Dynamic decision analysis is looking at the trade-offs between
the short run and long run consequences of current actions. (Hoch, et al., 2001)
As leaders, we are constantly looking at
the possible outcomes and immediate expectations which are sometimes at odds
with one another. For example, recently at work we had a shipping issue that
required two-weeks to resolve. Production told us that we had two days to
resolve it before it would negatively impact their schedule. We finagled,
begged, pleaded, and otherwise moved mountains to get the issue resolved in
time. It turned out that by rushing this process, the part in question was
damaged beyond repair and it ended up taking a month to get the part fabricated
and shipped again. The possible outcomes that we problem solved for did not
include rushing the order and having it crushed accidently. In did include
making sure that we took the time to have the right shipper handle it – one we
normally used and who understood how to package and handle the part. The
immediate expectations were that we needed to do whatever we could to get the
part here within 48-hours no matter the cost. We rushed the process and ended
up costing us he expediting fees, a new part, and the line stoppage of
production. In the end, we were the ones responsible for getting the part
safely to the factory and we failed. The short run consequences of doing the
right thing and stalling production a few days to ensure the part arrived
safely and in one piece were that production would be screaming at us for two
weeks or until the part arrived. The long run consequence was that the plane
would be built and the whole thing would be forgotten in a rush of new “emergencies.”
We must plan to learn. Don’t forget that the decisions one makes now can be
strategically used to help make better decisions in the future. (Hoch, et al.,
2001)
Precisely measuring how good (or bad) we are at making
dynamic decisions, however, turns out to be more difficult than one might
presume. The reason is that dynamic decision theory does not provide an
absolute benchmark for what optimal behavior should be in all situations.
(Hoch, et al., 2001) When my husband and I set about buying a house last year,
we had a fairly realistic set of “wants” and “don’t wants” in mind. We even
wrote out a list and brought it with us when we toured possible houses. These “wants”
included a big open kitchen, nice sized yard for a garden, big closets and
bathrooms, and a garage or shop for my husband to work out of. We also wanted
an older house with wooden floors and “personality” – no cookie-cutter houses
for us! After three months of searching and two offers that fell flat, we found
a place. I don’t know if it was because we were looking for houses in May in
South Carolina and the heat finally got to us but when we saw the huge
in-ground pool we were sold. We put in an offer almost immediately. This house
was older and in an older neighborhood with virtually no HOA and gorgeous old
oak trees dripping with Spanish moss. It also had wooden floors. That’s it. The
house we bought had roughly 1% of the things we had written down as desirable
attributes – but it had a pool…a big cool blue pool that was all we thought
about while we were waiting to close on the place. (Okay, all I thought about;
my husband was diligently going over inspection reports and being meticulous
about checking flood records and other house values in the area.)
The short run consequences of our decision to buy the house
with tiny closets and an inadequate kitchen would be that we would enjoy the
pool all summer long and grill outdoors. The long run consequences are that we
are now in a seemingly perpetual state of remodel. Slowly though, the house is
becoming more and more ours. In this case, we started our search for a house
with all the intents of pragmatic adults and ended up lured in by the sparkling
blue water of our pool. The conclusions found at the end of the chapter would
definitely help me in my decision making process but I’m afraid it wouldn’t
have changed us buying this house. That decision was really made with our hearts
because we really do love this house – it always had the potential to be the
house we wanted. [T]here is little tertiary evidence of widespread failures of
intuition… [g]iven this track record, the temptation is to conclude that our
intuitions will be sufficient for all dynamic decision problems. (Hoch, et al.,
2001) Obviously, buying this house could still prove to be a huge mistake
because human intuition is fallible and therein lies all the risk.
References:
Hoch, S. J., Kunreuther, H., Gunther, R. E., & Wharton
School. (2001). Wharton on making decisions. New York: Wiley.
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