Analytical Thinkingand Decision Making Essay

1.0 Importance of Decision Making and the Application of Decision Analysis

Decision-making is of great importance to various organizations because it is through decisions that organizations get to achieve their objectives and goals. Decision-making enables people to set achievable objectives, set a realistic strategy, measure achievements based on realized results while formulating other ways in which they can better the performance of the company from the current level of performance to perhaps another level they desire. It is worth noting that; all actions, be it in an organization or an individual involves decision making (Goodwin, 2014). More often than not, those faced with decision problems prefer to avoid making a decision to avoid the process of decision analysis and then settle on what they think it is less costly. Others consider decisions that are preferably profitable while disregarding the consideration of other underlying factors, which are also key to the success of the firm. Application of decision analysis to decision making has proved to be the most effective as well as an efficient method, which presents accurate or near accurate results (Herath&Pato, 2006). In most cases, when a decision problem is not subjected to decision analysis, the decision that is arrived at; may only be beneficial in the short run regarding various attributes but in it may prove to be a challenge in the future since various issues are not considered. Analytical Thinking And Decision Making Essay

Decision problems can be analyzed through various techniques, which are both qualitative and quantitative. Some of the most common techniques that are used in decision analysis include; SMART, simulation, heuristic, probability, scenario planning, revision of judgment due to new information, group thinking among others. The most common technique that applies to various scenarios and which also involves making a decision that has a single objective as well as those that have numerous objectives is SMART technique. Some the simplest decision-making techniques that apply to simple problems, which may not need intense scrutiny, include the recognition heuristic, minimalist strategy, elimination by aspects, sequential decision making among others (Philip-Warren et al., 2010). SMART, simple multi-attribute rating technique, applies to both simple and complex decisions and it is only applicable to decisions that have numerous objectives. Having explored the various techniques that are applied in decision analysis, it becomes clear that decision analysis has a lot of benefits to individuals and companies that apply them in their decision-making processes.

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2.0 Decision Problem –Choosing a New Office Location

For purposes of this essay, the problem that has been selected as a decision problem is the decision of choosing a new office location. In many cases when a company is choosing new offices they consider various factors such as proximity to the customer, cost of renting, electricity cost, cleaning cost, parking space, conspicuity among other considerations. The decision problem has to be tested by the attributes thus requiring measurement of weights, which have to be allocated to each location based on the importance of the attributes (Goodwin, 2014). In this case, in the list of attributes, the most important attribute for a photocopying firm is visibility, one may argue that it has to be closeness to the customers, which may sound okay, but being close to customers and then being inconspicuous means there will be no customers for the firm whatsoever. However, having it located in a conspicuous location it will lead to the generation of businesses because customers can see the businesses and thus though they may not be close, they will be aware of it, and they will refer others to the premises. Visibility is therefore key; coming in second regarding important attributes is closeness to customers, which in other circumstances it may come first in the list of important attributes (Lootsman, 2009). While in making any decision, more so when using any of decision analysis techniques, one must look at four key factors, namely; risk and uncertainty, complex structures, stakeholders involved in decision-making, and complexity of the structures. If one is faced with a decision problem that is multi-objective in nature as well as it requires the indulgence of various stakeholders, then the use of techniques such as SMART is inevitable. Analytical Thinking And Decision Making Essay

