BA 580 -- Complex Problems

1. BA 580 -- Complex Problems Gaining a Better Understanding of Problem Solving In Managerial Environments CLASS 1

2. Are Problem Solvers Better Managers? • Harry Mintzburg (leading org educator & author) questions importance • CEOs spend little time “solving problems” • But, • Good & bad managers in behavioral studies • All intelligent behavior problem solving • Nature of problems varies across settings ...

3. Managers, Decisions & Problems • Choices between 2 or more alternatives • Judgements about consumer preferences and likely outcomes • What decisions need to be made? • Who should be involved in the decision process and in what role? • What processes are to be used for identifying alternatives? • How will the decision be implemented? • How to deal with political & emotional elements?

4. Problem Taxonomies • Computational Complexity of a problem is f(bn) b = # of decision branches; n = decision “operators” (levers) • Well-Structured (“Programmed”) • Explicit goal; few & known branches/operators; Closed-ended; • Algebra; Calculus; Puzzles; Instructional Problems • Ill-Structured (Non-programmed) • branches & operators large or unclear; open-ended • Design; Unique situations;

5. Well-Structured Problem Examples • Simple: LA is 2000 miles from Nashville. If one plane departs Nashville on a direct flight travelling at a ground speed of 600 mph and another departs 30 minutes earlier with a 1.5 hour layover in Dallas with an average ground spend of 550 miles an hour, how much difference in time will there be in their arrivals? • More Complicated: Determine the optimal (quickest) path for a plane on a flight from Nasvhille to LA given the following limitations: It cannot fly above 40,000 feet; its maximum rate of ascent or descent is 2500 ft./min

6. Well-Structured Business Examples • Simple: What are the monthly payments required to amortize a $100,000 over 180 months assuming equal payments with an interest rate of 5%? • Complicated: Find the relationship between the price of a call option on the stock and the price of the stock assuming zero transactions costs, continuous-trading, and the stock price follows a geometric Brownian motion process • Black & Scholes solved this problem finding a long equation but one that demonstrated that the call price varied directly with the stock price, the variance of the stock price, and the time to expiration (Scholes won the Nobel for this; Black was dead)

7. Ill-Structured Problem Examples • Accurate Measurement of Longitude • WWII Invasion of Europe • Race to the Moon; Apollo 13 • Design of World Trade Center • Clear goals but many options, uncertainties, limitations ...

8. Ill-Structured Business Examples • A software company developing new operating system to make file & program access easier & more intuitive • Why ill-structured? • Clear-Blue sky; not sure of all of the options; limited mental abilities and time • A CEO oversees a CFO who is hard-working, creative, and talented but also may be overly aggressive in financial deals -- how to handle? • Why ill-structured?

9. A Map of Org Problem Solving Very Ill-Structured DEGREE OF STRUCTURE Highly Structured SHORT MEDIUM LONG TIME SPAN

10. Humans & Problem Solving What a piece of work is man, how noble in reason, how infinite in faculties... William Shakespeare The capacity of the human mind for formulating and solving complex problems is very small compared with the size of problems whose solution is required for objectively rational behavior in the real world. Herbert Simon (Nobel Prize for work on organizations)

11. Stretching Problem-Solving Abilities • At the US Naval Academy: • USNA Computational Skills Colloquia • Why such a study for future naval officers? • At A Leader in MBA Curriculum • Carnegie-Mellon MBA

12. How to Study? Problem-Oriented Disciplines • Analytical Models • Math, Physics, Operations Research, Economics, Finance, Game Theory • Heuristic-Experimental Methods • Biomedicine, Cognitive Psych, Exp Econ • Mixed • CS, Engineering, Stats, Marketing, Management, Math, Physics, Econ,

13. Modes of Study • Descriptive - Explain or model how we actually make decisions- e.g. how handle complex problems, ... • Prescriptive/Normative models- guidelines and procedures for making actual decisions (normative implying some ethical component) - e.g. decision trees, brainstorming

14. Why Economist Teaching? • Nobody Else Is!! • Nature of Economics -- • analytical approaches to decision making • widespread consideration of uncertainty • interface with other analytical disciplines such as math, stats & with heuristic disciplines such as experimental psychology & stats • My Professional Interests & Experiences

15. Lessons to Take Home • Intelligent Behavior = Problem Solving • Separates humans from animals & great, good, bad managers • Many MBA Programs tend to fixate on Well-Structured Problems or Job Specific Knowledge • Good training for low-level management & some upper-level decisions, but as managerial responsibilities increase, performance will hinge more and more on your ill-structured problem-solving abilities • Other MBA Programs/Courses tend to fixate on reflections on managerial experiences • Good way to elicit discussion; concrete illustrations with realism and entertainment value; solving difficult problems more than copying past experiences of others • Ability to Solve Ill-Structured Problems Demands Cross-Discipline Grasp of Tools/Methods

16. Mini-assignment • Fill in a map of organizational problem solving as described above solving with at least 3 specific problems faced by a business -- note the position of these problems on the map; for two of these located different locations on the map, write write down specific reasons that the problem falls where it does