A Pyramid of Decision Approaches by Paul Schoemaker and Edward Russo

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A Pyramid of Decision Approaches by Paul Schoemaker and Edward Russo

This Discussion is based on the article, “A Pyramid of Decision Approaches” by Paul Schoemaker and Edward Russo from California Management Review available in the Library. Make sure to read this article before starting the Discussion.

While analytics is very valuable, it is not practical to fully analyze every decision situation. In the fast pace of the business world, you will often allow decision rules of thumb to replace proper analysis. Making decisions based on these allows businesses not only to save time but also to take advantage of the expertise and experience of those who developed the shortcuts.

The article you will read this week is fairly long and covers various approaches to decision making. You will first focus on the discussion on rules of thumb that starts on page 12. Then, you will question your own organization’s use of these and see if you can find improvements. Alternatively, you can propose a new rule of thumb to address a decision situation.

For this Discussion, you will apply the steps listed on page 15. Please use the template below in your answers so everyone can easily follow your answers to all the questions (copy and paste to your post).

Use this template for your Unit 2 Discussion

Beginning: What is an important decision that needs to be made frequently and quickly?

  1. What is the decision to be made? (it needs to be a specific decision- things like “satisfy the customer” are too general, but “how many workers should I send” is specific)
  2. How frequently does this decision need to be made? (it should be fairly frequent to justify a quick approximation)
  3. The analysis: (if time was not an issue, what in-depth analysis would be required to make this decision?)

(Refer to Exhibit 1 in the article for many examples of decision situations and decision shortcuts from real life. Notice that all these examples would require in-depth analysis, but managers are using “rules of thumb” to accelerate the decision at the cost of potential mistakes. Also note that these are all decisions, not simply rules or procedures: How much to mark up prices, how many rooms to overbook, how to evaluate the quality of an article, etc.)

Step 1: The decision analysis shortcut

The decision analysis shortcut (rule of thumb):

Describe the rule of thumb that is being used to make this decision without conducting a full analysis every time. If there is not one, what rule of thumb would you recommend to be used to make the decision without a full analysis?

Make sure that your example is designed to replace a lengthy analysis in a decision situation.

Step 2: Success example

Give an example of where this decision analysis shortcut comes close (or would come close, if the rule is new) to the correct decision.

Step 3: Failure example

Give an actual example of where it failed badly and explain why (or where it may fail badly, if you are suggesting a new rule).

Step 4: Improvements

Suggest possible improvements to the decision analysis shortcut. How can analytics help in avoiding failure? (You can skip this step if the rule is new.)

Step 5: Testing

Describe how the new decision analysis shortcut would be tested before being implemented organization-wide.