VALUE-ADDED DECISION MAKING FOR MANAGERS

Transcription

1 VALUE-ADDED DECISION MAKING FOR MANAGERS Kenneth Chelst Wayne State University Detroit, Michigan, USA Yavuz Burak Canbolat Abbott Laboratories Abbot Park, Illinois, USA CRC Press Taylor & Francis Group Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Group, an informa business A CHAPMAN & HALL BOOK

2 Contents Preface Acknowledgments Authors xi xvii xix Part I Structuring Hard Decisions 1 1 The Case for a Structured Analytic Decision Process Goal and Overview The Challenge Decision Analysis Effectiveness Do Not Trust Your Gut Maximize versus Satisfice Established Biases What Makes a Decision Difficult? Symptoms of a Poor Decision-Making Process Transparent and Efficient Decision Making 22 Appendix l.a: Other Modeling Tools 23 l.a.l Probabilistic Models 24 1.A.2 Deterministic Models 24 Exercises 25 Complete Chapter Activities 25 Discuss the Factors That Made the Following Decisions Difficult 26 References 27 2 Influence Diagrams: Framing Multi-Objective and Uncertain Decisions Goal and Overview Components of an Influence Diagram Learn by Simple Example: Automation Investment Divide and Delay Decision: Plan an RSVP Theater Party Arrows in Complex Influence Diagram: New Product Late-to-Market Multiple Objective Influence Diagram: Buying a Used Car Oglethorpe Power Corporation: Actual Case ; Influence Diagram Construction: Review Solving Influence Diagrams Recent Articles on Influence Diagrams 46 Exercises 47 References 49

3 vi Contents 3 Common Decision Templates Goal and Overview In-House or Outsource (Make or Buy) Change (Upgrade) or Keep Status Quo Products: Launch, Portfolios, and Project Management Project Management: Product Development Capacity Planning Technology Choice Personnel and Organizational Selection: Hire Faculty Facility Location: Sports Arena Bidding: Make Offer Personal: University Selection Information Gathering: Market Research, Prototypes, and Pilot Plants Summary 72 Exercises 73 References 73 Part II Decisions with Multiple Objectives 77 4 Structure Decisions with Multiple Objectives Goal and Overview Description of the Overall MAUT Process Basic Terminology Fundamental Objectives Objectives Hierarchy: Examples Top-Down Approach: Global Facility Location Bottom-Up Approach: Kitchen Remodeling Measures Example: Buy a Used Car Identify Alternatives Real-World Applications 102 Exercises Ill Complete Chapter Activities Ill Cases Ill References Structured Trade-Offs for Multiple Objective Decisions: Multi-Attribute Utility Theory Goal and Overview Concepts and Terminology Compare Alternatives Trade-Off Conflicting Objectives Single-Measure Utility Function: Proportional Scores Aggregate Utility: Total Score for Each Alternative Assessing Weights Revisited: Large Set of Measures Assess Individual (Single-Measure) Utility Function: Nonlinear Utility Functions and Constructed Measures Group Decision Making Uncertainty Contractor Selection for Kitchen Remodeling 148

4 Contents vii 5.12 Real-World Application: Multi-Attribute Risk Analysis in Nuclear Emergency Management Selection of Best Conformal Coating Process Nonlinear Additivity: Multiplicative Form Research Issues with Weight Elicitation 160 Exercises 161 Complete Chapter Activities 161 Cases 162 Background Information 164 References Value and Risk Management for Multi-Objective Decisions Goal and Overview Synthesize Weighted Sum Comparison of Two Alternatives Robustness of a Decision Using Sensitivity Analysis Value Enhancement with Hybrid: Lighting Example Better Alternative through Value Enhancement: Kitchen Remodeling Value Enhancement: Warehouse Selection Value Enhancement and Risk Management: Process Selection Risk Analysis and Management MAUT and Subject Matter Experts: Process Applications 194 Exercises 198 References Multiple Objective Decisions with Limited Data: Analytical Hierarchy Process Goal and Overview AHP Procedure Details and Snow Blower Example Commercial Snow Throwers Selection Select a Job ' Software Selection Growth of AHP Pair-Wise Comparison Effort Comparison of AHP vs. MAUT Application Capsule: Compare AHP with MAUT: A Case Study 228 Appendix 7.A: Consistency Ratio A.1 Consistency Measurement 230 Exercises.231 References 233 Part III Decisions and Management under Uncertainty Value-Added Risk Management Framework and Strategies Goal and Overview Overview of the Risk Management Process Risk Identification Risk Quantification Systems Risk Analysis Risk Mitigation Framework Risk Communication, Perception, and Awareness 249

