Smart Choices: Helping your organization create business value through better decision making
•
1 like•302 views
A 1-hour seminar delivered during the 2017 Analysis Disruption conference in Estonia. When it comes down to it, the quality of decisions an organization makes is the decisive factor in increasing the odds of successful outcomes, both on a strategic and tactical levels. As a value-minded BA, one of your greatest contributions is to facilitate smart organizational choices that lead to business value creation. Based on the timeless work by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, this workshop focused on introducing the PrOACT approach to smart decision making, which is a systemic, "divide and conquer" approach to breaking down complex decisions into key elements, which can be analyzed separately and reassembled to produce a Smart Choice. Key elements of this framework that were covered are: P: working on the right decision problem O: clearly specifying the objectives A: creating imaginative alternatives C: understanding the consequences (of each alternative) T: consciously addressing the tradeoffs (among competing objectives) Moreover, I've also highlighted 3 additional elements that are relevant in some of the more complex decisions your organization may undertake which are uncertainty, risk tolerance, and linked decisions.
More Related Content
What's hot
What's hot (20)
Similar to Smart Choices: Helping your organization create business value through better decision making
Similar to Smart Choices: Helping your organization create business value through better decision making (20)
Recently uploaded
Recently uploaded (20)
Smart Choices: Helping your organization create business value through better decision making
- 1. SMART CHOICES Helping your organization create business value through better decision making Alaeddin Hallak, CBAP LeanBA.me
- 4. Outline Why The value in approaching decision problems methodically How Make smart choices using a systemic approach
- 6. What makes it a Decision Problem? 6 Filled with uncertainties Potential for risk Affects you and others High stakes and consequences Numerous/complex considerations Time-sensitive
- 7. Without a Systemic Approach 7 Anxiety Procrastination Confusion Self-doubt Avoidance Regret Loss Over-confidence Rushed Short-sighted Biased Disowned Regret Loss Mediocre Choice
- 8. With a Systemic Approach 8 Smart choice Focus on what’s important Logical and consistent Blend logic & intuition Just enough information Easy to use Flexible
- 9. But remember.. No guarantees, but odds are increasedHard decisions will still be hard
- 11. Problem A good decision to a well-posed problem is almost always a smarter choice than an excellent solution to a poorly posed one. P O A C T R UL
- 12. 12 How you pose a problem profoundly influences the course you choose
- 13. 13 It’s your link to the essential problem Find the trigger Identify and challenge the blinders Question the constraints “In the middle of difficulty lies an opportunity” – Albert Einstein Turn it into an opportunity Ensures you’re focused on the right goal Break it down Rarely does a decision exist in isolation Understand the context See your problem in new light Get fresh insights by asking others
- 14. Objectives “If you do not know where you are going, every road will get you nowhere” Henry A. Kissinger P O A C T R UL
- 15. Objectives are the basis for evaluating alternatives 15
- 16. Write down concerns STEP 1 Convert concerns to objectives STEP 2 Separate ends from means STEP 3 Clarify each objective STEP 4 Brainstorm Wish list Outcomes to avoid Impact on others Best or worst option Try justify an option Alone then in group Short, verb & object “Minimize costs” “Improve NPS” “Reduce env. waste” “Peel back onion” 5 Whys Ends are fundamental objectives Means help in generating alternatives Ends are basis for comparing alternatives What do I/we really mean by this? “Minimize damaging health effects”: ↴ Which effects? To whom? Threshold? 16
- 17. Alternatives Every decision problem has multiple alternatives, even if it doesn’t seem to at first. P O A C T R UL
- 18. 18 Don’t box yourself in with limited alternatives
