Critical Thinking and Managerial Decision Making

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Outline

  • Two frameworks for decision making
  • K-T methodology
  • Decision making process by Lau (2011)
  • Useful tools to assist the analysis:
  • SWOTs analysis
  • The Benjamin Franklin method
  • Risk analysis framework

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Kepner-Tregoe Methodology

It is also referred to as the Kepner-Tregoe Matrix, KT Method, and PSDM (Problem Solving and Decision Making). 

  • Developed by social scientists Charles Kepner and Benjamin Tregoe.
  • This model provides four distinct phases for resolving problems:

Situation Appraisal

Problem analysis

Solution analysis

Potential problem analysis

  • This rational process helps:

Focus on getting it right at the start

Provides a common language

Repeatable and auditable

Builds commitment

Time and performance based

Data driven

Allows effective communication

allows execution and follow-up

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The Kepner-Tregoe approach is based on the premise that the end goal of any decision is to make the "best possible" choice--not the "perfect" choice. In other words, the decision maker must accept some risk. This model thus helps evaluate and mitigate the risks of our decision. It is comprised of 4 rational process areas:

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(SOURCE: Kepner, C. H., and Tregoe, B. B., (1981) The New Rational Manager, John Martin Publishing Ltd, London pp 12 - 27)

1. Kepner-Tregoe Situation Analysis

Timing (urgency)

Trend (growth)

Impact (consequences)

To clarify and prioritize situation, Plan issue resolution

2. Kepner-Tregoe Problem Analysis

Identity

Location

Timing

Magnitude

What

Is?

What

Is Not?

Distinction

Cause of

Distinction

Kepner-Tregoe Problem Analysis

What is?

What is not?

Distinction?

Possible

Cause?

K-T Decision Analysis

(Quantitative)

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3. Kepner-Tregoe Decision Analysis

Thinking patterns for making choices:

  • We appreciate the fact that a choice must be made
  • We consider the specific factors that must be satisfied if the choice is to succeed
  • We decide what kind of action will best satisfy these factors
  • We consider the risks may be attached to our final choice of action that could jeopardize its safety and success

Process:

  • The decision statement
  • The objectives/criteria for the decision
  • Classify objectives into MUSTs and WANTs
  • Alternatives
  • The consequences of the choice

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4. Kepner-Tregoe Potential Problem Analysis

  • Four basic activities:
  • 1. Identification of vulnerable areas – of an undertaking, project, operation, event, plan etc;
  • 2. Identification of specific potential problems – within the above vulnerable areas that could have sufficient negative consequences on the operation to merit taking action now;
  • 3. Identification of likely causes – of these potential problems and identification of actions to prevent them from occurring;
  • 4. Identification of contingent actions – that can be taken if preventive actions fail, or where no preventive action is possible

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  • Every action above will have a cost, in that it calls for an allocation of resources against some problematic future return.
  • Need to ask the following questions:

What could go wrong?

What can we do now to prevent it?

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4. Kepner-Tregoe Potential Problem Analysis

Exercise

Your CQUniversity Moodle access was suspended, and you have two assignments due in 5 hours. How can you solve this problem using K-T methodology?

Work with your classmates, conduct role play if necessary (e.g., conversation between you and the TaSac staff, etc)

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A good decision process—Lau (2011)

1. Think generally about how the decision should be made.

2. Do some research.

3. Come up with a list of options.

4. Evaluate their pros and cons and pick the best option.

5. Prepare for contingencies.

6. Monitor progress and learn from the results.

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Source: Lau, Joe YF. An introduction to critical thinking and creativity: Think more, think better. John Wiley & Sons, 2011.

Step 1. Think generally about how the decision should be made.

  • "A problem well stated is a problem half solved”

---the American philosopher and educator John Dewey

  • Here are some relevant questions to ask:
  • Can I delegate?
  • How much time should I spend thinking about this?
  • What is the central issue? Which is the most important decision?
  • Is there anything that might have a negative effect on my decision?

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Step 2: Do some research

  • For decision of a strategic nature, i.e., future directions of a person or organisation, good idea to use a SWOT analysis to assist decision.

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Exercise

  • Carry out a SWOT analysis for yourself to review your current situation— for example, about your job or studies.

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Step 3: Come up with a list of options

In making such a list, we should pay attention to the following points:

  • Feasibility and likelihood of success
  • Are the action plans realistic? Do any of them violate any given constraints? (cost, time, legality and so on)
  • Adequate choices
  • Think hard about whether they are genuine alternatives to choose from; having too many options to consider can be confusing
  • Exclusive vs. complementary alternatives Some plans exclude others. If you have a limited budget, buying a car means you cannot renovate your apartment. But some plans complement each other. You can improve a product by better marketing, providing discounts, and improving quality, all at the same time. So always see if you can combine good options.

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Step 4: Evaluate the options and pick the best one

  • What counts as "the best"?
  • One that maximizing expected utility
  • Each choice has a set of possible outcomes with different probabilities. We can calculate mathematically the "expected utility" of a choice, which roughly measures the net gain (or value) we are expected to get from that choice. Then we are supposed to pick the choice that has the highest expected utility.
  • Problem is in real life the probabilities and utilities are often difficult to determine.

