UNIVERSITY OF WEST OF SCOTLAND

(UWS)

Analytical Thinking and Decision Making

Group Assignment

SUBMITTED BY:

SIVA SHARMA B00339723

KAIFI SAHAR B00340098
NIZAMUDDIN DEVULCHERUVU B00340101
NAOUE DEMBELE B00340100

Supervisor: U. V. Mohan

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Table of Contents

1 Decision analysis within the context of an organization ……………. 3

2 Challenges and assumptions we made ……………………………… 4
3 Decision Analysis and decision tree …………………………………. 5
4 Expected values and rollback method ………………………………. 6
5 Strengths and limitations of our analysis ……………………………. 9
6 Influence of probability estimates after change ……………………. 10

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1 Decision analysis within organisation context

Decision analysis is a process which helps organizations to analyze and optimize their
decision during complex situation. It help managers to look for alternative options from
the list of available options and how they differ from each other (Parnell et all., 2013). It
helps decision maker to understand the complex problem and look for improvement and
better solution. The ultimate purpose of decision analysis is to support a decision maker
to choose the best possible solution to a problem and to take better decisions in a complex
situation, such as under uncertainties (Conroy, 2013).

In today’s business environments, businesses, organizations (private or public), are

called to make strategic and tactical decisions with the objective of leading successful
business. In fact, decision making is a key component for the success of all business or
organizational activities. For instance, new products development, new venture
launching, quality assurance and control and financial portfolio management are different
organizational activities which require organizations the adoption and application of a
decision analysis model for the best realization of the organizations operations and setting
goals. (Adair, 2007)

Within organizations, the role and the value of decision analysis is to support managers
to make accurate decisions by enabling them to solve different problems and challenges
facing the organization and to ensure the best use of organizations’ resources and assets
(Nicholas, 2017). It also serves to minimize conflicts within organizations by maximizing
profitability, productivity and providing job satisfactions to employees working within the
organization. In fact, decision analysis is very important and crucial for the improvement,
development and management of all organizational operations. It helps organizations to
control and reduce risks and uncertainties involving in their manufacturing and services
processes.

It efficiently helps organizations’ managers to be well positioned by making rational and

effective decisions. As example, if Tata Motors Company tends to adopt new products
development programs, the company managers need to consider a decision analysis
process or model for the evaluation of different alternatives and course of action related
to those programs. Thus, to maintain high competitive advantages within a marketplace,
organizations need to make effective decisions. (Jacob and Rex, 2014).

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2 Challenges and assumptions we made

After having a detail an analysis of the case study about the UWS Technical Service the
challenges and assumptions that we can draw are presented below in detail.

UWS Technical Service were concerned with the current project because the resources
available in house were not technically strong and also that they were not aware if they
could complete and successfully deliver the software package. Another problem that is
because the amount that is invested in the new project is adequately high and there is a
big risk associated with it if they are not able to deliver the project on time with the required
features and functionality along with its standard quality. Also the financial loss would be
too high if the project needs to be abandoned due to technical capabilities and the
reputation of the company also would be at risk. One of the major challenge of the UWS
technical service was that they can make developers work only on one software package
at a given point of time so if the project fails the new development work will need new
deadlines to complete the project and the planned launch process of the new product
would be rescheduled along with the financial loss as well. Moreover, UWS Technical
Services being a spin-off business with UWS reputation will be at risk if the project fails
and the amount they have to bear in case the project fails or is unsuccessful.

Based on our assumptions UWS Technical Service lacks skilled manpower and are not
well versed with technical knowledge which has made it difficult for them to execute the
project because of the limited number of employees working. Another problem is that
when multiple projects are being executed at the same time, developing new projects
becomes difficult to manage with the same resource.

3 Decision Analysis and decision tree

Decision tree is a tree like graph which include chance of an event along with its resource
cost. This tree is used to represent algorithm which consists of conditional control
statements. In this his tree f a single node branch out into further possible outcome
(Burnard, 2014).

