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Decision-Making….Going beyond… Commonsense, Experience, Judgment, Intuition, Gut-feel, etc…. A HOLISTIC APPROACH TO DECISION-MAKING Dr. Errol Wirasinghe – www.XpertUS.com. 1. What do we mean..?. The Three Phases. Implementing. Problem Solving. Decision Making. 2.

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slide1

Decision-Making….Going beyond…

  • Commonsense, Experience, Judgment, Intuition, Gut-feel, etc…
  • A HOLISTIC APPROACH TO DECISION-MAKING
  • Dr. Errol Wirasinghe – www.XpertUS.com

1

slide2

What do we mean..?

The Three Phases

Implementing

Problem Solving

Decision Making

2

decision making is not problem solving
DECISION MAKINGIS NOT PROBLEM SOLVING
  • Decision-making is unique to the person
  • [Human Judgment]
  • Problem Solving is unique to the problem
  • [Domain Expert]

Some of our work has shown that problem solvers are not the best decision-makers…

3

what is a good decision
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?

Then why do we see

so many fiascos?

4

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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

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Procurement Decision?

Detergents for Dry Cleaners…

Your company may be facing a similar problem…

7

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Information Overload

&

Choice Overload

Buying acamera…!

Thanks to the Internet, now it is possible to be extremely well informed, and yet be completely wrong at the same time…!”

8

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Executive’s Dilemma

Information Overload

Supplies

Sales

Manpower

Currency Fluctu’ns

Budgets

Market Satu.

Share prices

Utilities

Your competition will challenge you with better decisions!

Inventory

Geopolitical

Future pricing

Distribution

Competitor mergers

Transport

Regulatory issues

Cash flow

9

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Decisions?

Multi-criteria decisions?

Single criterion decisions?

10

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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

why we make decisions

Because of a process called “CHANGE”

WHY WE MAKE DECISIONS…?
  • Change happens! or
  • We initiate change..!
  • Even a decisionnot 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…!

12

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Simply happens! or

  • We initiate change..!

CHANGE

CAUSES

Definitions

CONFLICTS..

Interests & Values

Emotions/Feelings

PROB-OPPS..

Environment

Roles & Styles

SOLUTIONS

Time

Perception

Knowledge

DECISIONS

13

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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

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Psychologists &

Behav. Economists

Studying Human Behavior related to decision making

15

1 the paradox of choice
1. THE PARADOX OF CHOICE

Video: 1C - Paradox of Choice (5.24), Barry Schwartz

The western dogma is that more choices and greater freedom leads to greater happiness!

– is it really true??

**

16

3 visual illusions our eyes deceive us
3. VISUAL ILLUSIONS OUR EYES DECEIVE US

Video: 3A - Illusions - Table and Cube Illusion (2.47), Dan Ariely

Our judgments are inherently tied to the environment.

**

17

new york plastic surgeon darrick antell looked at the jaw line of ceos

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
  • vs. 40% for the general population…

About 90% of the Top CEO’s had a “prominent” chin

  • CONCLUSION
  • When it comes to decision-making, perception still reigns

20

relying on numbers

Why is a $12.00 stock a “good buy” for one person, and a “sell” for another..?

Good/Bad…?

DOCTORS

RELYING ON NUMBERS

All decisions are driven by qualitative interpretations of quantitative data….!

21

4 cognitive illusions
4. COGNITIVE ILLUSIONS

Video: 4A - Cognitive Illusions - Default Option (5.29); Dan Ariely

Video: 4B - Cognitive Illusions – Forced; Comparisons (4.41), Dan Ariely

When we have too many options –

and we cannot decide –

…. we settle for the default option.

**

22

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Decision Making – Natural Pitfalls!

Informed decisions?

Tendency to avoid complexity

Comparisons

Shifting comparisons

Ghost offerings

Default options

Perceptions

Priming

www.XpertUS.com/hb.html

23

are we ready
Are we ready?

Show of hands please…

Do you believe you might be making sub-optimal decisions?

24

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The Decision Making Process

Objective

Candidates

Options or likely solutions

Criteria

Factors that influence the decision

Process

The Decision…

26

the vietnam war

Let us start with the ….. OBJECTIVE:

THE VIETNAM WAR

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.

Do you see the value of a well-defined objective?

The Army did a great job training our soldiers to have superb “marksmanship” skills [Objective]..

