PowerPoint lecture for Chapter 9 Linked Decisions

1. MODULE #11
LINKED DECISIONS
CMGMT 3104 Decision Making
Lesley University
M. Minickiello

2. Linked Decisions
 Making a decision now which will influence future decisions
 The kinds of decisions we are considering involve a necessary
connection between the current decision and one or more
future decisions.
 Linked decisions are complex. The elements of linked
decisions are:
 A basic decision must be addressed now.
 The desirability of each alternative in the basic decision is influenced
by uncertainties.
 Relative desirability is also influenced by a future decision that would
be made after the uncertainty in the basic decision is resolved.

3. Linked Decisions
 Linked decisions are complex. The elements of linked
decisions are:
 A basic decision must be addressed now.
 The desirability of each alternative in the basic decision is influenced
by uncertainties.
 Relative desirability is also influenced by a future decision that would
be made after the uncertainty in the basic decision is resolved.
 An opportunity exists to obtain information before making the basic
decision. This information could reduce the uncertainty in the basic
decision and, one would hope, improve the future decisions – but at
cost.
 The typical decision-making pattern is a strong of decide, then learn;
decide, the learn more; decide, then learn more; and so on.

4. Linked Decisions
 Making smart choices about linked decisions requires
understanding the relationships among them. The decisions
linked to a basic decision can take two forms:
 Information decisions are pursued before making the basic
decision. They are linked because the information you obtained
helps you make a smarter choice in the basic decision.
 Future decisions are made after the consequences of a basic
decision become known. They are linked because the
alternatives that will be available in the future depend on
the choice made now.

5. Six Steps to Analyze Linked Decisions
 Step 1: Understand the basic decision problem.
 Begin with the first three core elements of our general
approach: define the problem, specify objectives, and generate
alternatives.
 Then identify the uncertainties that influence the consequences
of the alternatives.
 The uncertainties are the crux of the linked decisions.
 Draw up a list of uncertainties, narrow down the list, and then
make a reasonable assumption of how they will turn out.

6. Six Steps to Analyze Linked Decisions
 Step 2: Identify ways to reduce critical uncertainties.
 Seek information that can reduce or resolve future uncertainties
and thus improve your basic decision.
 Identify what information is important and how to gather it.
 Once you decide what information is worth considering,
consider whether or not it is worth getting before making your
basic decision (See Step 5).

7. Six Steps to Analyze Linked Decisions
 Step 3: Identify future decisions linked to the basic decision.
 List all the future decisions you can think of and then winnow
the list down to the few that seem most significant. Don’t look
too far ahead; look for a natural time horizon.

8. Six Steps to Analyze Linked Decisions
 Step 4: Understand relationships in linked decisions.
 Draw a decision tree to represent the links between choices and
learned information in sequence.
 Get the timing right.
 Sketch the essence of the decision problem.
 Describe the consequences at the end points.

9. Six Steps to Analyze Linked Decisions
 Step 5: Decide what to do in the basic decision.
 Work backward in time.
 At each decision point, think hard and decide what choice you
would make when and if you ever reach that point.
 Eliminate the branches representing the alternatives not taken.
 Continue the process.
 You may need to quantify your tradeoffs, uncertainties, or risk
tolerance depending on the situation.
 Once you decide what information is worth considering,
consider whether or not it is worth getting before making your
basic decision.

10. Six Steps to Analyze Linked Decisions
 Step 6: Treat later decisions as new decision problems.
 However well you’ve prepared earlier, when you actually reach
subsequent decision points, you should rethink the situation.
 Take advantage of any new knowledge you may have gathered
to improve your plan.

11. Keep Your Options Open with Flexible Plans
Sometimes uncertainty is so great and the present environment
so changeable that it is difficult to plan future decisions with
confidence. Consider developing flexible plans …
 All weather plans.
 Short-cycle plans.
 Option wideners.
 “Be prepared” plans.