Making Decisions & Solving Problems

Lecture 5

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The Problem

• The process of arriving at decisions in response to an identified situation follows a fairly predictable path.– A problem can be generalised as an ill-defined situation

and the existence of this situation is “discovered” through the generation of one or more cues.

• The person sensing these cues then looks for some type if observable pattern in the information and compares this pattern to previously used patterns, or analogues, for which there has been previous solutions.

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• The ability of people to make decisions that have positive outcomes has long been assumed to be one of the valuable gains of experience. – However, observations of newspapers or television

demonstrates that even experts in particular fields are likely to be very unsystematic in decision making; with the consequence that businesses fail, pollution gets worse, or art is left to decay.

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Decisions, Decisions

• At some point in time we have to make some kind of decision about something. – Often teams or groups of people are used to make

the decision process more effective or efficient, but this belief as shown above, may be fatally flawed.

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Alternatives to Decisions

• No Regard for Consequences: Decisions are made without any regard whatsoever to their future consequences, be they favourable or unfavourable.

• Anything can happen: This represents the attitude that the future is a complete gamble that nothing can be done to influence it in a desired direction, or to anticipate it.

• The glorious past: This is an attitude that looks to the past and ignores the future.

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• One-track Decisions: This involves using the attitude that everybody moves on a fixed track, and that the only direction is always toward an improved situation. – For example, “higher, faster, and farther,” or “bigger

and better” assumes that the future will be like the past, only more so.

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• Crisis action: Waiting until the problem or crisis has arrived, and then taking some immediate action to attempt to alleviate the impact of the crisis.

• Genius Insight: This is an alternative to the use of rational methods for obtaining decisions and consists in finding a “genius” and asking for an intuitive guess.

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• There are an awful lot of management practices that we use but have never actually tested them for there ability to produce the best outcome. – Often, very often, managers spend a lot of their time

correcting decisions that they have made in the past. • Given that many management decisions could probably have been

better with application of a better approach, why has there been little change in this situation.

– The reason is that particular approaches are consistently used because we were taught to use them or they are what other people usually use.

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• The Medical Situation from trained professionals (like us!).– Discussion

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The One or Too Many Issues in Making Decisions

• You are in a complex situation and you need to make a decision that if you choose wrongly you may suffer severe negative outcomes as a consequence. – How do you know you are making the best

decision about yourself and your situation?

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Advantages of Groups

• The sum of the information available to a group is at least as great as that available to any individual member. – If the group has been chosen to contain only people who

are experts in the subject, the total information available to the group is probably many times that possessed by any single member.

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Disadvantages of Groups

• There is at least as much misinformation available to the group as there is to any single member. – The social pressures a group place on its members to

conform to a particular belief or concept or to agree with the majority even when the individual believes that the majority is wrong.

• A group often takes on a “life of its own” and reaching agreement becomes a goal in itself.

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• We have learned that we can avoid making bad decisions through good market research, discounted cash-flow analysis and business planning. – If a little is good then more must be better; the

approach MBA learning takes.

• The trouble is this approach rarely offers fresh-ideas and alternatives.

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• In fact, we can end-up with no decision through “Paralysis by Analysis”

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Making Choices

• Making a decision involves:– The fact that a choice must be made.– Specific factors that must be satisfied if the choice

is to succeed.– What kind of action will best satisfy these factors.– What risks are present in the final choice of action.

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A Simple Model

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• When we are confronted with simple, repetitive choices, memory and experience enable us to consider the specific factors that must be satisfied. – This is seen typically in the choices we make when

we drive to work. • We would be incapable of driving without this ability to

use automatically all the elements of the choice-making thinking pattern.

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• Making great decisions is critical to individual and organizational success. – We know that choices made today influence our

lives tomorrow. • What is not so obvious is how we ought to use

information, how we can avoid getting bogged down in details, how we can avoid missing the details that must be recognized, and how we can escape being confused and intimidated by the uncertainties of the future.

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• Behind most decisions are a many complex details. – Some are highly important, some insignificant.

• The quality of available information may not match our needs.

• There may not be enough information.

• There may be so much that it overwhelms us.

• Perhaps the degree of relevance of available information is unclear.

– Good decision making depends heavily on experience and judgment.

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• Good decisions depend on the quality of:– The definition of the specific factors

(criteria/objectives) that need to be satisfied by the chosen course of action.

– The evaluation of the available alternatives. – The understanding of the consequences of these

alternatives.

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• The Decision Analysis process involves six steps:– The Decision statement– Establish objectives– Classify objectives into MUSTS and WANTS– Generation of alternatives– Evaluation of alternatives– Compare and choose: balancing alternatives with

potential risks.

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The Decision Statement

• This involves the selection of the objectives or criteria we are going to use to compare and evaluate alternatives, and the classification of them into MUSTS and WANTS. – MUST objectives are mandatory, that is, the alternatives

must meet this requirement. • We use our MUSTS to make the initial screening of our

alternatives - those not satisfying the MUST criteria are rejected. • In order to perform in this way a MUST criterion must be

measurable; even a very important item may have to be used as a WANT criterion if it is not measurable.

