Associated positive or negative consequences can be over-stated. 66

67 YOU NOW SEE…. So will training help..?
That you are human, and too could fail That we need a robust, reliable methodology So will training help..? Even though you have been making decisions all your life, you need to learn to make better decisions. Would you go to a dentist who has not been trained in the latest techniques..? Girls who have been walking all their lives, still have to learn how to walk elegantly..! 67

We cannot change the decision-maker! But we can give him the tools to make reliable decisions, consistently…..! We did NOT change the shooter! We gave him the tools! Degree of success (hit-rate) may be 20%..? AHP is the “Scope” Now, he mounts a “scope” on is gun! Higher hit-rate?.... may be up to 60%...? The 7-Step XDSS is the “Tripod” What if he now uses a “tripod” as well? Improve his hit-rate? Up to 80%..?

69 Truett Cathy…… Founder of the “Chick-Fil-A” restaurant chain was asked……
5/12/2005 How did you become so successful? He said: By making good decisions..! How did you make these good decisions? He said: From experience....! How did you gain this experience? He said: By making bad decisions...! Get trained, or learn through mistakes? 69

70 RECAP..! We stressed… about ... Change, Decisions, & Happiness 70

71 RECAP! Given the same set of data & information, different people will make different decisions… Real-world-decisions are multi-dimensional: Multiple criteria Multiple candidates Multiple stakeholders & decision-makers 71 71

72 Segregate Criteria (AHP) Validate Decision (AHP)
RECAP! Set a Clear Objective Segregate Criteria (AHP) Make Decision (AHP) Validate Decision (AHP)

73 ? Call-to-Action Information Knowledge Power! Knowledge is Power..!
When acquired Knowledge When utilized Power! 73

74 Take the skill-test (Free)
CALL-TO-ACTION Take the skill-test (Free) Take the online course! Attend a workshop…! Book: US$ 20.00 Take now and pay on website E-Book: US$ 7.95 Buy from website This slide needs a complete overhaul. I don’t like the title, call to action, too cheesy. Perhaps, Time To Make Another Decision Picture of the book $ 10.00 $ 5.00 74

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