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Unformatted text preview: ncouraged, formalised and well
supported, and employees are generally satisfied with their companies’ investment
appraisal process. Then the decision-maker relies on the results from the analysis
to make decisions. This is not to say that the decision is taken solely based on the
analysis. Decision-making will always be ultimately an act of judgement. However, since the decision-maker has been involved in generating the analysis,
then its results are unlikely to contradict his/her subjective judgement about the
particular investment opportunity. At the very least though, the analysis informs
the decision. If the analysis suggests that a project is not viable, and the decisionmaker still wants to go ahead, because of some bias or feeling that he/she has not
been able to articulate and include in the analysis, they are doing so well informed
about the potential consequences.
In companies where managers are unconvinced about the value of decision
analysis, the company is largely “opinion-driven” and the use of decision analysis
is not formalised or encouraged. Decisions in these companies are perceived by
the employees of the organisation to be influenced more by opinion and “feeling”
than numerical analysis:
“…And if you go through a structured decision process and you calculate an
EMV and it is highly negative but your guts say this is a good thing to do…
you’ve then got two choices … you can then go back and fiddle the numbers
or you can just overrule the result and say that this is strategically good for
“…I have seen …bidding strategy meetings held with senior management
where you would come forward with all of these [decision analysis]
evaluations and there the psychology in the meeting would override many
149 times the logic that had been developed using these probabilistic numbers.
Somebody likes something and suddenly the money would double. I saw that
many times.” (G).
The observations above have been summarised in table 6.1.
MANAGEMENT UNDERSTAND DECISION
The decision analysis approach used by the company
is formalised. Often manuals are available to
employees. The manuals detail how the limitations and
gaps in the techniques (for example, the distribution
shapes to be used in Monte Carlo simulation) are to be
Decision analysis software available throughout the
Organisation. MANAGEMENT DO NOT UNDERSTAND
The decision analysis that is conducted is likely to
be lacking in definition, structure and
sophistication. Employees are given no direction as
to how to deal with the limitations of the analysis
techniques. Employees know the decision policy used by the
Consistent definitions of risk and uncertainty.
All employees have the ability to understand and
communicate probabilistically. Employees do not know the decision policy used by
No company definitions of risk and uncertainty.
Definitions change within and between
Employees prefer to communicate
deterministically. Good communication between the departments
compiling the analysis. Poor c...
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- Summer '14
- The Land