Each of the result is further branched out into to new nodes which are branched into other
possibilities. A decision tree usually consists of two types of nodes mainly decision node
and chance node. a circle is used to represent change node which shows the probabilities
of a certain result. Where as a square used to represent decision node which shows the
decisions to be made.

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No platform

S 1 0

A S 0.5

B F 0.5

S 0.8

Web C F 0.2

S 0.55
S 1 F 0.45

App F0

D C s 0.85

F 0.15

S 0.40

F 0.10 S 0.90 F 0.60

The above represents the decision tree for the UWS technical services. This decision tree
is constructed for the UWS technical services in order to make the decision between the
web and the app platform. This decision is very important for the UWS technical services
as its whole team can only work on a single platform and thus the best platform has to be
chosen among the two.

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The decision trees consist of a Square node which is branched into the two possible
outcomes that is web and app platform for which the decision has to be made. Each of
these is further branched into a square node which consists of four separate branches
each. These branches represent the four possible software packages for the project that
is software A, software B, software C and software D.

Each of this software has a chance node which represents the probability of the success
rate and also its failure rate. For example, software C for the web platform has been given
success rate of 55 percent. Therefore, the probability for its success and failure rate is
given as 0.55 and 0.45 accordingly. Similarly, the same software C for the App platform
has success rate of 40 percent. Therefore, there probabilities of success and failure rate
are given as 0.40 and 0.60 accordingly. Similarly, according to the percentage of success
rate given in the case study its probability values have been assigned and the decision
tree has been constructed.

4. Expected values and rollback method

Decision tree is analysed by a technique called as roll back. This technique starts from
the last and works backward until it reaches the first of its each of the possible decisions
(Noyes, 2012).

The roll back techniques consist of two rules while analysing the decision tree. The first
rule is that if the branches emanate from a circle then the total expected payoff is
calculated by using the sum of expected values of all its branches. The second rule is
that if its branches emanate from a square then we have to calculate the expected
benefit for each of the branch emanating from the square. Once it is calculated the total
expected payoff is made equal to the value of the branch which has expected benefit as
the highest.

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No platform

4,00000
3,60,000 S 1 0

F 3,00000

A 350,000 S 0.5

B F 0.5 4,10,000

3,90,000 3,90,000 S 0.8

Web C F 0.2 3,10,000

D 3,80,000

3,35,000 S 0.55
S 1 F 0.45

3,40,000 A 3,40,000

App F0 2,80,000

3,65,000

D C s 0.85
3,80,000

F 0.15

3,50,000 3,30,000

S 0.40 2,80,000

F 0.10 S 0.90 F 0.60 3,90,000

2,60,000 3,60,000 2,90,000

UWS Technical Services in order to maximise the potential profit must select an option
that offers the best possible returns. In order to do this UWS Technical services must
decide the platform and the software package. In the above question we have
constructed a decision tree for the UWS technical team with its success and failure rate

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probabilities. In the decision tree given below, the roll back method has been applied.
The roll back method is applied in order to analyse and decide the best suitable
approach for the UWS technical services and calculate the return value.

In order to calculate the expected cost value for all the branches all of its expenditures
have to be considered and added to it. Such as when the web based packages are
considered the development cost of £10,000 must be added. Similarly, when for App
platform are considered the development cost of £30,000 must be added. Apart from
the platform development cost, a cost of £30,000 must also be considered as the UWS
Technical services believes it to be needed for to develop the proposal for the ARS if it
decides to prepare a proposal.

For instance, the expected value for the web based platform for the software B in the
case of success is done in the following manner. Initially the total expenditure is
calculated. This total expenditure consists of web platform development cost of 10,000,
proposal cost for development is 30,000 and software B cost 60,000. When we add all
these cost the total comes up to 1,00,000. If UWS Technical Services is awarded the
contract they will receive an immediate payment of £5, 00,000 from ARS to develop the
software package and this amount is subtracted from the total expenditure and we get
the total amount of 4, 00,000. That is 5, 00,000- (60,000+10,000+30,000) = 400, 0 00.

