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MANG6312-Week10-DMMethods2-Bb-05May22.pdf

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Week 10

“Decision Making

Methods 2”

Dr Ramesh Vahidi [email protected]

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Southampton Business School

5th May 2022

From DM Methods 1: We identified ‘Problems’ and tried to ‘Structure’ them …

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Depending on the context and our purposes: “Problems could also be found and some aspects of them could be structured using: PESTEL, Stakeholders analysis, Success/Strategy/Governance theories and models, etc. or a combination of these as we discussed in one of this module's lectures”

Aim of Week 10: Let’s Decide or Find Resolution

• Providing you with a few more common and

practical decision making and analysis

approaches/methods/tools, which could be

applied for further structuring, analysing and

resolving project decisions/problems.

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We will cover

• Part 1 → Single Criterion Decision Making

• Part 2 → Multi-criteria Decision Making

• Part 3 → Example of Scoring Model

• Part 4 → Another Scoring Model - Background to the next lecture

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PART 1

“Single Criterion

Decision Making”

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Southampton Business School

MANG6312 - DM Methods 2

106-929-822

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- It is a new book published for the first time and is only on Amazon;

- There are only few suppliers.

- The suppliers’ prices, delivery periods and country of origin are the same.

- The suppliers’ reviews/credits differ only very slightly.

You have several options (suppliers) on Amazon for buying a book that you need urgently. How will you choose one of those if:

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Single Criterion Decisions & Decision Making

Decisions that you might have a few options but they

differ only on one aspect.

So you only need to compare them based on one criteria

(or aspect) for selecting the desired/best/viable option.

Are most of the decisions in

your daily life single-criterion

decisions?

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PART 2

“Multi-Criteria

Decision Making

(MCDM)”

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Southampton Business School

Decision: You are the project manager for “Selecting and purchasing the security systems for the Olympics athletes and volunteers’ accommodations”.

The potential suppliers have suggested two systems with various levels of security at very different prices.

Limitations: Allocated budget at most covers one of the cheapest and one of the most expensive systems (not two expensive systems) at a time.

There will be very good rewards for coming under budget and heavy penalties for going over budget (if possible at all!).

Assume you have the following options for your purchase, which one you would choose:

1) I will choose the cheaper for both accommodations;

2) I will choose the cheaper for athletes and the more expensive for volunteers;

3) I will choose the more expensive for the athletes and the cheaper for volunteers;

4) I have problem with making this decision!

5) I don't wish to manage this project!

Question: Could you suggest a single criterion for choosing the most appropriate option?

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In the Olympics accommodation

for Athletes/Volunteer what

were your other criteria for

choosing the best option? (if

you had a choice to add!)

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A Decision with Multiple Criteria

Question1: In previous exercise, what were your other criteria for choosing the best option? (if you had a choice!)?

Cost, recording memory of the camera, distance and scope it covers, ease of repairs/replacement, suppliers’ reputation, guarantee, installation time, athletes’ satisfaction, volunteers’ satisfaction, risk of choosing each camera, athletes’ and volunteers’ insurances, human life, equality, ethics, …

Question2: How could these criteria and their relevant data help you in choosing the best option? (What will happen if you ignore these in reality?)

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1) Converting all the criteria into monetary (cost and benefit) equivalents.

Questions:

- How do you evaluate the athletes/volunteers satisfaction in monetary terms?

- How do you evaluate potential injuries/threats to life in monetary terms?

*Limited application in PM decisions, specially dealing with humans/soft aspects!

2) Combining all the different criteria regardless of their nature.

Questions:

- How to deal with the criteria that are non-convertible or hard to convert to monetary or quantitative equivalents?

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Approaches to Decisions with Multiple Criteria

Two main approaches

- Scoring models

- Hierarchical models

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Approaches to Decisions with Multiple Criteria

Ranking Criteria with a Typical Scoring Model

• Decision criteria: identifies what makes you choose an alternative E.g. → Cost, level of security, suppliers’ reputation, athletes’ satisfaction, volunteers’ satisfaction, installation time, …

• Desirability of an alternative:

1) How far that criteria is important for us? E.g. → is it all about: the cost, the level of satisfaction, the time it takes or a combination of these? To what extent …

2) How far it can satisfy a criteria? E.g. → how much, to what level of satisfaction, how long it takes …

• Steps after defining the problem and alternatives:

1. Define the decision criteria.

2. Identify the weight for each criterion.

3. Calculate each alternative’s score.

4. Prioritize alternatives.

5. Select the alternative with highest score. MANG6312©RameshVahidi2022

PART 3

Example of Scoring Model

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Decision Analysis with Scoring Model

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Options

Opt1 Opt2

Criterion Importance of Criteria

Weight (0-10)

Rating (0-1)

Score Rating (0-1)

Score

CR1

CR2

…

CRn

Decision: Selecting between Option 1 and Option 2

How important is CR1 in making the decision?

(Within a scale of 1-10)

How far Opt1 can satisfy this criterion?

(0 do not satisfy – 1 fully satisfy)

What is the score of Opt1 in relation to CR1?

