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March 10, 2016

Decisions are easy to make, aren't they??

Coming towards the end of two intense weeks on successfully completing in-module work on making a decision on which location to set up a production facility and a marketing campaign for a new product, I realised how useful decision making tools and techniques are in making a sound, rational and logical final decision. These tools and techniques still rely on individual judgements and perceptions, but provide a more structured backbone to how we arrive at a particular decision; they provide a means for having data to back up the decision made. The first step is to always weight out the benefits and limitations of using specific decision making tools, and then find the simplest form that would help you arrive at a robust decision.

Having briefly scanned when best to use decision making tools, we, as a team, started to analysing the question being asked using a Decision Tree - this provided an overview of the question at hand. This also served as a project timeline, as it involves forecasting a few years into the future. Having prepared a discounted cash flow analysis, we were able to add a quantitative net present value function to each case possible. First glance at the tree showed Lymington to provide the most effective financial benefit, which in my opinion, is the ONLY justification that shareholders need (in most cases) in order to make a decision in the real world today. I took the initiative here to back up this decision by performing a basic market risk analysis - which showed that it was high risk to choose this option in a time where commercial industrial properties are in decline, and demand is increasing. This also showed me, and our team, how useful working in a team to make a decision is. It is easy to utilise the best skills and attributes of each individual - but care must be given that over-confidence bias does not affect the outcome. Working in a team also reduces individual bias, and assumption from our intuition which sometimes make us believe that we know something, when in reality, given the context and situation, it is not valid.

A SWOT and PESTLE analysis was also used to provide an overview of the situation, helping us better understand the strengths, weaknesses, threats and opportunities of the locations. This identified further areas of the market which we would not necessarily have known from our intuition. Here, it showed the importance of working as a team, because this market research was also useful for deciding which marketing campaign to decide on - it prevented duplication of resource and time used as it was done only once. In a real life situation, this could be considered as inter-departmental collaboration.

We then chose to test our own abilities by attempting to use the SMART methodology. Once again, the ratings and rankings done using this tool are down to personal judgement, but SMART provides a systematic means of concluding in one decision. This process relied on individual ability to be able to make a decision, make a weighted preference of one option over another, and ensure that transitivity is maintained. With only two options, this was fairly easy to carry out, but the complexity of being able to decide and maintain all the axioms when there are hundreds of alternatives must be appreciated. Even at the end of this, the final choice still is based on personal judgement and priority of what the main decision maker wants. The SMART tool concludes with an Efficient Frontier being tabulated; this can then help make a more robust decision with reference to the value of benefits achievable to the cost of that option.

Sometimes, it is useful to justify the outcome of having used one decision making tool by using another one; for our case we chose to understand AHP. This was done in a similar way, based on values set by the decision team. What I learnt most from this was that in many cases, it is important to analyse any data that is given to you before proceeding to carry out any process. The data provided to us had several inaccuracies, or was perhaps out of date. It is absolutely vital, to have evidence to back up any claims that you make. This can help when trying to find out where we went wrong in the process, or can help us learn in the future in case the decision worked out for the worse. Again, it must be appreciated that the decision is not bad or good based on the outcome, but the way in which the decision making process was carried out.

For marketing, we chose to use the GRID analysis matrix, in order to simplify the process. This showed our ability to understand that the most effective way of carrying out a robust decision making process is to use the simplest tool available to come up with a robust decision. Choosing which one is most appropriate is key in time bound decisions.

Confirmation Bias

All in all, I had confidence that I could make decision very easily, having a personality which satisfies axioms such as decidability and transitivity. Due to my strong personality, I should be aware of biases that arise because of this. It is usually wrong to assume that something is the way it is, without having the base knowledge to be able to back that claim. It is also incorrect then to fall into the confirmation trap, to seek evidence to back up what I believe is correct, as in most cases, there will also be evidence that disproves my claim. Bias also from recency should be avoided - this is the bias that comes from having come into contact with knowledge recently.

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