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the Benjamin Franklin method

  • Franklin (1706-1790) was one of the Founding Fathers of the United States, a famous politician, businessman, printer, scientist, and inventor.
  • He suggested that many decisions are difficult because we do not have all the relevant information before us. One thing we can do is to write down the pros and cons of an option in two columns. Opposing reasons of equal weight can be "canceled out."
  • We can then determine whether on balance there are more reasons in support of the option, and act accordingly:
  • Suppose you are looking for work and you have three options:
  • join a large stable company
  • or an exciting small internet startup.
  • Or maybe borrow money and setup your own business.

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  • We can then write out the pros and cons of each option in a table:

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the Benjamin Franklin method, an example

Please keep in mind

  • Evaluating the options require some care.
  • If you simply count the pros and cons, it might appear that option 1 is the best (4 pros minus 2 cons = 2 net pros), option 3 ranks second (3 pros and 3 cons), and option 2 is the worst.
  • the pros and cons can have different weights in the sense that some considerations are more important than others.
  • The "best" choice will depend on one's values and risk tolerance, and might be different for different people (e.g., a fresh graduate versus a middle-aged man with family commitments)

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Using a score table

  • In some decisions, the criteria for the best choice can be specified by a list of criteria. In these situations, the Benjamin Franklin method can be applied more systematically using a score table:
  • The idea is to evaluate each option according to
  • the same set of criteria, assign a score, and then pick the option with the highest score.

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Benefits

  • The advantage of this method is that it helps us evaluate a large amount of information in a systematic way. The score assignment is of course subjective and cannot be absolutely accurate. But the systematic procedure makes the decision process very clear, and minimizes inconsistency and arbitrary judgment.

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Step 5: Prepare for contingencies

  • Murphy's law says: If something can go wrong, it will.
  • Accidents happen despite our best planning.
  • Good planning helps you anticipate problems and minimize their damage.

  • What are some of the things you need to consider in contingency planning?

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Things to consider in contingency planning:

• Anticipate problems: List 10 bad things that might happen and think about

what to do in these cases. Think about the worst possible scenario.

• Strengthen the weakest link: The weakest link is the most vulnerable part

of a project and can most easily undermine the success of the whole. Many

projects also have at least one bottleneck somewhere, a place (or person!)

that has the largest effect on slowing down the whole project. Monitor such

places closely.

• Include a safety margin: Predictions about the future are notoriously inaccurate.

Have a flexible plan that tolerates inaccuracies in your predictions

and assumptions.

• Prepare a backup plan: In case the original one fails miserably.

Estimating task completion time: People are often too optimistic about the time it takes for them to complete a task.

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Risk analysis (ISO31000)

PROBABILITY OF OCCURRENCE

High

Low

Inconsequential

Very serious

You have to seriously deal with these to mitigate

CONSEQUENCES

Step 6: Monitor progress and learn from the results

  • A good decision process does not end with the moment the decision is made.
  • First, we need to monitor how the decision is implemented to see if any follow-up is needed.
  • More important, even when the whole project has been completed, we should review the process to see what we have done right or wrong, so that we can do better next time. E.g., investment decisions,

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  • "Those who refuse to learn from history are condemned to repeat it.“
  • philosopher George Santayana

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Reflection

  • Think about some of your major decisions in your personal life or in your work, including both good and bad decisions.
  • Are you able to identify what makes these decisions good or bad?
  • What can you learn from these cases?
  • Think about how the decisions were made and how the decision processes compare with the Benjamin Franklin method.

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Summary

Use the following checklist to see if any mistakes have been made.

1. Is it clear what we have to decide? Which is the most important or urgent decision? Meetings or discussions can go on forever without any decision

being made. At some point we need to refocus on the main issue.

2. Are all the options realistic? Are there other options we should consider?

Many people rely on what they are most familiar with. Or they stop looking

for options when they think they have the right answer. Thinking creatively

and expanding our options can often lead to better alternatives.

3. Have we overlooked any good / bad consequences of an option?

Failure to identify the important consequences of an option can undermine the whole

decision process. Solution: more thinking, more research, more discussion.

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Summary

4. Is there any special criteria for the decision we should be aware of?

This part of the decision is often implicit. But sometimes there are special criteria the best option has to satisfy—for example, it has to be one that the boss will approve, it has to fall within a given timeframe and budget, it should minimize risk. Any such criteria should be made explicit.

5. Have the criteria been applied wrongly?

  • People can agree about the decision criteria and the options but still disagree about which is the best option.
  • Maybe someone picked the wrong option because she was careless. Or
  • maybe she misunderstood the nature of an option. But sometimes it is difficult to balance the pros and cons qualitatively. We cannot always resolve such disagreements. The best way to proceed is to lay out the differences as clearly as possible.

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Exercise

Imagine a country preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the facts given below are correct. If you have to choose either program A or B, which would it be?

• If program A is adopted, 200 people will be saved.

• If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved.

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Exercise

Have you made the choice? If so you may continue and consider programs C and D below. Again your task is to pick one out of the two. Which one would it be?

• If program C is adopted, 400 people will die.

• If program D is adopted, there is a one-third probability that nobody will die, and a two-thirds probability that 600 people will die.

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Thank you

Next week…

Typical problems in decision making

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The Kepner-Tregoe approach is based on the premise that the end goal of any decision is to make the "best possible" choice--not the "perfect" choice. In other words, the decision maker must accept some risk. This model thus helps evaluate and mitigate the risks of our decision. It is comprised of 4 rational process areas:

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