Embedded Decision Analysis
David MathesonPresident and CEOSmartOrg, Inc.
© 2000-2013 SmartOrg. | Confidential and Proprietary.1
@SmartOrgInc#DecisionMgt
@SmartOrgInc
SmartOrg software and services helps companies find the most profitable projects
(c) 2000-2013 SmartOrg, Inc.2
Life science Aerospace Technology Other
@SmartOrgInc
What is the largest scale DA instance you have been directly involved in?
10 people50 people100 people500 people1,000 people5,000 people
People = those directly involved in the decision somehow, e.g. providing information, creating alternatives, etc. Does not include those affected by a decision.
© 2000-2013 SmartOrg. | Confidential and Proprietary.3
@SmartOrgInc
How many decision were directly in play?
i.e. on the “focus” part of the decision hierarchy
1 decision5 decisions10 decisions50 decisions100 decisions500 decisions1,000 decisions5,000 decisions
© 2000-2013 SmartOrg. | Confidential and Proprietary.4
@SmartOrgInc
Why is Decision Analysis not as prevalent as Accounting?
© 2000-2013 SmartOrg. | Confidential and Proprietary.5
@SmartOrgInc
Decision Analysis has not even made it to the list of “management fads”.
Management by objectivesMatrix managementTheory ZOne-minute managementManagement by wandering aroundTotal quality managementBusiness process reengineeringEmpowermentISO 9000Knowledge Management
© 2000-2013 SmartOrg. | Confidential and Proprietary.6
@SmartOrgInc
Our profession has a weak value proposition.
© 2000-2013 SmartOrg. | Confidential and Proprietary.7
The Goal—Decision Quality
DQ
Infor-mation
Values
Rea-soning
Commit-ment
Frame
Alter-natives
What we offer: good decisions What people want: results
@SmartOrgInc
We have been outclassed by algorithms.
© 2000-2013 SmartOrg. | Confidential and Proprietary.8
Decision Analysis VSPredictive analyticsBusiness intelligenceBig data(insert computer decision buzzword here)
@SmartOrgInc
Spam filtering is among the largest scale highest impact applications of decision analysis
© 2000-2013 SmartOrg. | Confidential and Proprietary.9
Embedded Decision AnalysisThe Way Forward
Delivering A Billion Dollars – Lessons In
Portfolio Evaluation
Global Leader
Dow AgroSciences
September 15, 2008
To Succeed We Must Be Better Than Competitors
Performance Comparison Of Projects*Actual Vs. Forecast (pre-2000)
DAS Is Being Outspent In R&D Low Project Success
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
R&
D S
pe
nd
($
Bil)
0%2%4%6%8%10%12%14%16%
R&
D A
s %
Of
Sa
les
Competitive comparison of R&D spending in 2000
Sales
Margin50
100
0% O
f V
alu
e P
rom
ise
Source: Phillips McDougal May - 2000 Source: Internal Study
0
5
10
15
20
25
30
35
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45
Our Results Show Our Performance To Be Better
Performance Comparison Of Projects*Actual Vs. Forecast
DAS #3 In NewAg Chem Product Introductions Improved Project Success
Competitive comparison 1990-2007
Sales
Margin50
100
0% O
f V
alu
e P
rom
ise
New
Ag
Ch
em In
tro
du
ctio
ns
Source: Cropnosis* Does not include Biotech introductions
Source: Internal Study
Pre-CPS Post-CPS
Process And Tools Support A Complex Global Portfolio –
1500 Concepts And 150 Projects
That work differently in dozens of different crops…
And are sold in dozens of local markets with products formulated to support specific agricultural practices.
Our Portfolio Our Teams Our Tools
Technical
Market
Technical
Market
Over a hundred active ingredients and biological traits for …
Local teams assess commercial value and uncertainty of a specific concept.
Global project leaders prioritize concepts and manage the overall project value and risk.
Central executive management overall affordability, targets, and project priority.
Our Portfolio Process Is Built On Best Practice Decision &
Risk Analysis Tools
Identifying key projectUncertainties and their Impact (Value Drivers)
Valuing Projects and Characterizing alternatives
SensitivityAnalysis
Project Risk AssessmentTechnical
Market
ExpectedFuture Value
H
Mean
L
Issues &Assumptions
••••••••
ProbabilityDistribution
DecisionAnalysis
InvestmentIntensity
Risk RewardBal. Portfolio
Less Emphasized
@SmartOrgInc
Where does the future of our community lie?
