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..? Decision Problem Implementing Making Solving 2 DECISION MAKING IS NOT PROBLEM SOLVING Problem Solving is unique to the problem Decision-making is unique to the person [Domain Expert] [Human Judgment] Some of our work has shown that problem solvers are not the best decision-makers… 3 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 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 Complicated Decisions? City >>> Tanta Leigh Hoxni Jackal Seaga Lando 1 Heat index – Req. AC days 52 33 29 59 20 15 69 2 Cold index – Req. Heating days 14 25 32 10 42 29 11 3 State income tax rate% - 6.0% 8.3% 5.0% 0.0% 0.0% 9.3% 0.0% 4 Average home price - $1000 $227 $176 $129 $108 $157 $293 $88 5 Prop. Taxes (per $1000 of M.V.) 39.0 11.4 15.0 13.4 6.6 6 Restaurants 3681 1177 3464 1532 2312 6073 951 7 Doctor's offices and clinics 7930 3668 5759 2511 3815 10515 1115 8 Medical and surgical hospitals 85 27 76 36 69 130 19 9 Air pollution index 85 83 104 78 94 88 103 10 Property crime risk 377 112 218 189 306 171 117 11 Access to family [hrs] 6.5 3.5 2.0 3.5 1.5 5.0 9.5 18.0 67.4 Sopel 6 Procurement Decision? Detergents for Dry Cleaners… Factors & Options 1. Time to clean – min. 2. Detergent Cost [$ per lb.] 3. Energy Consumption 4. Water Consumption 5. Stain Removal 6. Damage 7. Freshness 8. Appealing Smell 9. Wrinkle Free 10. Germ & Bacteria Removal Wash-Off 12 0.12 Reasonable Reasonable Good Excessive byproducts Good Nice Poor Germs good; bacteria poor RapidClean One-Time Twister 15 0.18 Low High Excellent 15 0.19 Low Low Selective 10 0.23 High High Good None None None Fabulous Nice Good Good Nice Medium Bacteria free Average Nice Poor Germ Free & Bacteria free Good Your company may be facing a similar problem… 7 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…!” 8 Executive’s Dilemma Information Overload Market Satu. Geopolitical Your competition will challenge you with better decisions! 9 Decisions? 1. Multi-criteria decisions? 2. Single criterion decisions? 10 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 Because of a process called WHY WE MAKE DECISIONS…? “CHANGE” Change happens! or We initiate change..! Even a decision not to respond, We respond change because is driven bytoour desire to be happy, or self-preservation, we want to be happy…! seeking a positive outcome… 12 CHANGE CONFLICTS.. Simply happens! or We initiate change..! CAUSES Definitions Interests & Values Emotions/Feelings PROB-OPPS.. Environment Roles & Styles SOLUTIONS Time Perception DECISIONS Knowledge 13 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 Psychologists & Behav. Economists Studying Human Behavior related to decision making 15 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 3. VISUAL ILLUSIONS OUR EYES DECEIVE US Our judgments are inherently tied to the environment. ** Video: 3A - Illusions - Table and Cube Illusion (2.47), Dan Ariely 17 Would you like to touch this animal? Perception 18 Would you like to change your mind? Perception 19 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 RELYING ON NUMBERS Why is a $12.00 stock a Good/Bad…? “good buy” for one person, and a “sell” for another..? DOCTORS All decisions are driven by qualitative interpretations of quantitative data….! 21 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 Decision Making – Natural Pitfalls! 1. 2. 3. 4. 5. 6. 7. 8. Informed decisions? Tendency to avoid complexity Comparisons Shifting comparisons Ghost offerings Default options Perceptions Priming www.XpertUS.com/hb.html 23 Show of hands please… Do you believe you might be making sub-optimal decisions? Are we ready? 24 A HOLISTIC APPROACH TO DECISION-MAKING PART 2 FUNDAMENTALS 25 The Decision Making Process Objective Candidates Options or likely solutions Criteria Factors that influence the decision Process The Decision… 26 Let us start with the ….. OBJECTIVE: THE VIETNAM WAR The Army did a great job training our soldiers to have Six months later… Subsequently a new superb “marksmanship” objective.. skills The[Objective].. Army revealed that 100% of the Yet, surveys revealed To provide training in soldiers had fired at that only 25% of soldiers “Killing Skills…” the enemy. actually fired at the enemy...! Do you see the value of a well-defined objective? 