1
BIZ Days
Romania – Bucharest
12 November 2014
Decision Making in
Complex Context Using
Systems Thinking
Paradigm
Khaled Wahba, PhD | [email protected]
Adjunct Associate Professor | MSM Romania & the
Netherlands
Today I am sharing with you
Copyright, 2014 | K. Wahba, PhD | DM-ST2
Decision Making
Complex Context
(Complexity)
Systems Thinking
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST3
Processes are there
And are known
No secrete about them, only the execution is the
challenge
Decision Making
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The Big Question!
Are all of us supposed to make the
right Decision?
In order to understand the world quickly, look at
the extremes
Decision Making
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1) What would happen to our World if we all make the right decision?
and
2) What would happen to our World if we all make no decision?
Answer! is it the Bottom-Line-Answer (final conclusion)?
1) Life Stops!
2) Life Does not Move!
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST6
So we are now happy that we still
make wrong decisions
Life is about making wrong
decisions
Everyone so far is struggling and
busy to make the right decision
Ok, let them do that, life will stop for
them
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST7
So today is
about how to make
right
Decision
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST8
So today is
NOT
about how to make
right
Decision
Decision Making
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So today is
about how to make
wrong
Decision
Decision Making
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We wonder!
Why wrong decision could be right one? and why
right decision could be wrong one? and when the
right is right and when the wrong is wrong?
It is all about HOW the mind is working during the
decision making process
Decision Making (The Mind)
Copyright, 2014 | K. Wahba, PhD | DM-ST11
Philosophical View: Plato: Chariot pulled by two horses, Driver, with two
Horses
Metaphor: Charioteer (Reason) & Horses (Emotion)
Psychological View: Freud: ID & Ego (Conflict between Desire, Rational Brain)
William James: Two Thinking Systems
S1 -- Rational and Deliberate
S2 -- Quick and Effortless, Emotional
Neuro-Scientifical View: Rational (logic) vs. Emotional (passion)
Dopamine (neurotransmitter), Orbitofrontal Cortex (OFC)
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST12
It is all about how we see our world and how we see our reality
BUT in fact we don’t see our reality and again we are lucky that we don’t see it ;)
We perceive it not see it
Because if we see it, it means we all live the same single reality and hence we will make the right decision again, then Life stops
Visually I propose this view
Decision Making
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Decision Making
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Reality
!
Decision Making
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TRUTH
?
Reality
!
Decision Making
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TRUTH
?
Reality
!
We deal with
its Image
(Reality)
Truth
is
Hidden
Our
Mental Model
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST17
We are the Blind photographer who exploring the
Truth with our own Camera (Mental Model) to picture
it
My Camera (MM) is unique, with different Lenses,
Power, Resolutions, Detailing, etc …
Who has the best Camera (MM) will have better
vision about the Truth (But never the Truth)
So, our focus now became how to get the best
Camera (MM), but still we need to interpret the
Picture (Reality)
Then the chance for better decision (maybe wrong,
maybe right)
Decision Making
Copyright, 2014 | K. Wahba, PhD | DM-ST18
The quality of our interpretation
depends on the amount of details
(Complexity) we have in this picture
(Reality)
Then what defines the degree of
Complexity?