© 2000-2013 SmartOrg. | Confidential and Proprietary.15
Impact
of
Deci
sion (
$)
Number of Decisions
Strategy
Major Projects
Portfolio Management
DQ TrainingSpam Filtering
@SmartOrgInc
Where does the future of our community lie?
© 2000-2013 SmartOrg. | Confidential and Proprietary.16
Impact
of
Deci
sion (
$)
Number of Decisions
Strategy
Major ProjectsPortfolio Management
DQ TrainingSpam Filtering
Premium Consulting Firms
Internal Consultants
Training & Courses
Smarter Computers
@SmartOrgInc
We have to scale decision analysis.
© 2000-2013 SmartOrg. | Confidential and Proprietary.17
Impact
of
Deci
sion (
$)
Number of Decisions
Strategy
Major ProjectsPortfolio Management
DQ TrainingSpam Filtering
Embedded Decision Analysis
@SmartOrgInc
Where embedding DA make the biggest difference to your company’s results?
Mergers & AcquisitionsCapital Investment / Capital StewardshipR&D / Innovation / NPDPlanning & BudgetingProduct ManagementMarketing Investment / MixDemand Forecasting / Capacity PlanningOther
© 2000-2013 SmartOrg. | Confidential and Proprietary.18
@SmartOrgInc
We have great strengths
© 2000-2013 SmartOrg. | Confidential and Proprietary.19
Decision Analyst Advantages:Knowledge of decision structure and human processesOur systems do modeling and decision analysis
Scaling requires shifting our thinking.
Before
DA ConsultantInterventionsDecision FocusedOne-timeExpert judgmentCareful assessmentsDecision Analysis / DQPower tools for specialists
Good Decisions
After
Embedded DAOrdinary business processLearning FocusedIterative / ongoingConsumes & provides dataGood enough assessmentsRole of DA/DQ in evaluationScalable tools for non-DA users
Valuable Results
© 2000-2013 SmartOrg. | Confidential and Proprietary.20
The scariest shift
DA Consultant Embedded DA
Ordinary peopledoing routine workdrive their organizationto great decisionsas measured by great results
© 2000-2013 SmartOrg. | Confidential and Proprietary.21
A highly specialized personintervenes in a situationto facilitate a group to a great decisionas measured by decision quality.
Reframing a decision situation to learning.
Decision Focus Learning Focus
© 2000-2013 SmartOrg. | Confidential and Proprietary.22
ENPV
How did Intel “decide” to get out the memory business and focus on CPUs?
© 2000-2013 SmartOrg. | Confidential and Proprietary.23
Source: Fading Memories, Burgelman, 1994
A new take on Decision Quality
Decision Analysts Want
Explicit Alternatives
Information based on careful expert assessments
Evaluation based on models focused in great detail on complex issues
Commitment follows decisions
Embedded DA Reframes
Alternatives emerge and evolve
Change jobs so that uncertain information is generated
Simple: 80-20 rule to generate good results most of the time
Committed action is already underway when decision gets made
© 2000-2013 SmartOrg. | Confidential and Proprietary.24
@SmartOrgInc
Who has a case of Embedded DA or other large scale DA deployment?
I have a successful one
I have one well underway
I intend on starting one (or have just gotten started)
I do not have an example
© 2000-2013 SmartOrg. | Confidential and Proprietary.25
@SmartOrgInc
Systems are transformational in enabling embedded DA.
© 2000-2013 SmartOrg. | Confidential and Proprietary.26
Internet, cloud and process automation Analytics and data-driven decisions
Ubiquity of Excel as a business “language” Computing power
@SmartOrgInc© 2000-2012 SmartOrg. | Confidential and Proprietary.27
@SmartOrgInc© 2000-2012 SmartOrg. | Confidential and Proprietary.28
@SmartOrgInc
I am committed to making DA a powerful force in the 21st century.
Innovating the tools for Embedded DA• Need your help getting it right
Rangal is in beta, and we want people to use it. • Please contact me if you would like to have a personal demo
and try it out.
I’d like to collect examples of Embedded DA and other large scale implementations of DA.
• Please contact me / send me cases.
© 2000-2013 SmartOrg. | Confidential and Proprietary.29