- 19. Keys to better alternatives 1 Use your objectives Ask “How” Challenge constraints Set high aspirations Create alternatives first, evaluate later
- 20. 4 types of alternatives to look out for 2 Ensures fairness of decision Voting, binding arbitration, sealed bids, auctions, etc Process alternatives Better information leads to better decisions and removal of uncertainties. Information gathering alternatives When decisions require approval, analyze the approver’s decision to arrive at win-win alternative Win-win alternatives Extra time allows for information gathering and reduction of risk Time-buying alternatives
- 21. Know when to quit! • Have you thought hard about your alternatives? • Would you be satisfied with one as a final decision? • Do you have a range of alternatives? • Distinctly different? • Diminishing returns • Do other elements of this decision require your time and attention? • Time better spent on other decisions or activities? 21
- 22. Consequences Be sure you really understand the consequences of your alternatives before you make a choice. P O A C T R UL
- 23. 3 villains in defining consequences 23 Incompleteness ImprecisionInaccuracy
- 24. Consequences Table to rule them all! 24 Objectives Alternatives Job A Job B Job C Job D Job E Monthly salary $2,000 $2,400 $1800 $1,900 $2,200 Flex work schedule Moderate Low High Moderate None Skills development Computer Management people, computer Operations, computer Organization Time management, multi-tasking Annual vacation days 14 12 10 15 12 Benefits Health, dental, retirement Health, dental Health Health, retirement Health, dental Employment Great Good Good Great Boring
- 25. Master the art of describing consequences 25 Knock one alternative out for another, “king of the mountain” style Eliminate clearly inferior alternatives Instead of imagining you might choose it, imagine that you have chosen an alternative Mentally put yourself in the future Experience the consequences of an alternative before you choose it “Try before you buy” Too big uncertainty will make describing good consequences difficult Address major uncertainty head on
- 26. Tradeoffs “As an economist, I'm aware that life is full of trade offs.” Peter Blair Henry P O A C T R UL
- 27. Decisions with multiple objectives cannot be resolved by focusing on any one objective. 27
- 28. Game plan 28 1. Eliminate alternatives Eliminate dominated alternatives Look for “practical dominance” Until you have a clear winner choice 2. Eliminate objectives When you have more than 1 viable alternative: Make trade-offs
- 29. 1. Eliminate alternatives 29 Better than BObjective 1 Option A Option B Objective 2 Objective 3 Objective 4 Better than B Objective 5 Better than B Not worse than B Not worse than B .... .... .... .... .... Dominated alternative
- 30. … using options ranking in Consequences Table 30 Objectives Alternatives Job A Job B Job C Job D Job E Monthly salary $2,000 $2,400 $1800 $1,900 $2,200 Flex work schedule Moderate Low High Moderate None Skills development Computer Management people, computer Operations, computer Organization Time management, multi-tasking Annual vacation days 14 12 10 15 12 Benefits Health, dental, retirement Health, dental Health Health, retirement Health, dental Employment Great Good Good Great Boring
- 31. … using options ranking in Consequences Table 31 Objectives Alternatives Job A Job B Job C Job D Job E Monthly salary 3 1 5 4 2 Flex work schedule 2 (tie) 4 1 2 (tie) 5 Skills development 4 1 3 5 2 Annual vacation days 2 3 (tie) 5 1 3 (tie) Benefits 1 2 (tie) 5 4 2 (tie) Employment 1 (tie) 3 (tie) 3 (tie) 1 (tie) 5 Practically dominated
- 32. … using options ranking in Consequences Table 32 Objectives Alternatives Job A Job B Job C Job E Monthly salary 3 1 5 2 Flex work schedule 2 (tie) 4 1 5 Skills development 4 1 3 2 Annual vacation days 2 3 (tie) 5 3 (tie) Benefits 1 2 (tie) 5 2 (tie) Employment 1 (tie) 3 (tie) 3 (tie) 5
- 33. Game plan 33 1. Eliminate alternatives Eliminate dominated alternatives Look for “practical dominance” Until you have a clear winner choice 2. Eliminate objectives When you have more than 1 viable alternative: Make trade-offs using Even Swap method
