Tomorrow finally is the start of a module that I was eagerly waiting for a long time. The use of tools is something that excites me a lot. In the study week I understood one thing that the System 1 thinking of human beings which is biased cannot always be relied upon. There is a need for critical analysis in every situation before making a decision. The first and the foremost tool that I found handy was the Cost-Benefit analysis. This is something which can be used only in certain situations. For instance, if I want to look at the installation of the new Enterprise resource Planning System in the manufacturing unit. I will first of all will calculate all the costs such as the new software or training of the employees and calculate where this system saves me money. Further, I can calculate the time period in which this investment will start to payback and reap results. It can be very simple and a very handy tool. It is important to note that this tool is effective only when I have enough data to back my claims and figures.
There might be instances where accurate data is not available about the sales but the management has a subjective opinion about selecting one alternative over other. In this case . asimple grid analysis can be used to make decisions. Paul once told how he used this grid decision making analysis to help a person select the right job based on various criterias. He even told the benefit of this tool to help a business make a decision on which department they should concentrate to grow their business further. There are various other tools in this segment as well such as PMI and the trade off analysis. The common thing with all these tools is that the values that is assigned to each criteria, is very subjective and very confusing. So it upto the decision makers to assign the right values to trage off between alternatives. I prefer to use Pugh Matrix more in this situation where I need to make a selection between various alternatives. Pugh matrix has two things which are different- firstly it helps to cpmapare with the base criteria the new alternative and secondly it takes into consideration whether the alternative is better than the base criteria for the particular decision criteria. For instance if I want to develop a new product and want the size of the sole of the shoe as one of the important decision criteria to select an option. I can set a criteria that minimum size of the sole should be 10 mm. Then I can compare the possible options with that base option and can see which option fulfills this criteria. Here I don't assign any values to the criteria for each alternative. Everything is better or worse compared to baseline. I would prefer to use this tool apart from the grid analysis. But I need to remove this bias when I am selecting a tool in the future.
I want to explore more into the decision criteria tool under the unceratinity decision making. This tool gives possible alternatives and the uncertain outcomes related to that in case of high and low demand. We were asked to solve the problem that waveriders is facing as a pre module presentation. But the drawback of this tool is that it doesn't give any decision criteria. It just compares the alternatives with the possible outcomes. It can be beneficial if I am trying to enter a new market to do my business and want to make a decision on the basis of uncertain High, Medium and Low demand for each new market.
The above tools considered scenarios where there was lack of availability of data and where people had limited certainity on th ehappening of an event. When I don't know exactly whether the new market will give me how much revenue or what will be the impact of outsourcing or establishing a new plant. In this case I will use the above tools to select on the basis of uncertain outcomes or select on the basis of various criterias for each alternative.
There aew various scenarios where managers face a situation risk. Where there is a possibilty of risk or happening of the event. Again a data-driven approach will be highly beneficial is using these tools. There has to be predictions from the previous information, to calculate the current probability which I fear does not happen in the industry that I work in. The biggest challenge for me will be to gather this data to make the right decision.
Talking about the tools used in the risk situations, we had a problem given to us to take a decision for waveriders, on whether they should produce a new product or not. Here we as a team applied the combination of decision tree and the expected value analysis on whether to produce the new boat or not? We made a decision tree and assigned the probabilities to each branch and then calculated the expected return and expected cost if the new boat was manufactured. The expected return analysis said that it made sense to make the boat in any case because the (expected return minus the cost of failing to manufacture) was still giving positive returns. The decision tree is beneficial in looking at the cost and profits based on probabilities. But it cannot be used to select an alternative based on the decision criterias. We need a matrix analysis for that. We used the multi criteria decision making in the waveriders case study given in the class. there were many reasons why we used this tool. This tool helps in analysis between the various criterias, then it is really beneficial in having monetary and non-monetary criterias, plus it just does not compare the alternatives with the criterias based on the rating or subjective ranks, but it helps to derive the ranks of various alternatives based on the monetary and non-monetary values that each criteria has, plus it assigns the minimum benchmark to each criteria, additionally helps to assign weights to criteria. This is a very complex tool that can be used to make decisions based on various and diverse(Monetary and non-monetary) criterias.
I would like to analyze the SMART tool and AHP tool further, which i will try to do in the future blogs. The main benefit of the smart tool that I think is that it takes into account the benefit of the decision and the cost of that decision on the same hand. So while taking the decision we just look at the benefits first and then look at the cost. I think this is a major missing factor from the PPT that we are going to present tomorrow. But another justification is that we have given higher weights to other factors as well such as capacity. So the decision that I feel is a holistic one which includes all the criterias and takes into consideration all the factors. The decision is taken on the basis of various criterias and assigning the subjective weights.
Therefore, what I have learnt is that even while using these tools the decision taken is very subjective because the rating and the weight assigned is based on the judgement of the decision maker. Also there is a need to have a data-driven approach in the organisation to apply these tools well. I am excited to attend the module tomorrow, learn more about the tools and how to make the decisions. These are more analytical decisions which require in-depth tools.