Managing Decision Making (MDM)

1. Managing Decision Making (MDM) Tutorial Section (July 2010 Semester, Week 1 to Week 5) Tutor – Tony Mok eMail - tony_iis@hotmail.com URL - http://tonymok.brinkster.net

2. Time Table – Group 1 • 28 July (Wed) – 1st Tutorial • 11 Aug (Wed) – 2nd Tutorial • 25 Aug (Wed) – 3rd Tutorial • 08 Sep (Wed) – 4th Tutorial • 08 Oct (Fri) – Submit 2nd Assignment

3. Week 1 – Problem & Decisions • What is Decision Making? • Decision making is the process of identifying a problem, identifying alternative solutions, and choosing and implementing one of them. (Zwass 1992,491) • Scanning for problems • Data sources include both External and Internal environments • External environment: Journals, Magazines, News services, Internet, Personal contacts …… • Internal environment: Production levels, Quality, Work force, Sales levels, Strategic plan, Suggestion boxes ….

4. Symptoms • It is important to distinguish between PROBLEMS and SYMPTIONS. • Iceberg Effect, useful to look for symptoms and see if you can work back from the symptoms to the root causes of the problems. Source: www.pgww.com/ondemand/TheIcebergEffect.asp

5. Constraints • Samples: Short of staff, finance, and physical resources; social, political or ethical reasons • All the recognized limitations that stop us to take actions in order to achieve our desired state are labeled as constraints. • What can we do? • WAIT until sufficient resources are available to un-constrain a preferred solution path BUT this will be governed by the time that the solution is valid for. • RECOGNIZE the constraints and take a different approach to the solution, BUT make sure that the resource availability for the other solution.

6. Generalized Approach to Problem Solving • Recognize the existence of a problem • Decide if action needs to be taken • Define the problem • Gather data • Analyze the data • Formulate possible solutions • Evaluate solutions • Choose appropriate solution • Implement solution ** Compare with Simon’s Models **

7. Problem Categories • Structured Problem • Sufficient amount of data available • With well-know paths • Occurs in the day-to-day, or operational, level. • Unstructured Problem • Non-routine, not appear very often • Unique, lack precedents • Semi-Structured Problem • Data to support the process may be incomplete or ambiguous • Partial problem solving procedures or some previous experience may exist

8. Problem Categories • Wicked problems • Complex and difficult to define. It consists of a series of sub-problems, constraints and symptoms all of which interact dynamically. • Solving one part of the problem may not reveal the next step. • The problem evolves continuously. • A perfect solution may never emerge. The problem becomes “solved” when it ceases to be a major concern, can be tolerated, or there are no more resources to sustain the problem solving activity. • Apparent problem has been felt to exist for a long time but never been resolved or fully defined. • W/o solution and impossible to define the problem. • Involved multiple stakeholders.

9. Level of Decision Making • Strategic Level • Senior Management • Long term • Non-routine • Semi-Structured / Unstructured • High risks • Tactical Level • Middle Management • Semi-Structured / Structured • Non-repetitive • Some risks • Operational Level • Day-to-day / Routine – established procedures • Structured • Low Risks

10. Decision Making for ….. • Unstructured problems • Reply on knowledge, skills and specific business expertise of the senior managers. • High levels of judgment is required. • Structured problems • Use of well established, and documented, procedures leads to the decision-making process. • Minimal judgment is required. • Semi-Structured problems • Middle levels of management will normally be involved. Source: Figure 2.7, P31, Monday, A & Banks, D 2004, Decisions, Decision Makers and Technology Support, 3rd edition, Pearson SprintPrint, Frenchs Forest, NSW

11. Dealing with Wicked Problems • Bring the various stakeholders together closely as a group and try to understand the central issues in the problem. • Electronic Group Support Systems can be applied.

12. Week 2 – Decisions and Decision Makers • Individual Decision Makers • Comprise a unique collection of complex and dynamically interacting personal characteristics (knowledge, skills sets, attitude, values, beliefs, experience, preferences, priorities, risk orientation, biases, blind spots, motivation) that contribute to their problem solving and decision-making style. • The way that people react to factors such as time pressure, overload, and ambiguity also impact on the way they perform as problem solvers and decision-makers.

