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Strategic Decision Making for Multiple Stakeholders

Learn how to make smart choices by involving all stakeholders, setting clear objectives, and creating alternatives that align with your values and priorities.

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Strategic Decision Making for Multiple Stakeholders

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  1. Multiple Objective Decisions Involving Multiple Stakeholders L. Robin Keller, MBA, PhD Professor of Operations & Decision Technologies University of California, Irvine Editor-in-Chief, Decision Analysis Jay Simon, PhD Defense Resources Management Institute Naval Postgraduate School Yitong Wang Operations & Decision Technologies University of California, Irvine • Tutorial, INFORMS Annual Conference, October 2009

  2. “Today, I’m going to tell you all you’ll need to know about ‘decision analysis.’” • BERRY’S WORLD reprinted by permission of Newspaper Enterprise Association, Inc. • From Society for Medical Decision Making Newsletter, Sept. 1996

  3. The Structure of “Smart Choices” Problem Objectives Alternatives Consequences Tradeoffs

  4. Work on the Right Problem: The way you frame the problem determines how you find a solution Which bookkeeping software should we use? OR How should we keep our books? Be flexible, “play” with the problem, talk to others, seek advice Include all major stakeholders to create “buy-in” Working on the wrong problem is one of the main reasons why a decision analysis is not implemented • Do A? • Do B?

  5. Specify Your Objectives A decision is a means to an end Objectives play a central role (“value-focused thinking”) If you don’t care, you don’t have a problem If you don’t know where you’re going, you might end up somewhere else Objectives guide all phases of the decision making process (including what information to seek and what other people to involve) Be creative and think without constraints • Obj. 1 • Do A? • Obj. 2 • Do B?

  6. A Single Set of Objectives • DESCRIBE YOUR IDEAL JOB

  7. STRUCTURE FUNDAMENTAL OBJECTIVES IN OBJECTIVES HIERARCHY • Obtain ideal job • Convenient • Location • Max. Salary • Max. Long-term • Potential • Min. Travel • Time in • Daily • Commute • Max. • Base • Salary • Max. • Bonus • Max. • Opportunity • to Move Up • Max. • Interest in • Job Tasks • Closest • Proximity • to Friends

  8. Properties of Hierarchy of Objectives • 1. The objectives on the lowest level of the hierarchy can be used to evaluate possible consequences by creating a scale to measure them. • Max. SALARY • Max. BASE • SALARY • Max. • BONUS • It is wise to specify the direction (maximize/minimize/maintain) that makes your attainment of the objective better. • A consequence with a specific job might be a salary level of $100,000 and a bonus level of $50,000. Do not put the different possible salary levels at the bottom of the hierarchy. • We will see that you can attach a rating to how good the level is (i.e., salary level of $100,000). • The rating may be qualitative (+, -, 0 in StarKist case) or numerical (from -2 to +2 in INFORMS merger).

  9. “It’s not hard to make decisions when you know what your values are.”Roy Disney • Decision Analyst • Ralph Keeney • advises us to practice • Value-Focused Thinking • Thinking about what we value as expressed in our objectives

  10. Keeney’s Personal Objectives • Maximize my quality of life • 1. Enjoy life • 2. Be intellectually fulfilled • 3. Enhance the lives of family and friends • 4. Contribute to society • Keeney (1992), Value Focused Thinking

  11. Keeney’s Professional Objectives • Maximize the contribution of professional activities to… • my quality of life • 1. Maximize enjoyment • 2. Maximize learning • 3. Provide service • 4. Enhance professional career • 5. Maximize economic gain • 6. Build good professional relationships • 7. Minimize the time required 7.1. Minimize time required where I live 7.2. Minimize time required away from home • Keeney (1992), Value Focused Thinking

  12. Objectives for Keeney’s son’s name 1. Single spelling 2. Not a unisex name 3. Reasonable initials 4. Understandable pronunciation 4.2. With last name 4.3. With middle and last name 5. No obvious “unwanted” nickname 6. Not unique 7. Not extremely common

  13. 8. Not religious 9. Not named after anyone 10. Has a nice rhythm 10.1. With last name 10.2 With middle and last names 11. Nice-sounding in foreign languages 12. Appealing (i.e., you feel predisposed to talk to or meet the person) 13. No “ee” sounds • Objectives for Keeney’s son’s name

  14. 8. Not religious 9. Not named after anyone 10. Has a nice rhythm 10.1 With last name 10.2 With middle and last names 11. Nice-sounding in foreign languages 12. Appealing (i.e., you feel predisposed to talk to or meet the person) 13. No “ee” sounds Keeney (1992), Value Focused Thinking • Objectives for Keeney’s son’s name • The Winning Name is • Gregory

  15. Create Good Alternatives No decision can be better than the best alternative Use your objectives to create alternatives Don’t get stuck with “obvious” alternatives (they might be obvious, but they might fall short of being the best) Look for combinations of alternatives (think win-win) • DoA • Do B • DoC

