Title: Strategic Decision Making: Multiobjective Decision Analysis with Spreadsheets
Author: Craig W. Kirkwood
Year: 2002
Category: Decision Making

Summary

Introduction to Strategic Decision Making

Craig W. Kirkwood’s “Strategic Decision Making: Multiobjective Decision Analysis with Spreadsheets” delves into the methodology and tools for making strategic decisions using multiobjective decision analysis, facilitated by spreadsheet software. The book is structured to guide the reader through the intricate processes involved in decision-making, explaining both theoretical concepts and practical applications.

1. Multiobjective Decision Analysis (MODA) Framework

Major Points:
– Definition and Importance: Multiobjective Decision Analysis is the process of evaluating and prioritizing choices when multiple criteria or objectives are involved. This framework is essential for strategic decisions because it systematically accounts for diverse factors that impact outcomes.
– Steps in MODA: Kirkwood outlines a structured approach: defining objectives and criteria, generating alternatives, evaluating these alternatives against the criteria, and synthesizing results to make a decision.

Actionable Advice:
– Establish Clear Objectives: Identify and define the key objectives you aim to achieve. For each decision scenario, delineate the primary criteria that matter, ensuring they are Specific, Measurable, Achievable, Relevant, and Time-bound (SMART).
– Example: A company deciding on a new product line may establish criteria such as profitability, market share, development cost, and compatibility with existing products.

2. Constructing Decision Models Using Spreadsheets

Major Points:
– Utility of Spreadsheets: Spreadsheets like Microsoft Excel are invaluable for decision analysis due to their versatility, computational power, and wide usage in business environments.
– Model Construction: Kirkwood illustrates how to set up decision models, including input data setup, calculation of objective scores, and incorporation of weights for different criteria.

Actionable Advice:
– Leverage Spreadsheet Tools: Utilize features like Excel’s Data Tables, Solver, and PivotTables to model various scenarios and analyze sensitivity.
– Example: For a project selection decision, create a spreadsheet that lists all projects along one axis and criteria along the other. Populate it with quantitative measures for each criterion and use Solver to find the optimal project mix based on weighted objectives.

3. Generating Alternatives

Major Points:
– Brainstorming Alternatives: Effective decision-making requires generating a comprehensive set of alternatives that address the defined objectives.
– Creative Techniques: Kirkwood suggests using brainstorming sessions, Delphi methods, and scenario planning to expand the pool of alternatives.

Actionable Advice:
– Expand Your Options: Don’t settle for the obvious choices. Employ brainstorming sessions with diverse teams to uncover hidden alternatives.
– Example: In urban planning, consider multiple development strategies ranging from high-density housing to mixed-use spaces, integrating feedback from community stakeholders for broader perspectives.

4. Measuring Performance Against Objectives

Major Points:
– Quantitative and Qualitative Measures: Both types of measures are important. Quantitative data provides hard numbers, while qualitative assessments add context.
– Normalization of Scores: To compare different criteria fairly, scores must be normalized, typically on a common scale like 0 to 1.

Actionable Advice:
– Develop Consistent Metrics: Establish clear and consistent methods to measure how well each alternative meets each criterion. Normalize scores to facilitate objective comparison.
– Example: In evaluating technology investments, use quantitative measures like Return on Investment (ROI) and qualitative assessments such as user satisfaction. Normalize these scores to combine them effectively.

5. Weighting Criteria

Major Points:
– Assigning Weights: Different criteria often hold varied levels of importance, which must be reflected in the decision model by assigning appropriate weights.
– Techniques for Weighting: Methods such as pairwise comparison, rank-ordering, and weighting scales are discussed to help decision-makers assign weights objectively.

Actionable Advice:
– Prioritize Criteria: Use techniques like the Analytic Hierarchy Process (AHP) to determine the relative importance of each criterion based on stakeholder inputs.
– Example: When choosing a supplier, prioritize criteria like cost, quality, delivery reliability, and environmental impact. Use AHP to derive weights that reflect these priorities.

6. Synthesizing Results to Make a Decision

Major Points:
– Aggregating Scores: Combine the weighted scores for each alternative to obtain an overall score indicating its desirability.
– Sensitivity Analysis: Assess how changes in weights and scores affect the final decision to ensure robustness.

Actionable Advice:
– Calculate Composite Scores: Use a weighted sum approach to aggregate scores for each alternative and identify the most promising option.
– Example: For selecting a business location, aggregate scores for cost, accessibility, infrastructure, and growth potential. Perform sensitivity analysis to check if slight changes in weights or scores alter the preferred location.

7. Dealing with Uncertainty

Major Points:
– Uncertainty and Risk Analysis: Incorporate uncertainty into decision models using techniques such as probability distributions, scenario analysis, and Monte Carlo simulations.
– Risk Management: Identify potential risks and develop strategies to mitigate or manage those risks.

Actionable Advice:
– Prepare for Uncertainty: Implement Monte Carlo simulations to understand the range of possible outcomes and their probabilities.
– Example: In investment decisions, use probability distributions for projected returns and run Monte Carlo simulations to gauge the risk of different investment portfolios.

8. Communicating the Decision Process

Major Points:
– Transparency and Documentation: Clearly document decision models, assumptions, and results. Use visual tools like charts and graphs to make data comprehensible.
– Stakeholder Involvement: Engage stakeholders throughout the process to gather input and ensure buy-in.

Actionable Advice:
– Enhance Clarity: Use visual aids like decision trees, influence diagrams, and heatmaps to present findings and rationales transparently.
– Example: In a corporate restructuring decision, create and share a detailed decision tree with all stakeholders, highlighting key decision points and projected outcomes.

Conclusion

Craig W. Kirkwood’s book serves as a comprehensive guide for anyone involved in making complex, strategic decisions. By emphasizing structured approaches, the effective use of spreadsheets, and thorough consideration of multiple objectives, Kirkwood provides a practical toolkit for optimizing decision processes. By applying these principles to various real-world scenarios, decision-makers can enhance their ability to navigate complex choices, ensuring decisions are well-informed, balanced, and aligned with strategic goals.