13. Hard Thinkers • Scientific view • Belief that systems can be engineered according to fixed rules • Reductionism • Predictability • Attention is on “Things” (hardware / software) • Look for technical detail • Simplify situations • See tools as Decision MAKING systems

14. Soft Thinkers • Systems views • View the world as being constructed by the observer, that is that “reality” is socially constructed • Holism • Unpredictable • Attention is on People • Look for the “big picture” • Recognize complexity • See tools as Decision SUPPORT tools

15. Decision Style Inventory (Marakas) • Marakas (1999, 44) provides a decision style classification that uses two components: cognitive complexity and value orientation to identify four decision styles. • Directive • Low tolerance for ambiguity and focusing on technical decisions; • Do not use large amounts of information or consider a wide range of alternatives; • Tend to be authoritative and communicate verbally rather than through writing. • Analytical • Use large amount of information and alternatives and cope well with ambiguity; • Would contribute ideas at meeting but would tend to be unwilling to be forced into quick decisions.

16. Conceptual • With a high tolerance for ambiguity and strong emphasis on values and ethics; • Usually strategic thinkers, looking to the long-term future, and are usually loyal to organizations that meet their ethical and human values; • They are thinkers rather than action-oriented and enjoy discussion with all levels of the organization. • Behavioral • Oriented to co-workers and employees; • Strongly supportive of the organization as a whole; • With a tendency to avoid conflict • Good operational or tactical thinkers and enjoy group meetings rather than individual behaviours.

17. Two types of Thinking • Productive Thinker (Problems can be solved by finding new solution) • Reproductive Thinker (Problems can be solved by re-using old solutions) Source: Figure 3.5, P42, Monday, A & Banks, D 2004, Decisions, Decision Makers and Technology Support, 3rd edition, Pearson SprintPrint, Frenchs Forest, NSW

18. Problems of Individual Decision Makers • Individual is limited by their own resources, skills, attitudes and other characteristics. • Governed by their world-view, habit and motivation. • Useful for solving structured problems.

19. Group Development (Tuckman, 1965) • Groups are rarely able to become productive immediately when they are formed. • Forming stage: • Group is assembled and introduced to one another. • Storming stage: • The working through of any internal conflicts • Most difficult stage in the development of a group • Norming stage: • Group begins to move towards task focus and to agree to leadership structure, aims and standards of behavior within the group. • Performing (Cooperation) stage: • The group has an effective structure and is focused strongly on the task.

20. Benefits of Group Work (Nunamaker, Dennis, Valacich, Vogel and George (1991) and Pollard (1996) • More information: a group as a whole has more information than any one member; • Synergy: one member may interpret or use information in a way that the original holder did not because that member has different information or skills. This means that one individual can trigger new ideas in the minds of other participants. • More objective evaluation: groups are generally better at identifying errors than are those individuals who originally proposed ideas. • Simulation: working as part of a group may stimulate and encourage individuals. • Learning: members may learn from and imitate more skilled members to improve performance.

21. Problems of Group Work (Nunamaker, Dennis, Valacich, Vogel and George (1991) and Pollard (1996) – Part 1 of 4 • Air time fragmentation: the group must share available speaking time among its members. • Attenuation blocking: if a participant is unable to contribute an idea at the time it occurs to them then they may forget or suppress it later in the meting because they seem less relevant or important at that later time. • Concentration blocking: If an opportunity to contribute an idea is not available when the idea first occurs to a participant then they may concentrate on remembering the point they want to make rather than thinking of new ones or listening to the flow of the discussion. • Attention blocking: if conversation levels are high it requires participants to constantly listen without any pause for thinking.

22. Problems of Group Work (Nunamaker, Dennis, Valacich, Vogel and George (1991) and Pollard (1996) – Part 2 of 4 • Conformance pressure: the power structure of the group or previous history of meetings may mean that individuals feel that they have to follow a previously set pattern. • Evaluation apprehension: individuals may feel that their contributions will be ridiculed or not taken seriously. • Socializing: non-task discussions may dominate the meeting leaving little time for the true purpose of the meeting. • Domination: one member of the group may dominate the process by deliberate action or by being unaware of the need to involve others in the process.

23. Problems of Group Work (Nunamaker, Dennis, Valacich, Vogel and George (1991) and Pollard (1996) – Part 3 of 4 • Information overload: groups can bring more information to the meeting and this can sometimes be conflicting or biased leading to degradation of the decision process as individuals reach their information overload limit. Once decision makers reach an information overload position they will typically cope by using ‘filters’ that help them reduce the amount of information they have to deal with. This may have the result that they fail to acknowledge important issues that they have filtered out. • Coordination problems: difficult integrating members because the group does not have a strategy for managing the process. This can lead to incomplete discussions and premature decision-making.

24. Problems of Group Work (Nunamaker, Dennis, Valacich, Vogel and George (1991) and Pollard (1996) – Part 4 of 4 • Unequal amount of contribution to the verbal aspect of the meeting: shy individuals may not feel comfortable offering ideas to a group, or they may be overwhelmed by the extravert members of the group that dominate the meeting. Note: as group size increases, problems increase and benefits decrease.