In order to calculate the expenditure value of software B in case of failure, apart from
the total cost calculated before an additional cost of 1,000,00 is also included in it. This
is because if the software B fails then in such case software A has to be selected which
has development cost of 1,00,000 That is 5, 00,000- (60,000+10,000+30,000)-
1,00,000= 3,00,000

Once these values are calculated they are multiplied with its respected probability
values and added in order to get the expected return value. That is For success rate (
400,000 * 0.5) + for failure rate (3,00,000*0.5) and therefore the expected return value
for the software B is 3,50,000. Similarly, the return value of all the software’s are
calculated and added to get the total return value.

Once that is done the values are compared and the best return is considered. Thus the
UWS technical services has to take up the software C in the web platform as in gives
the highest return of 3,90,000.

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5 Strengths and limitations of our analysis

Strength

 Decision tree helps us to make probability estimate based on the options

available (Software A,B,C,D in our case) and enables us to analyze the failure

and success rate easily.

 It helps us to check the consequences of one decision against the other and

make us think about the possible outcomes that might arise from that decision.

 As decision tree graphically represents a given problem which makes it easy to

understand and visualize the cost associated, benefits and the probability of

considering the best option.

 It gives decision maker the choice of considering all available option and helps in

selecting the best possible option from list . Like in our case the option A seemed

to be the best option but later during calculation of probality estimate we got a

different result.

Limitations

 It becomes a complicated task to compute probability of different branches and

nodes and requires much experience and expertise.

 Since the decision outcomes and payoffs are mostly based on expectation, the

expected result might not be same as planned result. Which can lead to wrong

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 result and a bad decision tree. Even a small variation in the expected result can

change our analysis.

 When we have a situation to choose from many options and all those option

leads to multiple outcomes creating the decision tree becomes complex process

and requires more time.

6 Influence of probability estimates after change

In order to determine the variation of change when we change the initial probability

estimate we take the case study of UWS Technical Service. We have selected the web

based platform and then the branch Software B of the decision tree. The original value

was equally divided among success and failed both 50 percent. We have changed the

probability estimate to 0.94 for the success rate and failure rate is taken as 0.06.

The original value which was calculated for software B was 3,50,000. As the estimate is

changed to new value the return that is yielded is Euro 3,94,000. The result is obtained

by calculating (0.94* 400000) (0.06* 300000) where the original amount is not changed.

This shows that when a change is made on one of the options available, the choice of

decision making itself may change as because the amount changes with the probability

estimate. Here in our case we might not feel much difference as the amount difference

in the original and the new is not too high. But in situation when the amount associate

with the project is huge and deals in millions of dollar even a small change of 0.01 will

have a huge impact and the decision itself might change.

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References:

Adair, J. (2007). The Sunday Time Creating Success: Decision Making and Problem
Solving Strategies. (1st ed). India Private Limited, New Delhi.

Burnard, K. (2014). Analytical Thinking and Decision Making. Scotland: CAPDM Limited

Conroy, M.J. and Peterson, J.T. (2013). Decision making in natural resource
management: a structured, adaptive approach. USA: John Wiley & Sons.

Jacob, U. W., & Rex, B.V. (2014). Decision analysis, Harvard Business review, (online).
Available at https://hbr.org/1982/09/decision-analysis-comes-of-age. Accessed on 29
March 2018.

Nicholas, M. (2017). The Little Black Book of Decision Making: Making Complex
Decisions with Confidence in a Fast-moving World. USA: John Wiley & Sons.

Noyes, J., Cook, M. and Masakowski, Y. eds., (2012). Decision making in complex
environments. USA: Ashgate Publishing, Ltd.

Parnell, G.S., Terry Bresnick, M.B.A., Tani, S.N. and Johnson, E.R. (2013). Handbook
of decision analysis. USA, John Wiley & Sons.

Ulvila, Jacob W. and Brown, Rex V. (2014). Decision analysis, Harvard Business
review, [Available online] https://hbr.org/1982/09/decision-analysis- comes-of- age,
accessed on March 27 2018.

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