27 DEPARTMENT OF AGRICULTURE EVER-INCREASING POPULATION 1. HEAVY DEMAND FOR MORE FOOD 2. LOSS OF AGRICULTURAL LAND 28 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. Walgreens … profit per customer.. … to increase the YEILD PER PLANT! Eckerd… profit per store.. The objective should have been.. Increase the YEILD PER ACRE! Do you see the value of a well-defined objective…? 29 CRITERIA Vital element in any decision-making operation 1. Selecting the most relevant criteria 2. Determining the significance of each criterion (Too many criteria can be counter-productive) 30 CRITERIA Euro vs. US $ 160 What factors caused high oil prices… 140 Oil Price $/bbl 120 100 80 60 40 31 Ranking Techniques Common techniques used to prioritize or rank a set of candidates [based on feelings]… : 1. 2. 3. 4. 5. Distribution, Scaling, Decision Trees, Matrix, Pairwise comparison.. 1. Bayesian Models 2. Monte Carlo Techniques 3. Fuzzy Logic 4. Expert Systems 5. Neural Networks 6. Artificial Intelligence; etc. 32 SINGLE CRITERION DECISION-MAKING (Decision Tree Technique) 33 Example 1: Vaccination WHO studies indicateentire that there is a 75% Option 1: (Vaccinate population) likelihood of a Flu striking next year! Cost of $7.0M. Program is assumed to be A government committee considering three 100% successful, with no is additional (3) optionscosts. to manage the situation. treatment 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 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: 1. $155,000 (90% chance of winning) 2. $170,000 (75% chance of winning) 3. $190,000 (35% chance of winning) What should you do? 36 37 Example 3: Insurance Decision A Company has to decide if they should insure their warehouse (valued at $300,000), against vandalism... Probability of damage 30% is 10% 50% Crime statistics: Probability 20% of any damage [There is a 90% chance –$150K no damage at all…]$ 30K Extent of damage (losses) $ 90K 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 MULTI-CRITERIA DECISION-MAKING [Pairwise Technique] 43 4. Matrix Method But my brother owns a Mitsubishi dealership..! Ex: The Fleet Manager of a car rental company buying cars Candidates Criteria Criteria Weights.. Honda Accord Toyota Camry Nissan Altima Mitsubi. Gallant 1. Reliability [+] 48 35 30 20 15 2. Price [-] 32 20 15 30 35 3. Miles/Gallon [+] 20 25 25 25 25 100% 28.20% Total/Rank.. >> 24.20% 24.20% 23.40% 48 x 35 + 32 x 20 + 20 x 25 = 28.20.. 44 Matrix Method [Biased] Helping family! Candidates Criteria Criteria Weights Honda Accord Toyota Camry Nissan Altima Mitsibi. Gallant Reliability [+] 15 35 30 20 15 Price [-] 35 20 15 30 35 Fuel Economy [+] 50 25 25 25 25 100% 24.75% Total/Rank> 22.25% 26.00% 27.00% Forced… Let us look at a better method! 45 THE SEVEN-STEP APPROACH… [MULTI-CRITERIA DECISION-MAKING] 1. Clearly define your objective… 2. Identify all relevant criteria… 3. Conduct criteria segregation… AHP 4. Identify all available candidates/options.. 5. Gather information (Judgment table)… 6. Assign weights to obligatory criteria… AHP 7. Rank candidates… AHP AHP = Analytic Hierarchy Process 46 “AHP” ANALYTIC HIERARCHY PROCESS What is AHP? Is AHP reliable? Who is using AHP? 47 Wikipedia Worldwide Applications of AHP Site selection Sub-contractor selection [bid evaluation/procurement] Recruiting Univ. Faculty [Univ. of Pennsylvania] Manage US Watersheds AHP conference Closure of US military bases (2005) where 19 countries Study of overall software quality [Microsoft] participated… 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 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 Ladies… DIFFICULTY OF GROUP COMPARISON Distribute 100 points among these ladies to reflect their beauty! Difficult? Probably not! 50 Ladies… DIFFICULTY OF GROUP COMPARISON Distribute 100 points among these ladies to reflect their beauty! A bit more difficult? 51 Distribute 100 points among these ladies to reflect their beauty. Requires much more attention? 52 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 Let us think of some criteria! 