Weight x Rate = Score

Example Scale for weighting the criteria

Very Important Important Not very

important Not

Important

Example Weights 10 6 3 0

Example of Decision Analysis with Scoring Model: Heathrow T5 – As was originally made

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Options

No Test Test

Criterion Importance Weight

0-10 Rating

0-1 Score

Rating 0-1

Score

Cost saving Not very important

3 0.8 3x0.8=2.4 0.5 3x0.5=1.5

Time saving Very important 10 1 10 0.1 1

System Quality

Not very important

3 0.7 2.1 1 3

Customer Satisfaction

Important 6 0.9 5.4 1 6

Reputation Very important 10 0.9 9 1 10

28.9 21.5

Decision: Testing or not testing the IT system before opening T5

T5’s Perception: Test will not affect these aspects

18(0 do not satisfy – 1 fully satisfy)

Example of Decision Analysis with Scoring Model: Heathrow T5 – With the insights after opening

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Options

No Test Test

Criterion Importance Weight Rating Score Rating Score

Cost Not very important

3 0.8 2.4 0.5 1.5

Time Very Important 10 1 10 0.1 1

System Quality

Not very Important

3 10 0.7 0 0 1 3

Customer Satisfaction

Very Important 6 10 0.9 0.1 1 1 6 10

Reputation Very Important 10 0.9 0.1 1 1 10

14.4 32.5

Decision: testing or not testing the IT system before opening T5

Example of Decision Analysis with Scoring Model: How would you have scored Heathrow T5 before the opening?!

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Options

No Test Test

Criterion Importance Weight

0-10 Rating

0-1 Score

Rating 0-1

Score

Cost saving

Time saving

System Quality

Customer Satisfaction

Reputation

Decision: Heathrow team's view on Testing or not testing the IT system before opening of T5?

Example of Decision Analysis with Scoring Model: Security System Selection

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Options

Option 1 Option 2 Option 3

Criterion Importance Weight

0-10 Rating

0-1 Score

Rating 0-1

Score Rating

0-1 Score

Decision: Ranking and Selecting options 1-3

PART 4 Scoring Model - Background

to the next lecture

“Problem Formulation,

Decision Making/Analysis

Method based on Hierarchies”

Poor Man’s Hierarchy

Southampton Business School

Poor Man’s Hierarchy

• Aim: simple ranking of multiple criteria or options.

• Basis: pairwise comparisons of criteria or options.

• Used in managerial decisions (improves ‘seat of the pants’ DM!)

• Simplified, introductory model of a method called the Analytical Hierarchy Process (AHP) that we will discuss next week.

(Frame, 2002, pp. 200-203)

Poor Man’s Hierarchy

Steps:

1) Define the decision criteria/Options

2) Compare their priorities in pairs

3) Add the priorities for the final scores.

Rules:

- The diagonal cells are left blank

- 1 = the cell in side is preferred to the one on

the top

- 0 = the cell on the top is preferred to the

one on the side

- Compare only at the top of the diagonal

- Put the opposite values, below the diagonal

CR1 CR2 CR3 CR4 Score

CR1 - 1 0 1 2

CR2 0 - 1 0 1

CR3 1 0 - 1 2

CR4 0 1 0 - 1

Opt1 Opt2 Opt3 Opt4 Score

Opt1 - 1 0 1 2

Opt2 0 - 1 0 1

Opt3 1 0 - 1 2

Opt4 0 1 0 - 1

CR1 is preferred to CR2

CR3 is preferred to CR1

• Problem: selection of a new site to establish manufacturing operations.

• Example question: Which is the more desirable criterion, availability of cheap labour or regional tax policies?

Poor Man’s Hierarchy - Example

Decision Making in Groups

• Put the sum or average (for some methods) of the group’s votes in cells. Helpful to keep sperate records of various votes where possible.

• Final decision on options:

- Clearer Discussions: ideas discussed/documented based on significance of each criteria;

- More structured: Options can be evaluated based on how they satisfy the criteria and then their scores are calculated (same as the last step of the scoring model).

Decision Analysis with Scoring Model Sydney Opera House

Decision: You are the selection panel for Sydney Opera House architect. You have received a number of proposals from different architects from a number of countries. Decide on the criteria for selection of the best architect and identify the priorities for your criteria. Extend the table if required.

CR1 CR2 CR3 CR4 CR5 CR6 CR7 Score

CR1

CR2

CR3

CR4

CR5

CR6

CR7

Learning Outcomes of Week 10

By actively attending the sessions and following up with further background studies

you are expected to be able to:

Demonstrate capability of selecting an appropriate tool for identification,

formulation, analysis and possibly making decisions/resolving problems

Appreciate the fundamentals of Multi Criteria Decision Making (MCDM).

Appreciate the example tools and techniques for MCDM: Scoring model, Poor

Man Hierarchy.

Apply the tools and techniques in simple cases and understand the results.

Readings

Frame, Davison J. (2002) The New Project Management: Tools for an Age of Rapid Change, Complexity. Jossey-Bass. 2nd ed. (for Poor Man’s Hierarchy)

Goodwin, P. & Wright, G. (2014) Decision analysis for management judgement. 5th edn. West Essex: John Wiley & Sons. (for AHP)

Virine, L. & Trumper, M. (2008) Project decisions-The art and science. Vienna: Management Concepts Inc. (multiple criteria/objective models) (Chapters 6 from pp. 79 to 86; Further reading: Chapters 7 & 8)