Decision Models Midterm
what are the 6 elements of decision quality
1. frame (clearly define purpose, perspective, scope) 2. creative and doable alternatives (offer potential to create value for shareholders and stakeholders) 3. information (that is meaningful and reliable and properly assesses probabilities and uncertainties) 4. clear values and trade-offs (to compare possible outcomes) 5. logical reasoning (to be consistent w 5 rules of DA) 6. commitment to action (timely manner)
Advocacy Decision Process
FLAWED. decisions made by an advocacy and approval process. Cons are that middle management may contain a high amount of bias, maximize upside and minimize downside, may not mention other alternatives
Analytical Decision Process
FLAWED. uses best analysis models to evaluate alternatives. contact w stakeholders is at start and end. Cons are that better alternatives may not be generated and stakeholders may not accept results b/c they did not participate in process
Decision Conferencing
GOOD. decision makers and stakeholders work together in a 2-3 day session under guidance of unbiased facilitators to identify key issues, evaluate alternatives, reach decisions, and plan implementation.
Dialogue Decision Process
GOOD. process centered on a structured dialogue between decision makers and project team. four conversations to discuss the frame, alternatives, evaluated alternatives, and implement action.
what is group failure
a type of decision trap where you assume a group of smart people will automatically lead to good decisions
what is shooting from the hip
a type of decision trap where you believe you can keep track of all info in your head and "wing it" rather than rely on systematic processes
what is lack of frame control
a type of decision trap where you fail to consciously define the problem in more ways than one or being unduly influenced by the frames of others
what is failure to audit the decision process
a type of decision trap where you fail to develop an organized approach to understanding our own decision making
what is overconfidence in judgement
a type of decision trap where you rely too heavily on assumptions and opinions, miss the key factual information
what is frame blindness
a type of decision trap where you solve the wrong problem bc the mental framework is incomplete or incorrect
what is plunging in
a type of decision trap where you start to gather data/problem solve before fully understanding the problem
what is value focused thinking?
alternative generation process that starts with values, generates better alternatives, creates decision opportunities, and uses values to evaluate alternatives
The four types of decision processes
analytical, advocacy, dialogue, decision conferencing
what is the gold standard
basing value model on approved documents outlining policy, strategy, or planning bc direct access to senior decision makers is not available
what is the silver standard
basing value model on data from stakeholder representatives and uses affinity diagrams to group functions and objectives into mutually exclusive and collectively exhaustive groups
what is the combined standard
basing value model on gold standard documents, interviews with senior leaders and stakeholder representatives
what is the platinum standard
basing value model on information from interviews with decision makers/senior leaders
what is framing effect bias
coming to different conclusions from the same information depending on how it was presented
means objective
describe how to achieve fundamental objectives. uses indirect values
describe the operational decision level
focuses on day-to-day operations particularly on how the organization allocates scarce resources. involves rapid response w little data and frequently uses benefit/cost ratio and NPV analysis.
describe the strategic decision level
focuses on long-term goals of organization. involves fewest viable alternatives w greatest degree of uncertainty.
describe the tactical decision level
focuses on turning the broad strategic goals into achievable, measurable objectives. must identify redundancies, conduct value of information analysis, and understand fundamental objectives to convert into means objectives.
what is the choice rule
given the choice between two deals involving the same prospects but with different probabilities, you prefer the deal having a higher probability of receiving the more preferred alternative.
how to achieve a good decision frame?
has a vision statement (what are we going to do? why are we going to do it? how will we know that we have succeeded?) has an issue list (categorized by decisions, uncertainties, values, and other) has a decision hierarchy (pyramid structure w/ done deals, current decisions, and future decisions) has a stakeholder issue matrix (summarizes the major issues from interviews)
list some types of cognitive biases
hindsight bias framing effect bandwagon effect self-serving
what key components are contained in a strategy generation table?
key decisions, strategy theme, decision options.
what makes decisions hard
organizational, content, and analytical complexity
convergent thinking
part of generating alternatives. involves evaluating, prioritizing, and reaching a consensus
divergent thinking
part of generating alternatives. involves gathering information, uncovering goals/objectives, generating creative alternatives.
what are the four standards for developing value hierarchies
platinum, gold, silver, and combined standards
list some decision traps
plunging in frame blindness lack of frame control overconfidence in judgement short-sided shortcuts shooting from the hip group failure failure to audit the decision process
what are the rules of decision analysis
probability rule order rule equivalence rule substitution rule choice rule
four foundations of decision analysis
probability theory, mathematical decision theory, behavioral decision theory, and soft skills.
what is the substitution rule
requires that preference for a prospect will not change if an uncertain deal contained in the prospect is replaced by its certain equivalent
what are the soft skills
research, communication, leading teams, managing teams, aggregating information, strategic thinking, facilitating groups, interviewing, and surveying.
what is the order rule
rule of transitivity. if you prefer A > B and B > C then you prefer A > C
what are the three decision levels
strategic, operational, tactical
what is a decision frame?
the critical first step in decision analysis that defines the decision.
fundamental objective
the most basic objective we try to achieve. uses direct values
what is the bandwagon effect bias
the tendency to act or perceive things in a certain way merely because may other people act of perceive things in the same way.
what is hindsight bias
the tendency to see past events as predictable at the time they happened
mathematical decision theory
used to analyze decisions under uncertainty using preferences.
probability theory
used to assess subjective believes about potential outcomes. based on 3 axioms.
soft skills
used to develop models and elicit information from and communicate insights to decision makers, subject matter experts, and other stakeholders
behavioral decision theory
used to understand indiv and group decision making and the heuristics/biases that are used when assessing uncertainty and value.
explain SODA
when a decision contains only one objective. most applicable to private companies where usually the objective is to maximize shareholder value (NPV)
explain MODA
when a decision involves multiple objectives. more applicable to public companies. MODA compares value vs. cost after producing a single utility metric that considers decision makers preferences on trade-offs between multiple objectives and preference regarding risk taking.
what is self serving bias
when people attribute successes to personal factors but attribute failures to external situations
what is the equivalence rule
you can always create an uncertain deal such that you would be indifferent between taking the deal and receiving a third prospect that is intermediate in preference ranking
what is the probability rule
you can fully describe any deal in terms of possibilities and probabilities (mutually exclusive and collectively exhaustive)