1. Citizenship You had difficulty with20. 2. Education one criterion…? 21. 3.just Languages 22. 4. Age 23. 5. Sex 24. 6. Family status 25. 7. Foreign exposure 26. 8. Present employment 27. 9. Directed work experience 28. 10. Related work experience 29. 11. Salary expectation 30. 12. Availability 31. 13. Management ability 32. 14. Management aspirations 33. 15. Leadership potential 34. 16. Temperament 35. 17. Willingness to travel 36. 18. Self motivated 37. 19. Computer Skills RECRUITING! Candidates: Communication skills Presentation skills 1. Harry Sands 2. Joy Bergmann Unwavering courage 3. Quincy Williams Self control 4. Jane Smarts Sense of justice 5. Dick Davis 6. Roger Smith Definiteness of decision 7. Maria Lopez Organizational skills Willing to do more Pleasing personality Master of detail Assume responsibility Team player skills Multiple Follow instructions Decision-Makers: Free of other commitments 1. V.P. Marketing Health & Physical condition 2. Dir. H.R. Personal habits 3. Mngr. Bus. Dev... Hobbies & Interests Integrity & Honesty…. 54 IN SEARCH OF THE OPTIMUM DECISION The quality of your decision will depend on (raw materials & skill-set): 1. 2. 3. 4. 5. Data & Inform. (Objective) Context Information Criteria and Candidates Solution Technique Used Expertise However, the outcome will depend on the implementation: 1. 2. 3. 4. Appropriate Timing Adequate Resources Commitment to Execution Changing Circumstances…. 55 A HOLISTIC APPROACH TO DECISION-MAKING PART 3 DECISION VALIDATION 56 VALIDATING YOUR DECISION! Bias & Risk Exposure 1. You the Decision-Maker 2. The Environment 57 VALIDATING YOUR DECISION! Case Study: A hotel chain is considering hiring a Business Development Manager. Criteria (6): 1. Availability Candidates (4): (2 weeks) 1. Jane 2. Leadership 2. Kathy 3. Salary 3. Sue 4. Self Motivated 4. Mary 5. Team Player 6. Temperament 58 OPTIMUM DECISION Mary 59 V.P. HR asks you.. “If we are willing to wait longer, who should we hire…” Overall Optimum Ranking Jane (Availability) 60 “What if we are willing to pay whatever it takes…” Sue (Salary) Overall Optimum Ranking 61 Case Study: VALIDATING YOUR DECISION An Engineering Contractor is considering opening a branch office in Asia. Criteria (6): Candidates (5): 1. Language 1. Sydney 2. US Relationships 2. Singapore 3. Market Opportunities 3. Beijing 4. Real Estate Costs 4. Kuala Lumpur 5. Bureaucracy 5. New Delhi 6. Taxation 62 OPTIMUM DECISION 63 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…. 1. That you are human, and too could fail 2. That we need a robust, reliable methodology So will training help..? Would youthough go to a Even you have been making Girls who have been walking dentist who has not decisions all your life, you need to have learn all their lives, still to been trained in the how to walk elegantly..! to make betterlearn decisions. latest techniques..? 67 IMAGINE A SHOOTER ENGAGING IN TARGET PRACTICE We cannot change the decision-maker! Degree of success We did NOT change the shooter! But we can give him the tools to make We gave him be the20%..? tools! (hit-rate) may reliable decisions, consistently…..! Now, he mounts a “scope” on is gun! AHP is the “Scope” Higher hit-rate?.... may be up to 60%...? What if he now uses a “tripod” as well? The 7-Step XDSS is the “Tripod” Improve his hit-rate? Up to 80%..? 68 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 RECAP..! We stressed… about ... Change, Decisions, & Happiness 70 RECAP! Given the same set of data & information, different people will make different decisions… Real-world-decisions are multi-dimensional: 1. Multiple criteria 2. Multiple candidates 3. Multiple stakeholders & decision-makers 71 RECAP! Set a Clear Objective Segregate Criteria (AHP) Make Decision (AHP) Validate Decision (AHP) 72 Call-to-Action Knowledge is Power..! Information When acquired Knowledge When utilized Power! www.XpertUS.com 73 CALL-TO-ACTION www.XpertUS.com author@xpertus.com Take the skill-test (Free) Take the online course! Attend a workshop…! Book: US$ 20.00 Take now and pay on website $ 10.00 E-Book: US$ 7.95 Buy from website $ 5.00 74