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The Correct Wording

• Making good choices depends on three elements: – The quality of our definition of specific factors that

must be satisfied, – The quality of our evaluation of the available

alternatives, and – The quality of our understanding of what those

alternatives can produce-for better or worse.

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A bad Choice!

• “We need to increase the research and development capabilities of this organization.”– Why is this going to cause problems?

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• A good decision can only be made in the context of what it is that needs to be accomplished. – No alternative is any better than its ability to do the

job that has to be done.

• The purpose of Decision Analysis is to identify what needs to be done, develop the specific criteria for its accomplishment, evaluate the available alternatives relative to those criteria, and identify the risks involved.

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• Decision Analysis seldom deals with certainties. – The further into the future a proposed action

extends, the less certain it can be. • Thus we have to depend on our judgments, evaluations,

experience, and intuitive feelings.

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• "I don't feel right about this. . ." is to throw away a valuable resource. – It leads to such errors as hiring a person you don't

like and can't work with just because "the resume looked so good, and I was trying to be objective."

• That is not good decision making.

– A good decision is one that will work.

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• Task: "Select the Best Personnel Information System for the Enterprise." – The decision statement indicates both the purpose

of the decision as well as the level at which it would be made. It set the stage for the kinds of alternatives that would be considered.

• Had the statement been worded: "Improve Our Method of Personnel Information Recording and Reporting," the character of the decision would have been different: the selection of a new system would have appeared as one of several alternatives.

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The Objectives for the Decision

• What must the new system do? – What would the team like it to do in addition?

• What constraints affect the choice of a new system? – Such are the questions that every team of decision makers

has to ask in order to begin setting objectives. • The answers to these questions will result in a list of objectives.

• The objectives will then be classified as MUSTS or WANTS.

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• The MUST objectives for the new personnel information reporting system are:– MUST be capable of . . .

• Regional Equal Employment Opportunity reporting

• Reporting to management, using X

• Capturing and reporting salary and job history

– Each is measurable: either a system can offer these features or it cannot.

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• A list of WANT objectives represented additional desirable but not mandatory criteria. – Some WANT objectives:

• Implementation six months after start

• Written in XTML

• Occupational Safety and Health Administration (OSHA) reporting capability

• Elimination of multiple forms by using turn-around document

• Security

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Weighting the Objectives

• Once the WANT objectives have been identified, each one is weighted according to its relative importance. – The most important objective is given a weight of

10. – All other objectives are then weighted in

comparison with the first, from 10 (equally important) down to a possible 1 (not very important).

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• The purpose of the 10-1 weighting scale is to make visible the relationships among these objectives: – What matters most? – What can be done without, if necessary?

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• When the time comes to evaluate the alternatives, we do so by assessing them relative to each other against all WANT objectives-one at a time. – This is why it is critical at the outset to identify the

most important objectives. • It is pointless to know that a particular alternative

satisfies nine out of ten WANT objectives if, in fact, it is the tenth that is most crucial to success of the decision.

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• We must also examine the balance of WANT objectives and look for certain danger signals:– Too many high numbers may indicate either unrealistic

expectations or a faulty perception of which objectives can guarantee success.

– Too many low numbers suggest that unimportant details may be smothering the analysis.

– Too many objectives reflecting the vested interest of a single person or faction may lead to an unworkable decision.

• This is especially true if other people are equally affected by the final decision.

• Loaded objectives-those that guarantee a selection of a certain alternative and against others will end in worst case decisions.

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Evaluation of Alternatives against MUST Objectives

• In this evaluation an alternative either meets all the MUST objectives (GO) or does not (NO GO). – A NO GO is immediately dropped from further

consideration.

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Generating and evaluating alternatives

• If we find that one of our 'promising' alternatives is unable to give us all the MUSTS that we want, we should reject it. – If we are reluctant to do this it suggests we need to review

our MUSTS criteria (and perhaps the WANTS as well) to see whether we have chosen the best criteria, given the purpose of the decision.

• It is often useful if this does happen, because it causes us to think again about our assessment criteria.

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• You have to feel right about a criterion if you are going to use it to reject a favoured alternative, and this element of doubt invariably sharpens our choice of MUSTS and WANTS. – This does not mean that we can or should amend the

criteria so that they give the decision we think we want, just that the surprise of seeing a favoured alternative facing rejection concentrates the mind on our choice of criteria.

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The Tentative Choice

• We begin this step with the tentative choice-– the alternative with the highest total weighted score.

• We examine it by it self.

• We examine its probabilities of failure or potential trouble.

• Remember that this is never an exercise in comparisons. We do not say, "Alternative A is more likely to produce this problem than Alternative B." Comparison is not a useful approach. Each alternative must be examined separately.

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• We then rate the adverse consequences of an alternative on the basis of probability and seriousness: – What is the probability that this (adverse

consequence) will occur? • If it (the adverse consequence) does occur, how serious

will it be? • We can use ratings of High, Medium, and Low (H,M,L)

or a scale of 10 (highly probable/very serious) to 1 (unlikely/not at all serious).