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Complexity
Complexity
20
Complexity has turned out to be
very difficult to define (Heylighen)
The dozens of definitions that
have been offered all fall short in
one respect or another
The original Latin
word complexus, which signifies
"entwined", "twisted together"
In order to have a complex you
need two or more components,
which are joined in such a way
that it is difficult to separate them
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Defined
21
The Oxford Dictionary defines something as
"complex" if it is "made of (usually several)
closely connected parts"
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Defined
22
The Oxford Dictionary defines something as
"complex" if it is "made of (usually several)
closely connected parts"
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Defined
23
A system would be more complex if more parts
could be distinguished, and if more
connections between them existed
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity: Two-Dimensional
24
The aspects of distinction and connectiondetermine two dimensions characterizing complexity
distinction
connection
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity: Two-Dimensional
25
The aspects of distinction and connectiondetermine two dimensions characterizing complexity
Distinction corresponds to variety, to heterogeneity, to
the fact that different parts of the complex behave
differently
Connection corresponds to constraint, to the fact that
different parts are not independent, but that the
knowledge of one part allows the determination of
features of the other parts
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity: Two-Dimensional
26
The aspects of distinction and connectiondetermine two dimensions characterizing complexity
distinction
(differences)
connection (dependency)
Very Low and Low High and Very High
Area of
Isolation
Area of
Integration
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity: Two-Dimensional
27
The aspects of distinction and connectiondetermine two dimensions characterizing complexity
distinction
(differences)
connection (dependency)
Very Low and Low
High and Very High
Area of
Order
Area of
Disorder
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix
28
The aspects of distinction and connectiondetermine two dimensions characterizing complexity
distinction
(differences)
connection (dependency)
Are
a o
f Is
ola
tion
Are
a o
f Inte
gra
tion
Area of Disorder
Area of Order
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix
29
Perfect Crystal, where the position of a
molecule is completely determined by the
positions of the neighbouring molecules to which
it is bound
distinction
(differences)
connection (dependency)
Perfect
Order
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix
30
Perfect Crystal, where the position of a
molecule is completely determined by the
positions of the neighbouring molecules to which
it is bound
distinction
(differences)
connection (dependency)
Perfect
Order
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix
31
Perfect Disorder, chaos or entropy, like in a
gas, where the position of any gas molecule is
completely independent of the position of the
other molecules
distinction
(differences)
connection (dependency)
Perfect
Disorder
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix
32
Perfect Disorder, chaos or entropy, like in a
gas, where the position of any gas molecule is
completely independent of the position of the
other molecules
distinction
(differences)
connection (dependency)
Perfect
Disorder
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix Complete
33
Complexity can only exist if both aspects are
present: neither perfect disorder, nor perfect
order
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Matrix Complete
34
Complexity increases when the variety
(distinction), and dependency (connection) of
parts or aspects increase, and this in several
dimensions
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Types
35
Weaver has defined two types of Complexities:
Disorganized and Organized
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Types
36
Disorganized coming from large number of
parts and lack of correlation (Chaos and
disordered)
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
Disorganized
Copyright, 2014 | K. Wahba, PhD | DM-ST
Complexity Types
37
Organized coming from lack of randomness,
high correlation and dependency, connection to
outside, emerges, self-organized
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
Organized
Copyright, 2014 | K. Wahba, PhD | DM-ST
Dealing with Complexity
38
Disorganized Complexity needs Advanced Statistical
Methods. Organized Complexity needs Modeling and
Simulation
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
OrganizedDisorganized
Copyright, 2014 | K. Wahba, PhD | DM-ST
More Complexity …
39
distinction
(differences)
connection (dependency)
Perfect
Disorder
Perfect
Order
Complexity
Simplicity
OrganizedDisorganized
time
(dynamical)
Systems
Thinking
Copyright, 2014 | K. Wahba, PhD | DM-ST
Systems Thinking
Copyright, 2014 | K. Wahba, PhD | DM-ST
Process of Understanding
Observe …
Think …
Theorize …
Initial Understanding…
Make Decision or Action …
See Results and Consequences …
Update Understanding
Copyright, 2014 | K. Wahba, PhD | DM-ST 41
The Need for Different Perspective
Lucky Medical Doctor!!
Tools, Equipment, Technology …
The X-ray, MRI, Ultrasound …
Different Views, and Angles and Details …
Filter (not every details) …
So, What about us?
How to see the complexity in our reality?
How to deal with it?
We need Tools, Methods to intervene properly and timely
Systems Thinking …
Copyright, 2014 | K. Wahba, PhD | DM-ST 42
Policy Resistance:
The Law of Unintended Consequences
The counterintuitive behavior of social
systems
People seeking to solve a problem often
make it worse
Policy may create unanticipated side
effects
Attempts to stabilize the system may
destabilize it
Decisions may provoke reactions by others
seeking to restore the balance we upsetCopyright, 2014 | K. Wahba, PhD | DM-ST 43
Romanian Birth Rates: Facts
Crude birth rate in late 1960’s was 15 per 1000
per year
Government imposed policy to stimulate the birth
rate
Modest tax incentives for larger families
Importation of contraceptive devices was outlawed
Propaganda campaigns praising the virtues of large
families
Abortion was banned
Copyright, 2014 | K. Wahba, PhD | DM-ST 44
Romanian Birth Rates: The results
Crude birth rate 40 per 1000 per year
Fastest growing nation
Birth rate began to fall within months
1970, it reached 20 per 1000 per year
1989, it reached 16 per 1000 per year
The same as in early 1960’s
A Social System has resisted a policy
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Policy Resistance: Romanian Birth Rates
What happened?
