so, you think you are good at making decisions? - 8th october - aberdeen

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INTECSEA Consulting

So, You Think You’re Good

At Making Decisions??

A B C

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An Investment ‘Opportunity’

Investment of £10 with uncertain return

Investment is sunk cost (will not be returned)

To simulate uncertainty, we use four playing cards – two red and two black.

- Two black cards win £30

- One black and one red win £15

- Two red cards attract an additional penalty of £6 i.e. total loss of £16

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A Decision Tree Makes The Problem Clearer

Do Not Invest

Invest

-£10

Two Black

One Red / One Black

Two Red

£30

£15

-£6

£0

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The Expected Value

Do Not Invest

Invest

-£10

Two Black

One Red / One Black

Two Red

£30

£15

-£6

£0

1/6

1/6

2/3

EV = 30.(1/6) +15.(2/3) – 6.(1/6)

£14

£4

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Value of Information

Do Not Invest

Invest

-£10

Two Black

One Red / One Black

Two Red

£30

£15

-£6 -£3

Info

£0

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The First Card is Red

Do Not Invest

Invest

-£10

Two Black

One Red / One Black

Two Red

£30

£15

-£6

£0

0

1/3

2/3

EV = 30.(0) +15.(2/3) – 6.(1/3)

£8.00

-£2.00

-£3

Info

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The First Card is Black

Do Not Invest

Invest

-£10

Two Black

One Red / One Black

Two Red

£30

£15

-£6

£0

1/3

0

2/3

EV = 30.(1/3) +15.(2/3) – 6.(0)

£20.00

£10.00

-£3

Info

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The Monty Hall Problem

A B C

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The Monty Hall Problem

A B C Stick with original choice

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The Monty Hall Problem

A B C Switch from original choice

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Decision Quality

DQ represents the periodic application of structured decision making to specific opportunities and decision problems.

Organisational Decision Quality (ODQ) is the understanding and use of DQ by the full, corporate-wide decision making community, in collaborative value creation.

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Elements of Decision Quality

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Appropriate Frame

Clear Values and Trade- off

Creative Alternatives

Meaningful Reliable

Information

Logically Correct

Reasoning

Commitment to Action

A Decision Is Only As Good As Its Weakest Link

Defining the Decision Frame

Policy

Strategic

Tactical

Constraints and boundaries within which the decision must be made

Primary decisions to be made

Secondary decisions

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Decision Framing Workshop

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Business Opportunity

Strategic Questions

Business Drivers

Decision Criteria

Strategy Map – All Options

Concepts to be

Considered

Decision Frame

Values and Trade-offs

Creative Alternatives

Information Reasoning

Action

Business Framing

Concept Identification

Prospect Development Study

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Strategy Map

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Strategy Map

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Summing Up

An organisation’s value is just the sum of the decisions it makes and executes

Humans are not naturally wired to consistently make good decisions

Decision Quality methods provide a structured framework within which complex decision making can be transparent and auditable

Decision Quality is a learned skill

Take a look at …………….

SPE Technical Report – Guidance for Decision Quality for Multi-company Upstream Projects

Society of Decision Professionals website www.decisionprofessionals.com

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