  16. Understand theConsequences Knowing where you want to go (objectives) and having means to get there (alternatives) allows you to describe and understand your destinations Lay out all consequences in a spreadsheet that describes how each alternative performs on each objective Study the consequences, they might help you consider more objectives and create more alternatives • Do A • DoB • Do C

  17. Grapple With YourTradeoffs Usually no one alternative outperforms all others on each objective Finding the best (albeit not perfect) alternative requires tradeoffs Tradeoffs depend on how you prioritize your objectives You can make these tradeoffs by weightingobjectives by their importance

  18. Perspectives of Multiple Stakeholders can help… • -identify mutually agreeable alternatives • -foresee opposition to decisions • -design new & better alternatives • -understand the evolution of past decisions from multiple perspectives

  19. Multiple-Stakeholder Decision Making The StarKist Tuna Fishing Decision • Stakeholders • San Diego • Tuna Fishing Fleet • http://www.sandiegohistory.org/journal/81fall/images/piva.jpg • http://www.earthisland.org/index.php/donate/ • Competitors • Monika I. Winn and L. Robin Keller, “A Modeling Methodology for Multi-Objective Multi-Stakeholder Decisions: Implications for Research," Journal of Management Inquiry, vol. 10, no. 2, June 2001, 166-181.

  20. DECISION ALTERNATIVES • Legal Quota • Maintain current practices and stay within legal limits • Limited Mortality • Step up efforts to reduce the number of dolphins killed • Zero-Mortality • No fishing associated with setting nets on dolphins

  21. Decision Alternatives Rated with • StarKist’s “Business-As-Usual” ObjectivesHierarchy

  22. Decision Alternatives Rated for Fishing Fleet

  23. Decision Alternatives Rated for • Environmental Interest Groups

  24. StarKist’s “Strategic Planning” Objectives Hierarchy

  25. StarKist’s “Crisis Mode” Objectives Hierarchy • StarKist’s (1991) Dolphin Safe Policy • "StarKist will not buy any tuna caught in association with • dolphins in the Eastern Tropical Pacific."

  26. MERGER DECISION ANALYSIS OF POTENTIAL MERGER OF OPERATIONS RESEARCH SOCIETY OF AMERICA (ORSA) AND THE INSTITUTE OF MANAGEMENT SCIENCES (TIMS) L. ROBIN KELLER AND CRAIG W. KIRKWOOD, “The Founding of INFORMS: A Decision Analysis Perspective,” Operations Research, Vol. 47, No. 1, January-February 1999, 16-28. http://www.informs.org

  27. ORSA/TIMS COOPERATION ALTERNATIVES SEP: SEPARATION OF ORSA & TIMS SQ: STATUS QUO PARTNERSHIP SM: SEAMLESS MERGER M2: MERGE WITH ORSA/TIMS AS SUB-UNITS M3: MERGE WITH NO ORSA/TIMS SUB-UNITS; SUB-UNITS ARE REPRESENTED ON BOARD

  28. ORSA/TIMS MERGER OBJECTIVES FIVE MAIN CATEGORIESIMPROVE COST EFFICIENCYENHANCE QUALITY OF PRODUCTSESTABLISH STRONG EXTERNAL IMAGEMAINTAIN SCOPE/DIVERSITY OF FIELDIMPROVE OPERATIONS • Elicited stakeholders’ objectives & combined them into 1 hierarchy

  29. ADD BRANCHES TO MAIN CATEGORIES • IMPROVE COST EFFICIENCY • MAINTAIN ALLOCATE WELL MAINTAIN • EFFICIENT REVENUES AND EFFICIENTUSE OF FUNDS EXPENSES USE OF • TIME • EXPLOIT BALANCE DUES REMOVE • ECONOMIES RATE & FEE- DOUBLED • OF SCALE FOR-SERVICEDUES

  30. 1.1 Maintain efficient use of funds • 1.2 Allocate well revenues/expenses to • 1. Improve cost efficiency of • activities/entities • TIMS/ORSA operations • 1.3 Maintain efficient use of time of volunteers • 2.1 Provide high quality main and specialty • conferences • 2.2 Provide high quality publications • 2.3 Provide appropriate career services • 2. Enhance the quality of ORSA • and TIMS products • 2.4 Provide support for sub-units • 2.5 Provide other member services • MAXIMIZE OVERALL • VALUE • 3.1 Increase visibility and clout of OR and MS • 3. Establish a strong & coherent • external image of field • 3.2 Foster professional identity • 4.1 Maintain/improve membership composition • 4. Manage the scope and diversity • of the field • 4.2 Create strong relationships with other societies • 5.1 Maintain/improve quality of governance process • 5. Maintain/improve effectiveness • of ORSA and TIMS operations • 5.2 Maintain/improve quality of operation output

  31. VALUE RATING SCALE 2: SEEN BY AVERAGE MEMBER AS IMPROVED 1: SEEN BY OFFICERS AS IMPROVED BUT NOT BY AVERAGE MEMBER 0: NO CHANGE -1: SEEN BY OFFICERS AS WORSE -2: SEEN BY AVERAGE MEMBER AS WORSE

