More Data than Ever, Incredible Computer Power | ValuePoint September 2015

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By Don Creswell, SmartOrg

Are You Making Better Product Development Decisions?

Among the hundreds of decisions that need to be made throughout ideation, development and commercialization of an innovative new product, there are two levels of decisions that require fundamentally different approaches to decision making–at the strategy level and at the project management level.

In a Wall Street Journal article “Data-Driven Decision Making: Promises and Limits” the author captures the differences this way, “At one end of the spectrum are operational decisions, which are generally highly structured, routine, short-term oriented and increasingly embodied in sophisticated software applications. At the other end of the spectrum are strategic decisions. These are usually taken by high levels of management as they set the long-term directions and policies of a business, government or other organizations. They tend to be complex, and unstructured because of the uncertainty and risks that generally accompany longer term decisions.”

At the strategy level, senior managers and executives–those who hold the purse strings–need to make decisions based on their assessment of future revenues and profits; lots of unknowns, many internal opinions, considerable questions about how the future will unfold. While data about the past may be useful at times, it can be dangerous to extrapolate. Same thing with current data. Fundamentally, there are no facts about the future. Still, you must make assumptions and forecasts.

Businessman thinkingWhat do you know? What do you not know? Decision making that involves uncontrollable futures involves dealing with considerable uncertainty–a consequence of our incomplete knowledge of the world, e.g. the size of a new market, potential market share, competition, etc.

How do you get your mind around what you don’t know? The first step is to acknowledge that you do not know. For many, this is a difficult step to take.

As my colleagues Peter McNamee and John Celona point out in their highly-regarded text “Decision Analysis for the Professional”, “…we are all familiar with instances in the business world and in personal life in which people seem to deny the existence of uncertainty … for example, (company) decision makers demand certainty in proposals brought before them. Twenty-year projections are used to justify investments without consideration of uncertainty.”

The second step is to embrace uncertainty and deal with it.

Many companies are just waking up to the realization that there is a vast difference between strategic Project Portfolio Management (PPM) and operational PPM. Most PPM software applications are optimized for operational PPM but they provide a fairly elementary approach to strategic planning, using various scorecard, heat map and questionnaire approaches. In our view, such approaches are inadequate in that they are highly subjective, foster politics and gamesmanship and can easily lead people in the wrong direction.

To empower our clients to deal with uncertain futures, SmartOrg consulting services and economic/financial evaluation software derives from the management science of Decision Analysis (DA), created at M.I.T. and fostered at Harvard by Howard Raiffa and at Stanford by Ronald Howard. DA is a transparent process that deals explicitly with risk and uncertainty, enabling managers and their teams to make decisions that vastly improve the chances for success.

Foundations of Decision Analysis by Howard and AbbasProfessor Ronald A. Howard defined the term “Decision Analysis” in 1964, and has been teaching it ever since. As he has never used a textbook, the class notes become prized possessions. But with a former graduate student, Ali Abbas, Ron has published his definitive work, “Foundations of Decision Analysis“, Pearson 2015.

Psychologists have spent a lot of effort studying how people naturally are lead into poor decision making, without providing the means to correct their errors. In contrast, Decision Analysis (DA) defines the normative field of decision making, which provides a way out of these traps, leading to personal satisfaction and competitive advantage.

The book begins by defining a good decision. In the face of uncertainty a good decision cannot guarantee a good outcome: it can only balance the probabilities according to your preferences. The book develops rules of actionable thought to transform complex decisions into simpler decision situations, and ultimately to achieve “clarity of action.” It continues with how to make clear distinctions, assess uncertainty, and capture your own preferences among value attributes, time, and risk. In additional to improving personal decision making, it continues to explain professional decision-making principles for helping others make better decisions. It illustrates how decision-making principles can be applied to rich variety of business situations, and ends with the role of ethics in decision making. This new “DA Bible” is rapidly being adopted as the leading textbook in this field.

Editor’s note: Thanks to Jim Matheson, Chairman and CFO of SmartOrg for providing this review. DA and the teachings of Professor Howard provide the foundation for SmartOrg decision processes and decision-support software.