Decision Modeling - The Basics (2)
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In this presentation I’ll discuss our decision modeling methodology.
The core of any decision is the goal, or statement of the problem that you are trying to solve. A well articulated goal is rare and we often use the modeling process to refine it with the decision stakeholders.
There are two elements of the methodology; model and constraints.
Objectives are prioritized based on those that contribute most to achieving the goal. These weighted Objectives are used to rank the various decision alternatives. These are the alternative choices you have for fulfilling the objectives, which then drive the goal. These choices can be a prioritized list, such R&D projects... or it can be a list of choices to select from in order to determine which is best, such as a design architecture for a new product.
Finally, we apply the constraints, such as cost, risks, and resources in order to determine the most cost effective solution.
The prioritized alternatives are what we want to achieve, assuming there are no constraints, such as limited funds. Then we determine the impact that these constraints might have on the prioritized list of alternatives. This could cause our list of options to change or get re-prioritized. For example, I have five projects I want fund, I prioritize them based on my business objectives. Then I apply my R&D budget constraint and find that I can only do three. The cost-benefit analysis tells me which three out of the five generate the greatest benefit--those are the ones I fund.
Lets look at the modeling process in greater detail. As I said earlier, this modeling process can be used to prioritize alternatives, and/or to select the best alternative. Most decisions involve three elements; “what” you are trying to achieve or the “goal,” next are the “wants” or “objectives” or some type of decision criteria for evaluating the “alternative” choices. We also call these alternatives the “hows” or in other words, these are “how” you are going to fulfill the “wants” that then drive the goal.
We use this construct for many different things, such as facilitating strategic decisions, prioritizing customer and product requirements through voice-of-the-customer analysis, and prioritizing new product development portfolios... to name just a few. We find that many problems involve the interaction between goals, objectives, and alternatives.
In summary, this is a process for prioritizing “what we want to do” and then to determine “what we can do,” based on what we can afford. In other words, what adds the greatest value and how can we achieve the most benefit for the lowest cost? This is the fundamental problem that most organizations face today.
It’s a group process designed to generate communication and interaction between stakeholders in order to reach consensus. In many instances, we’ve found that 20% of alternatives generate 80% or more of the benefit. Knowing which 20% to focus on is the trick, and the real value of this modeling process.