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March 18, 2011

I guess I’m a (Decision) tree–hugger!

After spending a lot of time looking at a lot of different tools lately, I have decided that DT’s are probably one of the best (obviously, depending on the situation and the information that you have. Their ability to get to the heart of a problem through finances (or utility) is quite amazing, and the structuring of the process is brilliant in that it helps you to ensure that you have covered every eventuality. It is especially good at helping you to avoid the confirmation trap. For example, any time you make a branch, you also have to question if there is an opposite alternative at the very least, if not more completely distinct ones. They are also hard to argue with, and help you make informed decisions based on the likelihood of certain scenarios playing out. The power of decision trees is something that I am unlikely to forget, and they are probably something I will integrate into my general System-2 decision-making methodology.

In terms of helping our team to reach a final decision, about whether to continue or not, and where to locate, they were absolutely invaluable. Of course, the tree doesn’t know anything that you don’t tell it, so qualitative factors are very hard to incorporate, and something like Grid Analysis or Analytical Hierarchy Process are much more appropriate. Similarly, while we did include marketing costs, or factory re-sale gains, other costs that are difficult to estimate, such as the potential training costs of workers for the Exmouth factory, were not included.

So it can be argues that DT’s do not always give you the full picture, which is true. But, you don’t have to take the outcome as fact. Even after evaluating the tree, you need a high degree of judgement to decide what is important or not, and how risky certain paths really are. The chance of the worst case-scenario playing out for Waveriders (so, product doesn’t get developed until Dec 2012, and when production begins in Jan 2014, the market conditions are poor) is around 0.15. That is the only situation under which producing at both factories might be a problem, so it is worth balancing the risk and pursuing that course of action anyway.

However, DT’s are clearly an excellent tool for decision making, and when used correctly, are capable of judging a situation in a way that our own cognitive processes are rarely capable of. Of course, there is still potential for bias, and they are no substitute for experience and good judgement. They cannot be relied upon to actually make the decision, as they will certainly NOT be taking the blame for bad decisions!


March 12, 2011

Tools for deciding, or confusing?

The last few days have been spent clarifying the problem and then trying to understand the tools best suited to solving it. We used a little bit of a methodological approach even in deciding which tools to try (!), and then each person volunteered to try to implement the ones that interested them. Upon meeting again, we attempted to present the results of our findings to each other, most of us thinking that our work had got us to the point where the group might be able to finalise decisions.

How wrong we were!!! Our internal biases had once again led us astray, and into thinking that our work could be without fault, and that each of the others would automatically understand what we had worked on, making the assumption that they had the same tacit knowledge that we did! It's becoming clear to me that managing all kinds of bias is certainly the biggest and most important challenge when making any judgement or decision.

What actually happened was that we found our work either littered with mistakes we hadn't previously seen, or in some cases, the rest of the group held wildly different views when presented with the work we had each done. This meant that much of what we had done turned out to be work in progress rather than the finished article, as so much rework was required! For example, I had largely focused on the decision trees, both for deciding what our options were and working through the possible results of around 8 different resultant scenarios. But, I'd failed to take into account that we might need another tree entirely for choosing the best location, or that sunk costs shouldn't have been included in the expected value calculations...

Once again, that means that after much confusing of our teammates, who might not have known the tools we worked with as well as we did, and realising that even we might not have used them correctly and entirely, or done requisite research, we find ourselves unable to make a decision still! Monday will be an important day for this.

Reflecting back, and thinking about future applications, I think that this will always be a problem. We will often have to present to colleagues entirely unfamiliar with our methods, so it will be crucial to learn how to translate our resuls in a transparent way, making sure to avoid the curse of knowledge. Of course there will be times when we fail to see errors in our work, so it is also very helpful to have colleagues who also know the methods and can check our work. This is quite a common approach in most engineering situations already, but perhaps as managers or leaders, we are not quite so used to this.


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