This Discussion is based on the article, “A Pyramid of Decision Approaches” by Paul Schoemaker and Edward Russo from California Management Review. Make sure to read this article before starting the Discussion.
While analytics is very valuable, it is not practical to fully analyze every decision situation. In the fast pace of the business world, you will often allow decision analysis shortcuts (also called rules of thumb) to replace proper analysis. Making decisions based on these shortcuts allows businesses not only to save time but also to take advantage of the expertise and experience of those who developed the shortcuts.
The article you will read this week is fairly long and covers various approaches to decision making. You will first focus on the discussion on decision analysis shortcuts that starts on page 12. Then, you will question your own organization’s use of shortcuts and see if you can find improvements.
Please note that, although the article uses the terms “rule of thumb” and “rule” in its discussion, you should not confuse this with the rules and policies within companies that have nothing to do with decision making. The focus here is on decision analysis shortcuts, not policies, procedures, and so on. These also do not refer to things like using computers to automate or speed up procedures or skipping steps. First understanding what a rule of thumb is and is not will be the key to this Discussion.
For this Discussion, you will apply the steps listed on page 15. Please use the template below in your answers so everyone can easily follow your answers to all the questions (copy and paste to your post).
Use this template for your Unit 4 Discussion
Step 0: What is an important decision that needs to be made frequently?
- a) The decision to be made:
(Describe an important decision that needs to be made frequently in your business.)
- b) The analysis:
(Describe, if time was not an issue, what in-depth analysis would be required to make this decision)
(Refer to Exhibit 1 in the article for many examples of decision situations and decision shortcuts from real life. Notice that all these examples would require in-depth analysis, but managers are using “rules of thumb” to accelerate the decision at the cost of potential mistakes. Also note that these are all decisions, not simply rules or procedures: How much to mark up prices, how many rooms to overbook, how to evaluate the quality of an article, etc.)
Step 1: The decision analysis shortcut
The decision analysis shortcut (rule of thumb):
Describe the rule of thumb that is being used to make this decision without conducting a full analysis every time. If there is not one, what rule of thumb (decision analysis shortcut) would you recommend to be used to make the decision without a full analysis? Justify your suggestion: Why should your rule of thumb work?
Make sure that your example is designed to replace a lengthy analysis in a decision situation.
Step 2: Success example
Give an example of where this decision analysis shortcut comes close (or would come close, if the rule is new) to the correct decision.
Step 3: Failure example
Give an actual example of where it failed badly and explain why (or where it may fail badly, if you are suggesting a new rule).
Step 4: Improvements
Suggest possible improvements to the decision analysis shortcut. How can analytics help in avoiding failure? (You can skip this step if the rule is new.)
Step 5: Testing
Describe how the new decision analysis shortcut would be tested before being implemented organization-wide.
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