• The 10-to-1 system is fine-provided that we avoid the temptation to start multiplying and get lost in the numbers.

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• The total weighted score gives us a tool for selecting a tentative choice. – Although the tentative choice often graduates to

the status of final choice, it should never do so before we explore the potential risks involved.

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The Consequences of Alternatives

• If it is so important to explore potential risks, why do people often fail to do it? – There are several understandable reasons.

• If an analysis of three alternatives produces total weighted scores of 700, 350, and 210, it may seem a waste of time to brain storm for potential risks.

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• Considering the consequences of alternatives entails answering at least these five questions:– If we choose this alternative:

• What requirements for success have we missed in the previous stages of this analysis?

• What factors within the enterprise, based on our experience, could harm its acceptance or its implementation?

• What kinds of changes within the enterprise could harm its long-range success?

• What kinds of external changes (such as competitor activity and government regulations) could harm its long range success?

• What kinds of things tend to cause problems in implementing this type of decision?

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• In this step of the process, we try to destroy our best alter natives one at a time. – We become destructive, negative, and pessimistic.

• The degree to which managers accept this process is largely determined by the amount of their experience.

• Experience teaches us that there are no awards for past optimism over current failures.

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The 3 I’s

• There are 3 facets of our own self that significantly affect the probability of a good solution to a situation:– Instinct– Intuition – Insight

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Instinct

• There is reasonable evidence to support the view that our distant ancestors had their origins and lives on the savannah of Africa. – This has left us all with a legacy of embedded instinct relevant to our

day to day survival on grassy, open, plains whether we are there or not. – This embedded legacy pre-program’s our response to survival, sexual

drive, competition, aggression, altruism, our search for knowledge and the search for meaning. This is not something learned, it just is, and it is our instinct.

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• The big issue for us is our instinctive response to anxiety.

• Very early on anxiety causes heartbeat rate to rise and for the unfit person this rise could be as high as double their normal resting heartbeat. – The veins begin to constrict and the arteries open. Air intake

increases toward hyperventilation, in order to provide oxygenated blood to the major muscle masses.

• This prepares you for short bursts of extreme feats of strength.

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• In addition to these physical effects we bring to the situation a set of paradigms, inferences and expectations that have a tendency to cause a “fixation” on some particular aspect of the situation, often to the exclusion of everything else. – Hence, and with our brain trying to make sense out of this

arising chaos we will attempt to create meaning when there is little or none to be found in the available information.

• These factors act together to increase the rate of anxiety.

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• Intuition is about a way of knowing though feeling that something is right. – The outcome of using intuition is that enables us to:

• See new possibilities in a situation.• Have a sense of the future and the optimum response to it.• Generate new ideas that provide new solutions to old problems.• Deal effectively with rapid change plagued by incongruity and

paradox.

Intuition

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• However, the problem with intuition is that it does not appear to have foundations based on logical analysis. – Intuition uses judgement, experience and feeling in a fairly

subconscious way to arrive at a decision. • In order to arrive at a decision, some thought process must be active

and there are probable at least two processes active in intuitive judgement: firstly, involves an automatic and effortless information process activity that is improved by experience to reach the perception of knowing without conscious attention.

– Most of our everyday living involves this form of information processing that is rapid and effortless.

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Making Sense of Non-sense

• Place the cards in their appropriate suit: you must place them in one of 4 suits.

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The Issue of Intuition

• One of the fundamental beliefs of management is that careful analysis of a situation yields choices that are superior to those coming from “gut-feel”– And this is proving to be an error of judgement!

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The Challenge

• Read and decide what the problem is and then how you will fix it!

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Table 6.1: Testing an Intuitive Solution

Testing the Inclination to Accept Testing the Inclination to Reject

Is it the fulfilment of a wish?

Is it trying to avoid criticism?

Is it an act of impulsiveness?

Is it risk avoidance?

Is it just posturing (me too)?

Is it yielding to authority?

Is there compelling rational evidence?

Is it a lack of self-confidence?

Can it be tested as safely as possible?

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Insight

• A woman did not have her driver’s license with her. – She failed to stop at a railroad crossing, then ignored a

one-way traffic sign and travelled three blocks in the wrong direction down the one-way street.

• All this was observed by a policeman, yet he made no effort to arrest the woman even though there was nothing stopping him.

• Why?

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• Insight is an associative process whereby an optimum solution is forthcoming from the association of concepts to produce something new to the situation. – If intuition is experiential then insight comes from a

“flash of illumination”. • However both rely in holistic association.

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• Most of the time solutions are arrived at using a relatively slow and incremental process. – In contrast insight solutions arrive suddenly by just

popping into the mind. Insight occurs most often when the incremental process reaches some kind of impasse such that there seems not direct way to proceed to a solution.

• Insight provides an alternative pathway, a re-representation of the situation, leading to different solutions.