- 34. Eliminate objectives 34 IF all alternatives are rated equally (e.g., all cost the same) THEN you can ignore that objective (e.g., cost). What if there was a way to make alternatives rate equally on a given objective? Even Swap method
- 35. 35
- 36. Which is the smart choice? 1. Increase profits 2. Expand market share Next year objectives: 1. Fiscal year profit: $20m 2. Market share: 20% Current state: Objectives Alternatives Franchising Not Franchising Profit (millions) $10 $25 Market share (%) 26% 21% To franchise or not? $10 24% 36
- 37. Which is the smart choice? 1. Increase profits 2. Expand market share Next year objectives: 1. Fiscal year profit: $20m 2. Market share: 20% Current state: Objectives Alternatives Franchising Not Franchising Profit (millions) $10 $25 Market share (%) 26% 21% To franchise or not? $10 24% 37
- 38. Even Swap Eliminate objective, check for dominance, eliminate another, etc. It’s iterative They may save you from wrestling with swaps that are harder to quantify Make easier swaps first Lean towards data and objectivity in valuation of swaps Make informed swaps Concentrating on objective’s importance can get in the way of a wise trade-off Focus on swap amounts, not importance of objectives 38
- 39. Game plan 39 1. Eliminate alternatives Eliminate dominated alternatives Look for “practical dominance” Until you have a clear winner choice 2. Eliminate objectives When you have more than 1 viable alternative: Make trade-offs using Even Swap method
- 40. Uncertainty Most of the time, luck favors the better decision maker P O A C T R UL
- 41. Don’t judge a smart choice by its outcome! 41 Smart choice Good outcome Poor choice Bad outcome Uncertainty
- 42. X-ray uncertainty with a Risk Profile 42
- 43. 43
- 44. Uncertainty: Government response to bid 44 • Options B and C are more likely than losing altogether (A) • Both would lead desirable consequences Outcome Chance Consequences A. No contract Least likely Bad. Will need to reduce staff, borrow heavily, and scramble for some small contracts. B. Partial contract Most likely Pretty good. More firm stability. Will make a decent profit. C. Full contract Somewhat likely Wonderful. Not only very profitable, but also professionally interesting. Will greatly enhance our reputation. • I’m going for it!
- 45. Identify key uncertainties STEP 1 Define outcomes STEP 2 Assign chances STEP 3 Clarify consequences STEP 4 List various uncertainties Narrow it down to consequential ones Narrow outcomes set to fewest possible Ensure they’re unambiguous, mutually exclusive, and collectively exhaustive Consider categorizing ranges of values Express quantitatively Ensure adds up to 100 Use judgement Consult existing info Collect new data Ask experts Break it down, combine it up General description Qualitative description by objective Quantitative description by objective Precision 45
- 46. 46 Picture it with Decision Tree 46
- 47. 47
- 48. Risk Tolerance How much risk are you willing to take in your quest for better consequences? P O A C T R UL
- 49. Choosing under uncertainty is about choosing among the risk profiles of various alternatives 49
- 52. 52
- 53. Living Job Society Uncertainty: office assignment Accounting Firm Consulting Firm Outcome Chance Consequences Living Job Society New York 90% V. good Excellent Fair Santiago 10% Poor Fair Excellent Risk profile: Accounting Firm Outcome Chance Consequences Living Job Society Buenos Aires 75% Good Good V. good London 25% Excellent Excellent Good Risk profile: Consulting Firm Probability 53
- 54. Living Job Society Uncertainty: office assignment Accounting Firm Consulting Firm Alternative Outcome Consequences Living Job Society Rank Desirability Consulting firm London Excellent Excellent Good Accounting firm New York V. good Excellent Fair Consulting firm Buenos Aires Good Good V. good Accounting firm Santiago Poor Fair Excellent Probability Desirability 1 2 3 4 100 0 50 80 54
- 55. Living Job Society Uncertainty: office assignment Accounting Firm Consulting Firm Probability Desirability Outcome Chance Desirability Contribution New York 90% 80 72 Santiago 10% 0 0 Overall Desirability: Accounting Firm Outcome Chance Desirability Contribution Buenos Aires 75% 50 37.5 London 25% 100 25.0 Overall Desirability: Consulting Firm Alternative’s overall desirability score: 72 Alternative’s overall desirability score: 62.5 55