  32. INTERPRETATION OF “MEASURABLE” VALUE RATINGS STRENGTH OF PREFERENCES IS REFLECTED IN DIFFERENCES OF VALUES DEGREE OF IMPROVEMENTFROM 0 TO 1 IS THE SAME AS FROM 1 TO 2

  33. JUDGED VALUE RATING SCORES • JUDGED VALUE RATING • ON ALTERNATIVES • OBJECTIVES • SEP • SQ • SM • M2 • M3 • 1. IMPROVE COST EFFICIENCY • 1.1 MAINTAIN EFFICIENT USE OF FUNDS • 1.1.1 EXPLOIT ECONOMIES OF SCALE • -2 • 0 • 1 • -1 • 1 • 1.1.2 BALANCE DUES RATE AND • -2 • 0 • 1 • -1 • 1 • FEE-FOR-SERVICE • 1.1.3 REMOVE DOUBLED DUES • -1 • 0 • 2 • 1 • 2

  34. WEIGHTS FOR OBJECTIVES SUM OF WEIGHTS IS 1OO% FOR ALL LOWEST LEVEL OBJECTIVES OBJECTIVE’S WEIGHT DEPENDS ON RANGE ATTAINABLE ON OBJECTVIVE Use a SWING WEIGHT Interpretation Assume a weighted Additive Model (check independence conditions required for additive model) DECISION MAKER JUDGES WEIGHTS ON OBJECTIVES

  35. COMPUTE WEIGHTED AVERAGE OF VALUE RATINGS MULTIPLY OBJECTIVE’S WEIGHT TIMES VALUE RATING ON EACH OBJECTIVE SUM UP OVER ALL OBJECTIVES (Use SUMPRODUCT function in Excel) RECOMMENDED OPTION IS ONE WITH HIGHEST OVERALL VALUE

  36. RESULTS OF MERGER DECISION ANALYSIS OFFICERS TENDED TO PREFER MERGER3 ALTERNATIVE, WITH SUB-UNIT BOARD REPRESENTATION VOCAL OPPONENTS WOULD COMPROMISE ON SEAMLESS MERGER, WITHOUT SUB-UNIT BOARD REPRESENTATION, AS LONG AS NEW NAME RETAINS “OPERATIONS RESEARCH”

  37. OUTCOME OF DECISION OFFICERS PRESENTED SEAMLESS MERGER RECOMMENDATION TO MEMBERS MEMBERS VOTED TO MERGE MERGER TOOK PLACE JAN. 1ST, 1995 NAME IS INSTITUTE FOR OPERATIONS RESEARCH AND THE MANAGEMENT SCIENCES (INFORMS) inf orms

  38. Home Depot Case • Sell Land? • Feng, T., L. R. Keller, X. Zheng. 2008. Modeling Multi-Objective Multi-Stakeholder • Decisions: A Case-Exercise Approach. INFORMS Transactions on Education8(3) 103-114, • (online: http://ite.pubs.informs.org/). http://www.informs.org/site/ITE/article.php?id=66, • supplemental files: HomeDepotTeachingNote.pdf (for instructors), • HomeDepotCase.xls , SummaryofHomeDepotCase.xls.

  39. Background Home Depot proposed to open a retail store in San Juan Capistrano, CA to offset Lowe’s move to San Clemente. The new store would be located on a 15.26 acre property in a strip of industrial land. Home Depot had purchased two acres of this land. The rest of the land was owned by the city, and would need to be acquired.

  40. Background The city would get $9 Million if it sells Home Depot the 13 acres. Many were concerned that a “big box store” would destroy its historical small town feeling. Nearby residents also worry that a Home Depot would cause traffic jams, pollute the air, produce noise and block ocean breezes.

  41. Stakeholders The city of San Juan Capistrano: likes the potential revenue, but concerned with interests of multiple stakeholders Competing local small businesses: will be influenced by the arrival of Home Depot in terms of profit, etc. Complementary local small businesses: will definitely be affected in terms of profit, etc. Home Depot Nearby residents: concerned with the possible adverse impacts on their quality of life Other area residents: will enjoy the convenience, but may suffer from the possible increased traffic flow

  42. Alternatives for Land Use • Build Home Depot • Don’t develop the land • Build a recreational vehicle park • Build specialty retail facilities

  43. Spreadsheet Structure for Each Stakeholder • Improve the City of San Juan Capistrano

  44. Home Depot in San Juan Capistrano? A Sample Spreadsheet to Evaluate the Home Depot Case Excel file (HomeDepotCase.xls) Make sure to choose "enable the macros" when you open the spreadsheet. If you still have the problem of adjusting the sliders due to the security level after that, please go to the menu of "tools->macro->security", switch the security level from high to medium, save the file, then close the file and finally reopen the file and it should work.

  45. Fill in table with new entries • Improve the City of San Juan Capistrano • Promote convenience of shopping • Promote convenience of shopping

  46. Complementary Local Small Businesses- • Representative Hierarchy of Objectives

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