25. Danger of a group with TOO MUCH COHESIVENESS • Although there is a need to ensure that groups cohere and work well together there is also a danger that it will become too inwardly focused  reaching the final stage of its life (Adjourning / Mourning). • The group will start to develop strategies to prolong its existence and this can manifest itself as Groupthink (Janis, cited in Marakas GM, 1999). The symptoms include: • Illusions of invulnerability • Excessive risk taking • Belief in the inherent morality of the group • Stereotyping and hostility towards external groups and influences • Illusions of unanimity • “Mindguards” to prevent disruptive information or views from becoming known

26. Groupthink has an adverse effect on decision-making, producing effects of: • Ignoring vital aspect or objectives • Limited identification of alternatives • Poor search for information to support decisions • Selective biases being applied to alternatives • Failure to iterate • Failure to identify risks

27. Conflicts and alliances

28. Cultural Issues • Adler (cited in Brooks and Weatherston, 2000, p180) identifies two broad types of culture that have significance for decision making • Problem-Solving • Tend to identify problems that need to be solved by gathering facts, making decisions and acting decisively and authoritatively; • Lean towards rapid decision-making; • Do not use the past as reference point; • Adopt individualistic decision making approaches. • Situation-Acceptance • More accepting of issues, felling less need to cause change; • Slower decision-making; • Have a historical orientation (beliefs and traditions); • Focus is upon longer-term perspectives rather than short-term profits.

29. Cultural Issues • Others cultural issues • Blackman (1997) – family relationships are profoundly important in Chinese business; • Issues of potential loss of ‘face’ in meetings, of the development of trust, and of the speed of decision making differ in different cultures be recognized as a significant issue in business decision making between people of different culture origins. • Further differences lie in the way that authority is taken by decision makers at various levels within organizations in different countries. [Studies by Lai and Lam (1986) found that in China, only 34% were willing to bypass the management hierarchy, compared with 65% in the UK and 82% in the US.]

30. Week 3 – Simon’s Model • Models • What is Model? • A simplified representation or abstraction of reality; • Can represent systems or problem with various degrees of abstractions. • Iconic (Scale) Models • The least abstract type of model; • A physical replica of a system, usually on a different scale from the original; • Can be 3 or 2-dimensional.

31. Analog Models • More abstract than an iconic model and is a symbolic representation of reality; • Usually 2-dimensional charts or diagrams. • Mental Models • Descriptive representations of decision-making situations that people form in their heads and think about. • Their thought processes work through scenarios to consider the utility of and risks involved in each potential alternative; • Are used when there are mostly qualitative factors in the decision-making problem. • (http://www.slideshare.net/ufu999/ss-2679600) • Mathematical (Quantitative) Models • Most DSS analyses are performed numerically with mathematical or other quantitative models.

32. Simon’s Model (1977) • Intelligence Phase • Identification of organization goals and objectives to an issue of concern • Problem (or Opportunity) identification • Problem classification – an attempt to place the problem in a definable category, possibly leading to a standard solution approach • Problem decomposition – identify the sub-problems • Problem ownership – the assignment of authority to solve the problem • Problem statement

33. Design Phase • Finding or developing and analyzing possible courses of action. These include understanding the problem and testing solutions for feasibility. • Selection of a Principle of Choice • A principle of choice is a criterion that describes the acceptability of a solution approach. • Normative (Optimization) Models: chosen alternative is demonstrably the BEST of all possible alternatives. Decision maker should examine ALL the alternatives and prove that the one selected is indeed the best. • Sub-optimization: a condition wherein sub-objectives are conflicting or not directly aimed at accomplishing the overall organizational objective. • Descriptive Models:extremely useful for investigating the consequences of various alternative course of action under different configurations of inputs and processes BUT no guarantee that an alternative selected is optimal, normally satisfactory.

34. Selection of a Principle of Choice • Simulation:It is the imitation of reality and it isthe most common descriptive modeling method. • Good Enough (Satisficing): The usual reasons for satisficing are time pressures, the marginal benefit of the best solution is not worth the marginal cost to obtain it. • Measuring Outcomes • Risk • Scenarios: a statement of assumptions about the operating environment of a particular system at a given time; that is, it is a narrative description of the decision-situation setting. Possible Scenarios: (1) The worst possible scenario (2) The best possible scenario (3) The most likely scenario (4) The average scenario

