UNIT 5 CASE STUDYSee Problem 3-17 on page 101 of the textbook. Kenneth Brown is facing three alternatives with two possible outcomes—a favorable or an unfavorable market—for those alternatives. In

MSL 5080, Methods of Analysis for Business Operations 1 Cou rse Learning Outcomes for Unit V Upon completion of this unit, students should be able to: 4. Justify the major steps in decision -making . Reading Assignment Ch apter 3: Decision Analysis, pp. 65 –68 Unit Lesson Starting with this u nit, you will blend a newly acquired (or refreshed ) grasp of mathematics that support s analysis with some ideas and re flections on making decisions. The first idea you may note with interest in Chapter 3 of the textbook is what statisticians co nsider a good or bad decision. Certainly results count, as many leaders have, no doubt , reminded many statistician s who support the m with analy sis. Even so, decision s by gut instinct will, sooner or later, lead to results that are detrimental to the organization — this is what probabilities over a range of situations show. In the U.S. Army , there is a saying among leaders that “hope is not a method ,” communicating that the public taxpayers are poorly served if military leaders rely on chance and optimism to s ucceed rather than on methodical steps taken to achieve a goal. If a good decision is a decision logically reached after considering analysis results — even those as simple as looking at coin tosses — then it follows that a bad decision is one not based on science and reason, even if luck brings fortunate results. It is a natural fact that luck for all of us runs out from time to time, and that the re can be cost s associated with “bad” luck. Accordingly, con tinue to champion good decision -making even if the odds go against the analysis predictions and the results of such a decision may occasionally be undesirable. The Six Steps in Decision -Making When you review the commonly -agreed steps of good decision -making, you can test support of good decisions by showcasing the commonly agreed upon steps (Render, Stair, Hanna, & Hale, 2015) : 1. Define the problem . Everything else will be in error or under dispu te if the real problem is not precisely determined and agreed upon . A mong other hazards, you may waste time later finding a precise answer to a different p roblem than the one facing you. 2. List the possible alternatives . Feasible courses of action are listed here and not necessarily just the ones you personally hope for. Remember that doing not hing is a possible alternative. 3. Identify the possible outcomes or states of nature . Possible outcomes range from the best possible, or most optimistic, to the worst pos sible — and the worst possible outcome may happen, or the organization may face an unusual opportunity with the best possi ble outcome turning up as real. 4. List the payoff/profit of each combination of alternatives and outcomes . This can be a list or a table. 5. Select a mathematical decision theory model to use for this problem . 6. Apply t he model (solve the equation) and consider the solution, then make a decision . You can war - game your own decision here to test that it is rational by asking: why did you decide wha t you did? Would you encourage another leader to make the same sort of decision given the calculated decision theory model results? These reflections help you focus on using logic and reason , not a gut feeling. On pages 66 –67 of the text book (including Ta ble 3.1 ) you are walked through the decision -making example o f the Thompson Lumber Company. See how decision -making steps are manifested in this realistic example: UNIT V STUDY GUIDE Decision Analysis MSL 5080, Methods of Analysis for Business Operations 2 UNIT x STUDY GUIDE Title Step 1: John T.’s problem was whether or not to manufacture and sell backyard storage sheds — an addition to his product lines. Step 2: Once the right problem is described, developing the possible alternatives is key to selecting the correct mathematics function an d the solution for a decision. Ensuring that all feasible alternatives are consider ed is ke y. I ntentional or unintentional bias may leave out the alternative that is best for the organiz ation. Here, Jo hn’s alternatives list becomes: (a) invest in a large plant to make the shed; ( b) invest in a small plant; ( c) do not do anything with she ds. Step 3: For his calculations, John has to match possible outcomes for each alternative. He designat ed two: a favorable market and an unfavorable market. Indeed, commerce may fairly be described as having one or the other. Step 4: Next, John has to ca lculate the pay off /profit for each outcome. See his Table 3.1 on page 67: You l abel the $200,000 figure, payoff of a large plant in a favorable market, as a conditional value because its amount is dependent on other things happen ing. The $0 amounts for doing nothing in either market are not conditional because nothing had to happen to realize no payoff. Steps 5 and 6 : As mentioned, with the payoffs laid out, the final steps are to select a model, solve it, and decide. A table wit h six possible outcomes can be assessed without a model by jus t considering the