Decision making under risk and uncertainty-A most prevalent situation in any business scenario
To be storm proof, the business needs to be based on right inputs and controlled process conversions. This can be made possible only if the management strategy that is being formulated is based on certain tried and tested techniques that are able to provide a good spectrum of information and a procedure to churn and utilize the obtained information to the best under certain or uncertain conditions. Here the need for the techniques formulated keeping operations research as a basis ,become real handy and assist the strategists to reach a pareto optimal solution before a strategy implementation decision is made. The techniques are Decision Making under Risk (DMUR) and Decision making under Certainty (DMUC).
The techniques are powerful enough to take into account probabilistic and deterministic situations through definitive criterions viz optimism criterion, pessimism criterion, equal probabilities criterion, coefficient of optimism criterion and regret criterion. But these criterions would make an implementation sense only if they are thought in line with the policy of the organization which actually forms the basis for the selection of any one criterion for further drill down.check more information at http://www.efsa.europa.eu/en/aboutefsa/keydocs.htm.
This gets very important and critical when we focus on improving productivity, keeping the bottom line contribution in focus as the implementation tends to lose focus, if the strategic perspective of the situation is not given due consideration. The above techniques make the base for an implementation robust enough to take critical decisions and then help in probabilistic prioritization of the strategy on which the implementation in terms of the systems and processes needs to be done for a sustainable productivity increase.
It would not be wrong to highlight at this point as to how critical a delink between strategy and operations implementations could be and how disastrous the results could be in case the implementation is taken into consideration keeping only the operations in perspective. Experience has shown that with just an operations focus without a strategic interphase could tend to ignore the futuristic benefits that could be expected .This gets better once the base is strengthened through DMUR and DMUC. The operational improvements need to be in line with the strategic initiatives and that is the success mantra for any organization.
Now the question arises as to how to make the DMUR/DMUC work more accurately when the techniques are based on probabilistic inputs .Well here we should be looking forward to using the analytics which is a science that allows us to disintegrate and analyze the secondary data for the trends and produce controlled forecasts which could very well be assessed along with the on floor information obtained as part of the on sight study within the organization on a particular problem being addressed ;and thus quantifying the same for marking the tradeoffs under various strategy heads.
Here it is not to be equated to the “Game Theory”, as the fundamental principles being followed for a Game Theory are different from the procedures defined under the DMUC and DMUR .This is because when using the DMUC and DMUR we are concentrating more on the internal strategic measures and not on comparing the in-house strategy with that of the competitor. This is the reason why the methodology is more effective in an Implementation scenario where the organization is focusing on delivering results through the integration of the Systems-
Processes and People.
From an operations & strategy consulting perspective, basing the implementation on the standardized techniques like the DMUR/DMUC in conjunction with Analytics could act as a robust decision making platform and for sure deliver committed improvements. The most prevalent situations in business, keeping the risk and certainty in perspective can very well be handled through the above mentioned approach and will reap results in a long run. The only thing that needs to be kept in mind while applying the approach is the data source and its obtainance.
As the DMUR/DMUC in conjunction with analytics are data dependent, the probability analysis ,the strategy fine tuning and formulation for an implementation could get very misleading if the data utilized is corrupt or has not been obtained through an authorized channel. Experience has shown that sometimes even the giants in a particular business do not have a substantive recording mechanism and most of the strategy and implementation exercises are more based on perceptions and gut feels. This helps, but should not be a basis for a strategy build up or an implementation program otherwise it could turn disastrous.follow this website for more information.
In a nutshell, DMUC & DMUR could act as very strong approaches to building up a base for a strategy implementation program that needs to deliver committed results within a stipulated time period.