Office location problem requires the involvement of directors of a photocopying firm before choosing a location where it is going to open new offices, not only requires rationality and critical thinking but it also requires the use of any of the decision analysis technique owing to its technicality. The problem of office location also presents a situation where there are risks and some levels of uncertainty. Some of the risks and uncertainties that can be identified concerning the problem of office location include; the security of the place, electricity reliability, uncertainty of returns from the investment among others. Choosing to make a decision based on shallow analysis of possible underlying risks often results in unforeseen challenges that may stall the business. The reason for carrying out analysis of risks and uncertainties is to be able to measure their probability of occurrence to preempt in case of uncertain situation happening. Office location problem needs an analysis of risk factors such as the possible risk of not being able to reap returns for investment(Herath&Pato, 2006). The case of risk and uncertainty of returns can be best addressed through feasibility study exploratory study is carried out to establish the level of risk while coming with an informed decision on the viability of the business. On the same note, office location problem may be faced with complexity owing to the multi-objectiveness as well as multi-stakeholder involvement. The issue brought about by multi-stakeholder and multi-objective can be best addressed through a multi-objective technique such as SMART technique. However, in rare circumstances, a well-analyzed problem may fail due to issues of accuracy of measurement, but the failure may be addressed through other techniques such as decision review mechanism. Office location on the face value does not look like it is a problem that should be addressed, through the various decision-making techniques, because it looks simple. However, due to the involvement of various stakeholders in the decision, it becomes complex in the sense that it requires a good reason and a well-analyzed answer that will convince the stakeholders to agree to an idea. Additionally, due to the complexity of determining various attributes that do not have the numerical measurement, such as the value of an image, it requires that a valuation must be carried out to attach numerical values to qualitative attributes (Goodwin, 2014). Perhaps it is difficult rating attributes that are used to offer qualitative descriptions of various factors of considerations such the image of the office, the goodwill of the building or office among others. A decision problem such office location require an analysis of various factors, attributes, risk, and uncertainties as well as exploring different objectives.  Analytical Thinking And Decision Making Essay

3.0 Application of SMART technique to the Decision Problem

As a small photocopying shop that is growing in a competitive market, it realized a need to expand its businesses by opening new offices. The office has seven key areas that it is considering to move to. The firm has identified seven possible locations that it can consider opening an office in a bid to expanding its businesses, the seven key areas that the firm is considering include; Newcastle, Liverpool, Charlottesville, Lakewood, China town, Kentucky, and Oxford. The seven areas listed present mixed benefits for the firm in that one area may have ample parking space, be accessible to customers but visibility may be a big issue for the place. However, before a decision as to which area satisfies various factors such as customer proximity cost of renting/acquiring, accessibility, image, visibility, comfort and parking space. All the key considerations set up a multi-objective case that needs to be analyzed using a multi-objective analyzing technique, which in this case is a SMART method (Zardari, 2014). In a bid to move to a new location, the firm is seeking to not only increase its customer base by capturing new markets, but it also seeks to be visible to be a point of attraction to customers who need the firm’s services. To arrive at the best location, therefore, the problem has to be analyzed through the eight stages of SMART technique to arrive at an informed decision about which location among the seven possible areas will the company open new office location and be able to generate new businesses for the firm(Herath&Pato, 2006). The summary of the office location problem can be summarized in the table below; Analytical Thinking And Decision Making Essay

Office Location Monthly rent ($)
Newcastle 300
Liverpool 150
Charlottesville 50
Lakewood 120
China Town 300
Oxford 150
Kentucky 100

 

3.1. Identifying Decision Maker

A decision to arrive at a viable location for the business is being considered by three directors of the firm. They consider using SMART as a tool of solving their location problem because each one of them has a location they prefer to move to in their minds thus clearly indicating that they may not agree with consensus other than through a multi-objective decision analysis process. The reason for identifying the decision maker is to establish whether the decision involves various stakeholders under which if they are many then the problem is considered to be complex thus requiring a different approach altogether.