six figures. Situations that are more complicated , or have more risk , may need one of the probability equations to reach a solution that can be considered. Types of Decision -Making This all seems a methodical way to lead to success, and indeed a close adherence to the steps is a promisin g start toward making good decisions. So what can go wrong with the decision -making process? The wrong problem, o r no problem at all, is when decisions are based on emotions, often fear, instead of being based on logic, and positive decision -making is difficult to achieve. An executive ineffectively leading a low -performing bureaucracy may never get around to defi ning what should be studied . Th e less pleasant the situation is, the more likely it is that an organization that lacks resiliency and order will never get to the point of analyzing what is afflicting it. Poor science and staff work may lead the organization to define a problem other th an th e one it is actually facing. When this happens, the best math work leading to the correct solution for the model equation will not help the organization, as it will be the so lution for some other problem. You may recall the phenomenon of groupthink , o r the human tendency to agree with someone (especially someone with greater relative power such as a supervisor ), without voicing one’s own reservations about the other person’s point of view. Groupthink may very well be a contributing factor to the organi zation’s failure t o recognize the actual problem. Perhaps no one dared to challenge the supervisor’s (or influential peer’s ) conclusion of the nature of the problem. Sometimes, n ot all p ossible alternatives are listed . Among several staff members writing late into the night, the idea of “this is good enough” may conclude the late hour’s effort for them , but could leave a feasible alternative not identif ied to be considered at a later time . Watch out for the seasoned staff members who (Render, et al., 2015) MSL 5080, Methods of Analysis for Business Operations 3 UNIT x STUDY GUIDE Title advise newer colleague s that “three alternatives are enough” or slant the list and subsequent work in favor of one alterative that “ the boss really wants anyway.” This is decision -making, but not good decision -making based on science . S lanting the steps is no better than the bo ss making a deci sion from a gut feeling. A mistake in the pay off/profit table can be an issue. Sometimes , it pays to have a colleague play the role of the verifier of all steps — remaining true to the procedure can ensure the right solution is eventually re ached. The wrong mathematical decision theory model for the problem at hand may be selected. A team or staff member making the selection needs to know the mod els and how they are used. An apprentice system for decisio n-making may be a fitting idea. This w ay, a staff member works with more experienced analysts and , over time, learns how to make the steps work. Finally, t he solution may be wrong . As you can see, the first thing many students think of that could go wrong in decision -making analysis is actua lly the last hazard i n the series of steps. Practicing with problems and learning from each experience builds confidence and diminishes the chance of a math error leading to a faulty analysis. Much can go wrong in a decision analysis before the math is eve r conducted on an equation. As mentioned in many of these u nits, leadership is the key to making decision analysis respected as a productive and effective process in an organization. Analysts must earn the trust of leaders with efficient work . Leaders mus t trust their staffs and supporting literature that reflects the merits of the science of decision analysis. As noted in the text book from chapter to chapter, analysts have a specialized job to do but also must feel invested in the leader’s — and therefore the organization’s — situations. A “drop off the numbers and leave” approach on t he part of the analysts may result in leaders being skeptical of the analysis , and the analysts’ work may be considered no better than making a “gut decision.” Conversely, lead ers have to trust that their personal judgment is not magic and that decision analysis is a proven method for determining and achieving success and increasing profits. Reference Render, B., Stair, R. M., Jr., Hanna, M. E., & Hale, T. S. (2015). Quantita tive analysis for management (12th ed.). Upper Saddle River, NJ: Pearson. Suggested Reading The link s below will direct you to a PowerPoint view of the Chapter 3 Presentat ion. This will summarize and reinforce the information from this chapter in your textbook. Review slides 5 –10 for this unit. Click here to access a PowerPoint presentation for Chapter 3. Click here to access the PDF view of the presentation. For an overv iew of the chapter equations, r ea d the “Key Equations” on page 95 of the textbook. Learning Activities (Non -Graded) Complete discussion questions 3 -1 through 3 -3, and problem 3 -17 on page 101 –102 of the textbook. Use the answer key (Appendi x H) in the back of the textbook in order to check your answers. Non -graded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.