- 56. What if consequences were a larger set? Investment returns: Excellent, good, bad, poor Range: $6250 – $18750 56
- 57. Desirability Curve: a scoring shortcut! • Requires numerical consequences • Convert to numbers using Even Swap • At least 5 points recommended • Derive overall desirability score • Curve shape → risk tolerance 57
- 58. Don’t fall into these pitfalls of risk analysis 58 Don’t over focus on the negatives Don’t ignore significant uncertainty Avoid foolish optimism Don’t fudge probabilities
- 59. When a good opportunity feels too risky, share the risk with others. Share the risk Try to temper risk by seeking information that can reduce uncertainty. Seek risk-reducing information Avoid placing all your eggs in one basket. Diversify the risk Insure against significant downsides with no upside. sensibly! Insure against risk Risk exceeds tolerance? Manage it to acceptable 59
- 60. Linked Decisions To make the smartest choice about what to do now, you need to think about what you might decide to do in the future. P O A C T R UL
- 61. 61 Essence of making smart linked decisions is planning ahead
- 62. Relationship among linked decisions 62 Basic Decision
- 63. Example of linked decision 63 D E C I D E Choose alternative with best risk profile (based on info) Information Decisions Basic Decision Future Decisions represents passage of time D E C I D E Choose to make basic decision now, or get info to reduce uncertainty. Choose what info to get L E A R N Learn new info. Revise judgements about upcoming uncertainties. Decide now or do market research first Market research results Revise judgments about initial sales L E A R N Learn outcomes of uncertainties. Revise judgements about future uncertainties D E C I D E Make future decisions (taking into account what you learned) L E A R N Learn outcomes of future uncertainties Learn initial sales of chosen concept Revise judgements about future sales Modify marketing, or Increase production, or Stop production Learn future sales or Energy drink Thirst quencher
- 64. 5 steps to smarter linked decisions 64 Information can reduce/resolve future uncertainties. Be pragmatic Identify ways to reduce critical uncertainties Step.2 What future decisions naturally follow from each altenrative? Identify future decisions linked to basic decision Step.3 Draw decision tree with alternatives, uncertainties, consequences Understand relationships in linked decisions Step.4 Problem, objectives, alternatives, uncertainties / consequences Understand the basic decision problem Step.1 Step.5 Quantify trade-offs, uncertainties, risk tolerance only if necessary Decide what to do in the basic decision
- 66. Flexible Plans keep your options open 66 Compromise strategy. Good when risk of failure is great. All-weather plans Sometimes it’s best to make a choice that expands future alternatives Options wideners Make optimal choice at start, reassess often. Short-cycle plans Backup plans with reasonable response for contingencies “Be-prepared” plans
- 67. Problem Objectives Alternatives 1..* 0..*1..*1 Consequences & Tradeoffs Uncertainties 0..*1 Risk Profile Linked Decisions 0..* 1 1 1 PrOACT ERD 10..* 11
- 68. SUMMARY - THE DOs AND DON’Ts OF DECISION MAKING 4) Overlooking crucial consequences of your alternatives 1) Working on the wrong problem 2) Failing to identify your key objectives 3) Failing to develop a range of good, creative alternatives 5) Giving inadequate thought to tradeoffs 6) Disregarding uncertainty 7) Failing to account for your risk tolerance 8) Failing to plan ahead when decisions are linked over time
- 69. SUMMARY - THE DOs AND DON’Ts OF DECISION MAKING 1) Address the right decision problem 2) Clarify your real objectives 3) Develop a range of creative alternatives 4) Understand the consequences of your decision 5) Make appropriate trade-offs among conflicting objectives 6) Deal sensibly with uncertainty 7) Take account of your risk-taking attitude 8) Plan ahead for decisions linked over time
- 70. Take charge Create your own decision opportunities
- 71. Thank you Alaeddin Hallak, CBAP | LeanBA.me/SmartChoices