10
20
30
40
1966 1967 1968 1969 1970 1971
Crud
e Bi
rth
Rate
(Birt
hs/y
ear/
1000
peo
ple)
1971 1994
o Alternative methods for birth control
o Smuggled contraceptive pills from
outside
o Health problems, led to increase in
death rate
Copyright, 2014 | K. Wahba, PhD | DM-ST 46
Policy Resistance: Limits to Growth
PopulationBirth Rate Death Rate
Tax Incentive& Propaganda
BirthRegulation
Spending in HealthCare Sector
+
+
-
++
--
Reinforcing Balancing
System StructureCausal Loop Diagram
CLD
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Social Resistance
-
What are we looking for?
Events
Pattern of Behavior
System StructurePopulationBirth Rate Death Rate
Incentive
Birth
Regulation
Spending in Health
Care Sector
+
+
-
++
-
-
Reinforcing Balancing ?Copyright, 2014 | K. Wahba, PhD | DM-ST 48
Structure …?
Systems Thinking Language
PopulationBirth Rate Death Rate
Tax Incentive& Propaganda
BirthRegulation
Spending in HealthCare Sector
+
+
-
++
--
Reinforcing Balancing
Negative Feedback Loop
“Balancing”
Positive Feedback Loop
“Reinforcing”
Feedback
Driving signals
Delay
Why there is problem? stop unwanted feedback loops
How to solve it …? trigger feedback loops
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Anatomy and Behavior of
Complex Dynamic Systems
There are different mode of behavior, but also common
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Anatomy and Behavior of Complex
Dynamic Systems: Exponential Growth
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Anatomy and Behavior of Complex
Dynamic Systems: Exponential Growth
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PopulationBirth Rate
+
+
R
Anatomy and Behavior of Complex
Dynamic Systems: Exponential Growth
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DebtOutstanding
Interest Due
+
+
R
Anatomy and Behavior of Complex
Dynamic Systems: Goal Seeking
+
+
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Anatomy and Behavior of Complex
Dynamic Systems: Goal Seeking
+
+
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Change in Price
CompetitorsPrice
Price
CorrectiveActoins
-+
+
+
Anatomy and Behavior of Complex
Dynamic Systems: Goal Seeking
+
+
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Discrepancy
DesiredInventory
InventoryLevel
ProductionRate
-+
+
+
Anatomy and Behavior of Complex
Dynamic Systems: Oscillation
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Anatomy and Behavior of Complex
Dynamic Systems: Oscillation
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Discrepancy
DesiredInventory
InventoryLevel
ProductionRate
-+
+
+
Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth
Inflection point: the system shifts from acceleration to deceleration
+
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Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth
Inflection point: the system shifts from acceleration to deceleration
+
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PopulationBirth Rate
Fractional IncreaseBirth Rate (%)
AdequacyResource
Reserve (Food,Energy, Cash)
+
++
+
-
+
R
B
Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth with Overshoot
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Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth with Overshoot
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+
PopulationBirth Rate
Fractional IncreaseBirth Rate (%)
AdequacyResource
Reserve (Food,Energy, Cash)
+
++
+
-
+
R
B
Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth with OSH &
Collapse
+
+
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Anatomy and Behavior of Complex
Dynamic Systems: S-Shaped Growth with OSH &
Collapse
+
+
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PopulationBirth Rate
Fractional IncreaseBirth Rate (%)
AdequacyResource
Reserve (Food,Energy, Cash)
+
++
+
-
+
R
B
Consumption ofThe Reserve
+
-
B
What Actions to be taken (Intervention Points) to
avoid the Collapse?
+
+
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PopulationBirth Rate
Fractional IncreaseBirth Rate (%)
AdequacyResource
Reserve (Food,Energy, Cash)
+
++
+
-
+
R
B
Consumption ofThe Reserve
+
-
B
What Actions to be taken (Intervention Points) to
avoid the Collapse?
