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1 A HOLISTIC APPROACH TO DECISION-MAKING Dr. Errol Wirasinghe – www.XpertUS.com Decision-Making….Going beyond… Commonsense, Experience, Judgment, Intuition,

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Presentation on theme: "1 A HOLISTIC APPROACH TO DECISION-MAKING Dr. Errol Wirasinghe – www.XpertUS.com Decision-Making….Going beyond… Commonsense, Experience, Judgment, Intuition,"— Presentation transcript:

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

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

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

4 WHAT IS A GOOD DECISION? Questions: 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? 4 Then why do we see so many fiascos? Then why do we see so many fiascos?

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 >>> 1Heat index – Req. AC days 2Cold index – Req. Heating days 3State income tax rate% - 4Average home price - $1000 5Prop. Taxes (per $1000 of M.V.) 6Restaurants 7Doctor's offices and clinics 8Medical and surgical hospitals 9Air pollution index 10Property crime risk 11Access to family [hrs] 6 TantaLeighHoxniJackalSeagaLandoSopel %8.3%5.0%0.0% 9.3%0.0% $227$176$129$108$157$293$

7 Procurement Decision? Detergents for Dry Cleaners… Factors & Options Wash-Off Rapid- Clean One-TimeTwister 1. Time to clean – min Detergent Cost [$ per lb.] Energy ConsumptionReasonableLow High 4. Water ConsumptionReasonableHighLowHigh 5. Stain RemovalGoodExcellentSelectiveGood 6. Damage Excessive by- products None 7. FreshnessGoodFabulousGoodAverage 8. Appealing SmellNice 9. Wrinkle FreePoorGoodMediumPoor 10. Germ & Bacteria Removal Germs good; bacteria poor Good Bacteria free Germ Free & Bacteria free Your company may be facing a similar problem… 7

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

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

10 Decisions? 10 1.Multi-criteria decisions? 2.Single criterion decisions?

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

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

13 CONFLICTS.. CHANGE SOLUTIONS DECISIONS PROB-OPPS.. CAUSES 13 Simply happens! or We initiate change..! Simply happens! or We initiate change..!

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

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

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

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

18 Would you like to touch this animal? Perception 18

19 Perception 19 Would you like to change your mind?

20 New York Plastic Surgeon Darrick Antell looked at the jaw line of CEOs About 90% of the Top CEO’s had a “prominent” chin CONCLUSION When it comes to decision-making, perception still reigns 20 PERCEPTION! vs. 40% for the general population… 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! 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!

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

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

23 23 Decision Making – Natural Pitfalls! 1.Informed decisions? 2.Tendency to avoid complexity 3.Comparisons 4.Shifting comparisons 5.Ghost offerings 6.Default options 7.Perceptions 8.Priming

24 24 Show of hands please… Do you believe you might be making sub-optimal decisions? Show of hands please… Do you believe you might be making sub-optimal decisions? Are we ready?

25 A HOLISTIC APPROACH TO DECISION-MAKING PART 2 FUNDAMENTALS 25

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

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

28 DEPARTMENT OF AGRICULTURE EVER-INCREASING POPULATION 1.HEAVY DEMAND FOR MORE FOOD 2.LOSS OF AGRICULTURAL LAND 1.HEAVY DEMAND FOR MORE FOOD 2.LOSS OF AGRICULTURAL LAND 28

29 MISLEADING OBJECTIVES! Do you see the value of a well-defined objective…? OBJECTIVE Set out to develop a high-yield plant… OBJECTIVE 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! 29 Walgreens … profit per customer.. Eckerd… profit per store.. Walgreens … profit per customer.. Eckerd… profit per store..

30 CRITERIA Vital element in any decision-making operation 30 (Too many criteria can be counter-productive) 1.Selecting the most relevant criteria 2.Determining the significance of each criterion

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

32 Ranking Techniques Common techniques used to prioritize or rank a set of candidates [based on feelings]… : 32 1.Bayesian Models 2.Monte Carlo Techniques 3.Fuzzy Logic 4.Expert Systems 5.Neural Networks 6.Artificial Intelligence; etc. 1.Distribution, 2.Scaling, 3.Decision Trees, 4.Matrix, 5.Pairwise comparison..

33 33 SINGLE CRITERION DECISION-MAKING (Decision Tree Technique)

34 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)? 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. 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 1: (Vaccinate entire population) Cost of $7.0M. Program is assumed to be 100% successful, with no additional treatment costs. Option 3: (Do not vaccinate) Cost if flu strikes: $7M (Prob. 10%), $10M (30%) and $15M (60%). Example 1: Vaccination

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36 What should you do? Possible bid prices: 1.$155,000 (90% chance of winning) 2.$170,000 (75% chance of winning) 3.$190,000 (35% chance of winning) 36 Example 2: Bid Submission Cost of visit: $10,000. >>> Accept/Reject: 50/50.. Disney World… tender for 200,000 special shirts. Your company is trying to decide whether to bid… If qualified >> Cost of preparing bid: $5,000 Labor, Material & Shipping : $127,000…

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38 SIMPLEX Computer Company & COMPLEX Computers, Inc., are the only bidders…. 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. SIMPLEX market intelligence shows that COMPLEX is likely to bid $10,000, $9,000, or $8,000 per computer Example 3: Competitive Bidding

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

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41 Example 3: Insurance Decision 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…. 41 A Company has to decide if they should insure their warehouse (valued at $300,000), against vandalism... Crime statistics: Probability of any damage is 10% [There is a 90% chance – no damage at all…] Probability of damage20%30%50% Extent of damage (losses)$150K$ 90K$ 30K What should he do? Insure with one of the companies, or not insure at all?

