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
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74