3.2 Identification of Alternative Courses of Actions

Alternative courses of actions for the decision problem may include a decision to preceding renting and instead to buy the office space in buildings that sell office space. Alternatively, the directors are considering either entering into a partnership deal with photocopy shop owners within the identified regions or also considering outsourcing part of their non-core services. Both alternative options are strategies that will see the firm expand and capture new markets in regions that are considered to be dominated by competitors yet they present a lot of growth potential for the firm (Zardari, 2014). Additionally, the alternatives are about lowering the cost of operations in a bid to raise profit prospects for the firm. Having noted the alternatives, it is still clear that they require a multi-objective decision analysis approach because just like the decision problem, the alternatives need to be analyzed by the use of various factors that either leads them to score high or low depending on the weight of the matter. Analytical Thinking And Decision Making Essay

3.3 Identification of Attributes relevant to the decision Problem

Choosing office location requires one to make considerations based on different attributes that the various locations present as compared to other location. For instance, Liverpool may be highly accessible with relative monthly rent charges but poorly visible due to the dilapidated state of the buildings in the neighborhood. Choosing to settle on Liverpool as opposed to Kentucky with cheap rent charges but lacks space for parking requires that the attributes be weighted. In the case of attributes for a new office in the regions identified; several attributes come to mind, which include; cost, benefits, turnover, working conditions, rent electricity cleaning, visibility, image, closeness to customers, parking space, size and comfort. The attributes can be summarized best by the use of value tree as follows;

Diagram 3.3.1 Value Tree

Diagram 3.3.1 Value Tree

The value diagram summarizes various attributes from the most important while breaking down to the most basic and measurable attributes thus making it easy to rate and classify accordingly. The selection of the attributes was done in view to complying with 5 SMART criterions of identifying attributes, namely; completeness, decomposability, operational efficiency, minimization of size, and absence of redundancy. The attributes identified satisfies the required criterions. For instance, the attribute of cost satisfies criterion of completeness, decomposability, efficiency, lack of dependency and minimization in a number of ways. First the attribute is measurable, the size can be identified, and then it can be broken down into smaller measurable units (decomposability). Further, it can measure operational efficiency by determining the amount of cost incurred thus determines whether an action or a business is worth undertaking or not. The attributes of the location problem fully satisfies the SMART criterion thus making them fully applicable to the problem case for analytical decision-making purpose. The value tree shows that there are only two key divisions to the office location problem, which must balance,and perhaps results in a break-even, the cost and benefits must balance and in a normal business the benefits must be more than the cost incurred. Analytical Thinking And Decision Making Essay

3.4. Measurement of the Performance of Alternatives Relative to Attributes

In the value tree diagram, the attributes at the base of cost and benefits act as the main the areas of measurement of the alternative attributes. In this case; the cost of maintaining an office throughout a month presents a case of for measurement. Cost attributes entail; electricity, cleaning, and rent. The measurement can be summarized based on the current rates applicable to the market as follows;

Table 3.4.0 Measurement of performance of alternative attributes

Office Location Monthly rent ($) Monthly Electricity charges  ($) Monthly Cleaning charges ($)  Total monthly cost ($)
Newcastle 300 20 30 350
Liverpool 150 80 20 250
Charlottesville 50 70 10 130
Lakewood 120 110 10 240
China Town 300 230 25 555
Oxford 150 260 10 420
Kentucky 120 90 11 221

Measurement of performance of alternative attributes

Direct rating for office comfort ranked from the least preferred to the most preferred is presented below;

  1. China Town
  2. Oxford
  3. Kentucky
  4. Lakewood
  5. China Town
  6. Oxford
  7. Kentucky

Direct rating –assignment of values for office comfort Analytical Thinking And Decision Making Essay

In a scale of 10 to 100 points the comfort of offices in the locations identified are ranked as follows;

  • Oxford – 90
  • Kentucky -70
  • Charlottesville -60
  • Lakewood -55
  • China Town -40
  • Newcastle -20
  • Liverpool -5

Using a value function to assign values is presented below;

Diagram 3.4.1 Presents a value function for office space

Value function for office space

Based on the analysis of the value function, it is clear that office spaces are ranked with value, i.e., the bigger the office the high are the ranks regarding value. Based on the chart of the value function, most of those the locations ranked have almost similar spaces thus explaining the concentration of office value around 2000 on the value scale and 2500 in the office space, (x and y-axes). The larger the spaces, the higher the income while the smaller the scale, the smaller the income. However, beyond the breakeven point; y2000, x2500an increment in office space does not have any significant impact on the value. Analytical Thinking And Decision Making Essay

3.5 Determine the weighting of each attribute

After determining the value function in step 4, the determination of weight for each attribute becomes the next course of action in the decision analysis. The section also involves the determination of swing weights, which may prove to be important in the final decision (Burnard, 2014). The table below gives a summary of determination of weightings for different attributes.