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43 43 MULTI-CRITERIA DECISION-MAKING [Pairwise Technique]

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

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

46 THE SEVEN-STEP APPROACH… [MULTI-CRITERIA DECISION-MAKING] AHP = Analytic Hierarchy Process 1.Clearly define your objective… 2.Identify all relevant criteria… 3.Conduct criteria segregation… 4.Identify all available candidates/options.. 5.Gather information (Judgment table)… 6.Assign weights to obligatory criteria… 7.Rank candidates… AHP 46

47 “AHP” ANALYTIC HIERARCHY PROCESS  What is AHP?  Is AHP reliable?  Who is using AHP? 47

48 Wikipedia Worldwide Applications of AHP  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] 48 AHP conference where 19 countries participated…

49 Note: This research was initially conducted at Cornell University. The pictures themselves are from prior public beauty pageants. THE “AHP” PAIRWISE TECHNIQUE Imagine you are at an Airport Lounge 49

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

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

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

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

54 1.Citizenship 2.Education 3.Languages 4.Age 5.Sex 6.Family status 7.Foreign exposure 8.Present employment 9.Directed work experience 10.Related work experience 11.Salary expectation 12.Availability 13.Management ability 14.Management aspirations 15.Leadership potential 16.Temperament 17.Willingness to travel 18.Self motivated 19.Computer Skills 20.Communication skills 21.Presentation skills 22.Unwavering courage 23.Self control 24.Sense of justice 25.Definiteness of decision 26.Organizational skills 27.Willing to do more 28.Pleasing personality 29.Master of detail 30.Assume responsibility 31.Team player skills 32.Follow instructions 33.Free of other commitments 34.Health & Physical condition 35.Personal habits 36.Hobbies & Interests 37.Integrity & Honesty…. RECRUITING! You had difficulty with just one criterion…? Candidates: 1.Harry Sands 2.Joy Bergmann 3.Quincy Williams 4.Jane Smarts 5.Dick Davis 6.Roger Smith 7.Maria Lopez Candidates: 1.Harry Sands 2.Joy Bergmann 3.Quincy Williams 4.Jane Smarts 5.Dick Davis 6.Roger Smith 7.Maria Lopez Multiple Decision-Makers: 1.V.P. Marketing 2.Dir. H.R. 3.Mngr. Bus. Dev... Multiple Decision-Makers: 1.V.P. Marketing 2.Dir. H.R. 3.Mngr. Bus. Dev... Let us think of some criteria! 54

55 1. Data & Inform. (Objective) 2. Context Information 3. Criteria and Candidates 4. Solution Technique Used 5. Expertise The quality of your decision will depend on (raw materials & skill-set): However, the outcome will depend on the implementation : 1. Appropriate Timing 2. Adequate Resources 3. Commitment to Execution 4. Changing Circumstances…. IN SEARCH OF THE OPTIMUM DECISION 55 Do not judge the quality of a decision, by the outcome!

56 A HOLISTIC APPROACH TO DECISION-MAKING PART 3 DECISIONVALIDATION 56

57 1.You the Decision-Maker 2.The Environment Bias & Risk Exposure VALIDATING YOUR DECISION! 57

58 Case Study: A hotel chain is considering hiring a Business Development Manager. VALIDATING YOUR DECISION! Criteria (6): 1.Availability (2 weeks) 2.Leadership 3.Salary 4.Self Motivated 5.Team Player 6.Temperament Candidates (4): 1.Jane 2.Kathy 3.Sue 4.Mary 58

59 OPTIMUM DECISION 59 Mary

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

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

62 VALIDATING YOUR DECISION Case Study: An Engineering Contractor is considering opening a branch office in Asia. Criteria (6): 1.Language 2.US Relationships 3.Market Opportunities 4.Real Estate Costs 5.Bureaucracy 6.Taxation Candidates (5): 1.Sydney 2.Singapore 3.Beijing 4.Kuala Lumpur 5.New Delhi 62

63 OPTIMUM DECISION 63

64 This company formed a joint-venture with an Indian conglomerate, [experts on navigating the bureaucratic system] RELAXING CRITERIA(N-1) ANALYSIS 64

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

66 “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. WHAT DID WE LEARN 66 PRIMING THE MIND

67 YOU NOW SEE…. 1.That you are human, and too could fail 2.That we need a robust, reliable methodology Girls who have been walking all their lives, still have to learn how to walk elegantly..! Would you go to a dentist who has not been trained in the latest techniques..? So will training help..? Even though you have been making decisions all your life, you need to learn to make better decisions. 67

68 IMAGINE A SHOOTER ENGAGING IN TARGET PRACTICE Degree of success (hit-rate) may be 20%..? Now, he mounts a “scope” on is gun! Higher hit-rate?.... may be up to 60%...? What if he now uses a “tripod” as well? Improve his hit-rate? Up to 80%..? We did NOT change the shooter! We gave him the tools! We did NOT change the shooter! We gave him the tools! We cannot change the decision-maker! But we can give him the tools to make reliable decisions, consistently…..! AHP is the “Scope” The 7-Step XDSS is the “Tripod” 68

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

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

71 71 Real-world-decisions are multi-dimensional: 1.Multiple criteria 2.Multiple candidates 3.Multiple stakeholders & decision-makers RECAP! Given the same set of data & information, different people will make different decisions…

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

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

74 Take the skill-test (Free) CALL-TO-ACTION Take the online course! Attend a workshop…! Book: US$ Take now and pay on website Book: US$ Take now and pay on website E-Book: US$ 7.95 Buy from website E-Book: US$ 7.95 Buy from website 74 $ $ 5.00


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