5 viii Contents 8.8 Alternative Risk Mitigation and Elimination Strategies 250 Exercises 254 References Spreadsheet Simulation for Decisions with Uncertainty Goal and Overview Spreadsheet Simulation Project Acceleration Investment Profit Forecasting for Drug Development Global Sourcing Risk Analysis Real-World Applications Risk 271 Exercises 272 References Decisions with Uncertainty: Decision Trees Goal and Overview Early Users of Decision Trees Concepts Influence Diagrams and Schematic Trees Constructing and Analyzing a Simple Decision Tree Risk Profile/Cumulative Risk Profile Complex Symmetric Decision Tree: Make or Buy ' Asymmetric Tree: Design Change Sequential Decisions Robustness of Optimal Solution through Sensitivity Analysis Real World Applications 310 Basic Terminology/Glossary of Terms 313 Exercises 314 Complete Chapter Activities 314 Decision Tree Examples 314 Decision Trees: Cases 320 References Structured Risk Management and the Value of Information and Delay Goal and Overview Identify High-Impact Variables Risk Profiles and Structured Risk Management Make or Buy Example: Discrete Decision Tree Analysis Perfect and Imperfect Information Imperfect Information: Bayes'Theorem Conditional Decisions and Information Seeking Trees: Flu Virus Detection Technology Contingent Contracts Reduce Risk Real Options 355 Exercises 358 References Risk Attitude and Utility Theory Goals and Overview Utility Theory: Concepts and Terminology Utility Function Assessment Change the Risk Equation: Insurance and Risk Sharing 373

6 Contents ix 12.5 Case Study: Phillips Petroleum and Onshore U.S. Oil Exploration Utility Theory: Practical and Theoretical Challenges Current Research in Utility Theory 384 Exercises 386 Complete Chapter Activities 386 Utility Theory Examples 386 References 387 Part IV Challenges to "Rational" Decisions Forecast Bias and Expert Interviews Goals and Overview Motivational and Personal Biases Point Estimate and Narrow Ranges: Overconfidence Faulty Probability Reasoning Availability and Representativeness Confirmation and Interpretation Bias Expert Interview: How to Identify and Reduce Bias Research into Probabilistic Forecasts 417 Appendix 13.A: Phrases: Bad Alternative to Actual Quantification 418 Appendix 13.B 419 Exercises 419 Complete Chapter Activities 419 References Decision Bias Goal and Overview Sunk Cost and Escalation of Commitment Framing Bias Status Quo and Omission Bias Regret Fairness Mood Groupthink, Optimism, and Miscellaneous Biases 437 Exercises 438 Complete Chapter Activities 438 References 439 Part V Decisions with Multiple Perspectives Value-Added Negotiations Hal Stack Goal and Overview Understanding Negotiations Challenges to Effective Negotiation Managing the Negotiation Process Negotiating a Deal Negotiating a Dispute Agents and Multiparty Negotiations Negotiating across Border Negotiating Ethically 469

7 x Contents Conclusion 471 Exercises 471 Complete Chapter Activities 471 Additional Exercises 472 References Ethical Decisions Dean W. Pichette Goal and Overview Ethical Decision-Making Framework Values Biases, Myopia, and Don't Want to Know Pressures Undermine Ethical Balance Short Cases 499 Exercises 509 Complete Chapter Activities 509 Case 510 Alternatives 511 Whistle Blowing/Speaking Out 511 References Strategic Direction, Planning, and Decision Making Goal and Overview Strategic Planning Elements of Strategic Decisions Situation Assessment: SWOT Analysis Basic Tools: Decision Hierarchy and Strategy Table Strategy Development Steps for Large Organizations Scenario Planning 533 Exercises 538 Complete Chapter Activities.. : 538 Elements of Scenario Planning Trends and Uncertainties 539 References 539 Appendix A: Instructions for Downloading the DecisionTools Suite 541 Appendix B: Instructions for Downloading Logical Decisions 543 Index 545