35. Choice Phase • Selects the possible alternative by identified criteria • Elapsed time from problem identification to Choice phase may be significant • With internal feedback loops • FOUR searching approaches • Analytical Technique (i.e., solving a formula) • Algorithms (i.e. step-by-step procedures) • Heuristics (i.e. rules of thumb) • Blind searches (i.e. shooting in the dark) • THREE analysis approaches • Sensitivity analysis (Only one variable is changed but several times) • What-if analysis (Change different variables and observe how the changes to these variables affect other variables) • Goal Seeking (Target is set and selected variables are changed until target is achieved)

36. Implementation Phase • Putting a recommended solution to work, not necessarily implementing a computer system. Source: Figure 2.1, P46, Decision making, systems, modeling and support, Turban, E 2011, Decision Support and business intelligence systems, 9th ed, Prentice Hall, Boston

37. Week 4 – Kepner-Tregoe (K-T) Decision Matrix • Introduction • Developed by Charles Kepner and Benjamin Tregoe (1973, cited in Marakas 1999) • K-T model has a stronger focus on “uncertain unstructured situations” whereas Simon’s model is appropriate for semi-structured situations. • It can be summarized to FOUR steps: • Situation Appraisal • Problem Analysis • Decision Analysis • Potential Problem Analysis

38. Steps to approach decision analysis • Prepare a decision statement having both an action and a result component; • Establish strategic requirements (Musts), operational objectives (Wants), and restraints (Limits); • Rank objectives and assign relative weights; • List alternatives; • Assign a relative score for each alternative on an objective-by-objective basis; • Calculate weighted score for each alternative and identify the top two or three; • List adverse consequences for each top alternative and evaluate probability (high, medium, low) and severity (high, medium, low); and • Make a final, single choice between top alternatives.

39. Weighted Matrix • A table is set up with each criterion given a weight depending on its importance in the decision and with each alternative given a ranking for that criterion. This particular method can serve a different purposes at each stage in your decision. Selection of a new apartment by using Weighted Matrix

40. Generating Decision Options (Part 1 of 2) • Consider first the status quo - there is always an option to continue with current solution. • Consider doing nothing - is there really a need to do something now? Do the impacts of doing something now counterweigh the costs? • Look at the other methods of cause (Root Cause Analysis): “method”, “machine”, “environment” – challenge the status quo. • Involve other people inside and outside your organization when looking for options. Consider forming a group. • Take time to brainstorm with your team to come up with new and innovative insights. • How, if you were the team leader, would you start to make improvements? Have you tried a SWOT analysis or a PEST ?

41. Generating Decision Options (Part 2 of 2) • What do you think our competitors do in this area that we could aim to do better? Have we considered this like Porters Five Forces? • Look at options others have discovered in similar circumstances. • Reject options if their disadvantages have become clear – document the reasons. • Don’t deal with too many options. • Don’t assume which options were viable in the past make good sense now. • Don’t keep an option open if most people have rejected it.

42. Generating Decision Options (Supplementary) • Brainstorming • Group of individuals are presented with a problem or issue and asked to generate as many ideas or comments as possible within a specific period of time (usually quite short). • SWOT Analysis • A tool for understanding and decision-making for all sorts of situations in business and organizations. • It is an acronym for Strengths, Weaknesses, Opportunities, Threats. • PEST Analysis • Used to measure a market, including competitors from the standpoint of a particular proposition or a business in terms of Political, Economic, Social and Technological factors.

43. Generating Decision Options (Supplementary) • Porters Five Forces Model • Used for analysis of an industry or pure competition within a market by identification of 5 fundamental competitive forces: (1) Entry of competitors (2) Threat of substitutes (3) Bargaining power of buyers (4) Bargaining power of suppliers (5) Rivalry among the existing players

44. Week 5 – Other Decision Making Models • Decision-Analysis Tools – Linear Model • A formula that weights and adds up the relevant predictor variables in order to make a quantitative prediction. • Not widely used according to many resistances such as ethical concerns. • Acquire Expertise • Experts or experienced decision makers facing important real-world decisions might be far less affected by biases than most research participants.

45. Debias Your Judgment • “Debiasing” refers to a procedure for reducing or eliminating biases from the cognitive strategies of the decision maker. • Kurt Lewin Model of Change • Unfreezing • Change • Freezing (Refreezing) • Reason Analogically • People learn far more from cases, simulations, and real-world experiences when they are able to take away an abstract form of the learning message. • Take an Outsider’s View • Understand Biases in Others

46. Use of information technology in the decision making process • Decision Support System (DSS) • It combines data and sophisticated analytical models or data analysis tools to helps managers make decisions that are unique, rapidly changing, non-routine, and not easily specified in advise. • Expert System (ES) • Information systems that solve problems by capturing knowledge for a very specific and limited domain of human expertise are called expert systems. ** END **