Big Sky Thinking

I ran accross an interesting post today while reviewing Alltop's Operations Research page on how Heathrow Airport has fixed its initial problems with wait time.  According to the Think Operations Research author, Heathrow has posted key performance measures in plain view for everyone to see, on giant screens:

Labels: lean, performance measures

We have received great feedback from our readers on our series on decision traps, and they are also among our most read articles on this blog.  I ran accross an article today that discusses the real-world consequences of those traps: the $50B Ponzi scheme orchestrated by the former head of the NASDAQ.  For those of you who think that some people are too smart to fall into those traps, read this great analysis by Ken Hoffberg.   

Labels: analysis, decision traps, decisions

The term Accidental Architecture was coined in a paper published by the University of Kent that discusses the evolution of IT architectures over time and the complex issues surrounding legacy systems. The term has come to represent how narrowly focused technology investments result in an enterprise IT infrastructure that is both complex and challenging to manage. In most organizations, functional units drive IT investments in areas such as procurement, operations, and service delivery. Oftentimes, these IT systems are built to meet ‘local’ requirements and are not thought of as an enterprise-class solution that will interact with other systems and platforms. The net result of these siloed IT investments is an “Accidental Architecture”.

This is not to say that each individual solution is not well-architected, nor that if fails to meet the defined business need, but rather that at an enterprise level the architecture becomes ‘accidental’ as it is dictated by the provincial IT and business decisions that created it. In essence, IT decisions are made without evaluating their full impact on the enterprise and without an eye to the bigger picture, thus creating information gaps in the value chain. This is a missed opportunity to improve information quality, drive new efficiencies, and enable collaboration to provide additional value to the customer or end user. The end game here is to eliminate the information gaps to improve decision-making about operations, investments, and the execution of the organization’s mission.

So how do we avoid the pitfalls of an accidental architecture? We take a move out of Steven Covey’s playbook and ‘begin with the end in mind’. If our goal is to eliminate islands of information and barriers to collaboration, then we require a solution that promotes interoperability. The way to achieve this goal is to adopt enterprise standards that specify how different applications will interact and that also bridges the gaps between different platforms. We recommend adopting the IT principles commonly known as Services Oriented Architecture (SOA). SOA is an architectural style that is based on a set of evolving standards (some of which are mature, e.g. SOAP) that provide a framework for the development of Web services.

SOA provides the tools to manage Web services and specifies the means for service integration and interoperability. This allows developers to create the applications they need to solve business problems without having to worry about application integration issues down the road. This effectively separates the infrastructure from the application, which provides flexibility, reduces development costs, increases re-use, and allows the organization to deploy solutions that work across the enterprise.

As organizations move toward a Services Oriented Architecture, they often take an incremental approach and work to meet a discreet need before implementing web services on a large scale across the entire enterprise. A case study of ING Bank’s first SOA implementation is discussed in “The SOA Magazine” and gives a good overview of the process and lessons learned.

We've previously posted about the importance of using visuals to make decisions. I ran across an excellent post by Jon Peltier at PTS blog that provides a very useful overview of the new charting functions in excel. For those of us who use excel frequently to manage and present data in support of decision-making, a solid understanding of the new 2007 features are a must-have. Thanks, Jon.

Labels: decisions, excel, visuals

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the final trap, the “The Estimating and Forecasting Trap”. Even though most of us are not very good at making estimates, we tend to be overconfident about our accuracy – which can lead to bad decisions. There are three different traps that can have a particularly distorting effect in uncertain situations because they cloud our ability to assess probabilities.

1. The Overconfidence Trap – Tend to be overconfident about our accuracy
   


2. The Prudence Trap – Over-cautiousness or prudence
   


3. The Recallability Trap – Base predictions of future events on the memory of past events.
   

Big Sky sees this trap in our clients especially when executives have strong domain or market experience. In addition, because very experienced people have excellent instincts, they can overlook trends that change the implicit assumptions in their mental decision-making process. For example, Clayton Christensen’s work on Innovation shows how the excellent customer-focused instincts of executives can actually crush the development of new, market-changing products. You can read more about Christensen’s “Innovator’s Dilemma” here.

Techniques to overcome:

1. Start by considering the extremes, the low and high ends of the possible range of values
   


2. Challenge estimates of your subordinates and advisers (overconfidence trap)
   


3. Always state your estimates honestly and explain to anyone if or not the estimates have been adjusted (prudence trap)
   


4. Carefully examine all your assumptions to ensure they’re not unduly influenced by your memory (recallability trap)
   

Closing thoughts on Decision-Making:

When it comes to business decisions, there’s rarely such a thing as a no-brainer. Our brains are always at work, sometimes, unfortunately, in ways that hinder rather than help us. At every stage of the decision-making process, misperceptions, biases, and other tricks of the mind can influence the choices we make.

The best protection against all psychological traps – in isolation or in combination – is awareness. Forewarned is forearmed. Even if you can’t eradicate the distortions ingrained into the way your mind works, you can build tests and disciplines into your decision-making process that can uncover errors in thinking before they become errors in judgment.

Labels: decision optimization