Table 3.5.1 Determination of weights         

Attribute Office
China Town Kentucky Liverpool Oxford Lakewood Charlottesville Newcastle
Visibility 100 80 0 10 0 20 10
Closeness to customer 60 0 100 20 50 100 0
comfort 40 10 50 0 30 60 100
Space 20 20 30 100 40 0 10
Parking 0 10 50 20 100 20 60

 Determination of weights

 

3.6 Weighted Average of the value assigned to the alternative

Determining swing weights

In a scale of 0 to 100 a determination of swing, weights are carried out by assigning each attribute weight while ranking the locations from the best to the worst based on swing weights.

  1. Newcastle – best regarding visibility (100 points) but worse regarding parking space (0).
  2. Liverpool –ranked best regarding parking space (100), space (0)
  3. Charlottesville–ranked best in terms visibility (100), worse in comfort (0)
  4. Lakewood –ranked best regarding space (100), closeness to customers (0)
  5. China Town–ranked best regarding comfort (100), worse in visibility (0)
  6. Oxford –ranked best in terms closeness to customers (100), worse parking space (0)
  7. Kentucky –ranked best regarding visibility (100), worse in comfort (0)

The swing from the worst visibility to the best visibility is considered to be 100% thus when the business is not visible the chances of success can be as low as 0.

Based on the swing weights, the attributes that carry a lot of weight based on the five SMART criterion of decomposability, the absence of redundancy decomposability, operational efficiency, minimization of size, and completeness the top attributes that will lead result in profitability and success of the business is visibility (Philips-Wren et al, 2010). Analytical Thinking And Decision Making EssayOthers in the rank of importance to the least ones include; closeness to customers, apace, comfort, and parking.

Normalizing weights and the calculation of value

Attribute Original  weight Normalized weights Value * weight
Visibility 100 30 3000
Closeness to customer 80 26 2080
comfort 70 22 1540
Space 30 12 360
Parking 20 10 200
  300 100 7,180

Normalizing weights and value calculation

Aggregate benefits based on the calculation = 7180/100 = 71.80

 

3.7 Making provisional Decision

Based on the analysis of the various stages, the alternative locations have diverse scores with regards to various attributes based on the weights allocated to each one of them. Additionally, the weighted average results of the alternatives have indicated that visibility scores the highest points on the scale used to arrive at a decision. According to the analysis, provisional decision will be to base the new office in China town since it scores the highest points concerning the attributes that have the highest weight regarding value (Goodwin, 2014). Location of business in China Town will mean that it will be visible (100), closeness to customers (80), accessible (60), while comfort and space follow with 20 and 10 points rank respectively. Therefore, China Town will be a tentative choice since it scores the highest on important attributes. Analytical Thinking And Decision Making Essay

3.8 Performance of sensitivity analysis

Based on the analysis of section 7 above, it can be seen that China Town has the highest value regarding benefits because in the calculation of value (multiplication of value and the assigned weight) China Town emerges to be the better option. However, if the weight is below 60, then Kentucky and Oxford can as well foot the bill because they have the highest value. If the owner assigned 71.80 weight to the important attribute, then even Newcastle is worth considering because in aggregate it presents good returns owing to the weighted values as per the assigned values.