Yet, surveys revealed that only 25% of soldiers actually fired at the enemy...!

27

department of agriculture ever increasing population
DEPARTMENT OF AGRICULTUREEVER-INCREASING POPULATION

HEAVY DEMAND FOR MORE FOOD

LOSS OF AGRICULTURAL LAND

28

misleading objectives
MISLEADING OBJECTIVES!

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!
  • Walgreens … profit per customer..
  • Eckerd… profit per store..

Do you see the value of a well-defined objective…?

29

criteria vital element in any decision making operation
CRITERIAVital 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

criteria
CRITERIA

Step – 2

Euro

vs.

US $

What factors caused high oil prices…

Oil Price $/bbl

31

slide32

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

slide33

SINGLE CRITERION

DECISION-MAKING

(Decision Tree Technique)

33

slide34

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

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 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

slide36

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

slide38

Example 3:Insurance Decision

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…]
  • 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

slide40

MULTI-CRITERIA

DECISION-MAKING

[Pairwise Technique]

43

slide41

48 x 35 + 32 x 20 + 20 x 25 = 28.20..

4. Matrix Method

But my brother owns a Mitsubishi dealership..!

Ex: The Fleet Manager of a car rental company buying cars

Candidates

44

slide42

Matrix Method [Biased]

Helping family!

Forced…

Let us look at a better method!

45

the seven step approach multi criteria decision making
THE SEVEN-STEP APPROACH… [MULTI-CRITERIA DECISION-MAKING]

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

ahp analytic hierarchy process
“AHP” ANALYTIC HIERARCHY PROCESS
  • What is AHP?
  • Is AHP reliable?
  • Who is using AHP?

47

wikipedia worldwide applications of ahp
WikipediaWorldwide 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 [FondacioneEniEnrico Matter]

AHP conference

where 19 countries participated…

48

the ahp pairwise technique
THE “AHP” PAIRWISE TECHNIQUE

Imagine you are at an Airport Lounge

  • Note:
  • This research was initially conducted at Cornell University.
  • The pictures themselves are from prior public beauty pageants.

49

difficulty of group comparison

Ladies…

DIFFICULTY OF GROUP COMPARISON

Distribute 100 points among these ladies to reflect their beauty!

Difficult? Probably not!

50

difficulty of group comparison1

Ladies…

DIFFICULTY OF GROUP COMPARISON

Distribute 100 points among these ladies to reflect their beauty!

A bit more difficult?

51

slide49

Distribute 100 points among these ladies to reflect their beauty.

Requires much more attention?

52

back to the pair
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

slide51

Let us think of some criteria!

RECRUITING!

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...

54

in search of the optimum decision
IN SEARCH OF THE OPTIMUM DECISION

The quality of your decision will depend on

(raw materials & skill-set):

  • Data & Inform. (Objective)
  • Context Information
  • Criteria and Candidates
  • Solution Technique Used
  • Expertise

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….

55

a holistic approach to decision making1

A HOLISTIC APPROACH TO DECISION-MAKING

PART 3

DECISION

VALIDATION

56

validating your decision
VALIDATING YOUR DECISION!

Bias & Risk Exposure

You the Decision-Maker

The Environment

57

slide55

VALIDATING YOUR DECISION!

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

58

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V.P. HR asks you..

“If we are willing to wait longer, who should we hire…”

Overall Optimum Ranking

Jane (Availability)

60

validating your decision1
VALIDATING YOUR DECISION

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

62

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RELAXING CRITERIA (N-1) ANALYSIS

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

64

you now see
YOU NOW SEE….
  • 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

imagine a shooter engaging in target practice
IMAGINE A SHOOTER ENGAGING IN TARGET PRACTICE

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%..?

slide64

Truett Cathy…… Founder of the “Chick-Fil-A” restaurant chain was asked……

  • 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

slide65

RECAP..!

We stressed… about ...

Change,

Decisions, &

Happiness

70

slide66

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

slide67

RECAP!

Set a Clear Objective

Segregate Criteria (AHP)

Make Decision (AHP)

Validate Decision (AHP)

slide68

Call-to-Action

Knowledge is Power..!

Information

?

When acquired

Knowledge

When utilized

Power!

www.XpertUS.com

73

slide69

CALL-TO-ACTION

www.XpertUS.com

author@xpertus.com

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