4.0 Strengths and Limitations of the Analysis

Given the analysis of the office location problem usingthe SMART technique, owing to its multi-objective nature, leading to a near accurate solution one can follow the procedure of application and establish various strengths and limitations of the method. Some of the strengths that can be deduced in the whole process of establishing the best location among the alternatives include; the fact that the technique allows for an analysis of various alternatives, it allows for multi-approach analysis, it is all rounded that it addressed issues that arise in the process of applying the technique. With regards to the technique allowing for the analysis of various alternatives, it is clear that it does not focus on the key issues about the problem along but it also addresses various other issues such as risk and uncertainty. In the mainstream decision-making, individuals and firms often make terrible mistakes on the course of their decision making because they rarely look at or analyze various alternatives. Failure to analyze alternatives may lead to a grievous mistake where the whole project collapses because someone took an option without the proper onus of analyzing various alternatives (Kallet, 2014). However, such mistakes are rare when SMART technique is applied because it takes into account various alternatives before deciding while listing down reasons why other options were rejected.Analytical Thinking And Decision Making Essay The uses of the technique also employ the use of both qualitative and quantitative approaches to a decision problem. Through the SMART approach, one can note that various attributes that are both quantifiable as well as those that are not quantifiable are subjected to the analysis. In the mainstream decision-making where nonanalytic techniques are used, it is always an uphill task to assign a value to qualitative attributes thus making decision process intriguing. However, it is not the case with SMART since it allows for the quantification of qualitative attributes which then allows for their rating and subsequent analysis via various statistical or probabilistic tools.

While analyzing the problem of office location through the application of SMART technique, there emerge various challenges, which perhaps accrue as limitations to the method. One of the challenges is with the rating method of attributes; the rating of attributes is largely based on assumptions that may result in a faulty decision. The case problem, office location, presents a practicable case where visibility is attributed equally to office space. Whereas office space can be measured and income be established based on an area it occupies, quantifying visibility in a similar manner yet it is immeasurable shows that the technique may be prone to mistakes. Additionally, the use of various steps of rating, weighting, averaging, presenting in diagrams, and finally an interpretation makes the technique cumbersome for decision makers (Lootsman, 2009). Some decision makers may find the technique to be highly technical thus not being able to use, or they may end up misapplying in an instance that they decide to use the system. On the same note, the technique may prove to be time-consuming as well as it may need some resources to be used up while establishing information about the decision problem thus making it disadvantageous for those who are resource constrained and those who have limited time to apply the technique. Analytical Thinking And Decision Making Essay

5.0 Reference List

Burnard, K.,2014. Analytical Thinking and Decision Making, Workbook.University of West of Scotland pub.

Decision That Involve Multiple Considerations 2014.University of the West of Scotland.

Explore the complex Analytical Decision Making Environment 2014. Lecture notes.

Probability Lecture notes 2014. University of the West of Scotland. Lecture notes

Scenario Planning and Alternative Decision support Systems 2014. Lecture Notes

Goodwin, P., & Wright, G. 2014. Decision analysis for management judgment. 5th ed.

Publication Chichester : Wiley.

Group Thinking in Analytical Decision Making. Lecture notes.

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Herath, G., & Prato, T. 2006. Using multi-criteria decision analysis in natural resource management. Aldershot: Ashgate Pub.

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Kallet, M. (2014). Think smarter: Critical thinking to improve problem-solving and decision-making skills. Hoboken, New Jersey: Wiley.

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Lootsma, F. A. 2009. Multi-criteria decision analysis via ratio and difference judgement. Boston: Kluwer.

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Phillips-Wren, G., Howlett, R. J., Jain, L. C., &Nakamatsu, K. 2010. Advances in Intelligent Decision Technologies: Proceedings of the Second KES International Symposium IDT 2010. Berlin, Heidelberg: Springer Berlin Heidelberg.

Analytical Thinking and Decision Making 2014 issue, Self-Assessment Question Booklet: Lecture notes.

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Zardari, N. H. 2014. Weighting methods and their effects on multi-criteria decision making model outcomes in water resources management.Cham: Springer.  Analytical Thinking And Decision Making Essay

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