+
+
Copyright, 2014 | K. Wahba, PhD | DM-ST 66
PopulationBirth Rate
Fractional IncreaseBirth Rate (%)
AdequacyResource
Reserve (Food,Energy, Cash)
+
++
+
-
+
R
B
Consumption ofThe Reserve
+
-
B Refill the Reserve,Intervention Point (Long
Term)
+
Slow Down Actions,Intervention Point (Short
Term)
-
Business Context: Think Proactively
Copyright, 2014 | K. Wahba, PhD | DM-ST 67
Business(Customers)
CustomersAcquisition Rate
Business DevelopmentEffort, Marketing, Sales
Resources Availablefor Operations
Reserve (HR, Assets,Patents, Experience,
Cash)
+
++
+
-
+
R
B
Running Out ofReserve
+
-
B Refill the Reserve(R&D, Banks, Investors)
+
Slow DownBusiness
-
Management Paradigms
• Total Quality Management (TQM)
• Business Process Reengineering (BPR)
• Systems Thinking and Learning
Organization
• Project Management
• Six Sigma
Copyright, 2014 | K. Wahba, PhD | DM-ST 68
What is a System?
It is collection of parts that interact with one
another to function as a whole.
Examples:
Mechanical Systems (thermostat)
Ecological Systems (population/food)
Biological Systems (digestive, body
temp.)
Social-economic systems (production)
Copyright, 2014 | K. Wahba, PhD | DM-ST 69
Systems Thinking … !!!
Systems Thinking is a paradigm and
methodology for dealing with complex situations
underlying business, economics, scientific, and social
systems.
Systems Thinking views the organization as a
whole and focuses on interdependencies and links
between various departments, functions and divisions
and how they impact each other and the entire
organization. Complexity is a new paradigm drawing
from Relativity and Quantum theories.
Copyright, 2014 | K. Wahba, PhD | DM-ST 70
Systems Thinking
71
Systems thinking is the process of understanding
how things influence one another within a whole.
In nature, systems thinking examples include
ecosystems in which various elements such as
air, water, movement, plants, and animals work
together to survive or perish.
In organizations, systems consist of people,
structures, and processes that work together to
make an organization healthy or unhealthy.
Copyright, 2014 | K. Wahba, PhD | DM-ST
Systems Thinking
72
Systems thinking is crucial to problem
solving including Economic, Social,
Organizational
No problem exists in isolation, all are part
of a larger system of interacting networks;
social networks, biogeophysical networks,
political networks, and economic
networks.
We can’t understand the behavior of
system by studying its parts; we need to
study the whole thing. Copyright, 2014 | K. Wahba, PhD | DM-ST
Systems Thinking Scope
Design of New Systems Re-engineering or Improvement of Existing
Systems Prediction of Behavior of Complex System
under varying Conditions Understanding the Interaction of
Components sub-Systems Strategy Development and Testing Scenario Modeling and Testing Group and Organizational Learning
Copyright, 2014 | K. Wahba, PhD | DM-ST 73
Systems Thinking Scope
National Macroeconomic, monetary policy
Industrial/Sectoral Supply Chain Management
Organizational Value Chain, Human Resource
Individual Learning
Copyright, 2014 | K. Wahba, PhD | DM-ST 74
Systems Thinking Benefits
Systems thinking enables leaders and organizations:
Effectively deal with uncertainty and complexity
Foresee the consequences of their actions, policies and
strategies
Identify fundamental causes and solutions to chronic
problems
Avoid misjudging problem symptoms for their causes
Reconcile dilemma of short-term fixes vs long terms
strategies
Resolve endemic staff morale and productivity problems
Bring alignment of vision and action to teams and groups
Become a Living and Learning Organization
Copyright, 2014 | K. Wahba, PhD | DM-ST 75
Systems Thinking as Language
Systems Thinking provides a tool for understanding complexity and dynamic decision making
The Language … Is visual and diagrammatic (CLD)
Has a set of precise rules
Translates perceptions into explicit pictures
Emphasizes closed interdependencies (circular language)
Copyright, 2014 | K. Wahba, PhD | DM-ST 76
Systems Thinking Process
1. Problem Articulation
(Boundary Selection)
3. Formulation4. Testing
5. Policy
Formulation
& Evaluation
2. Dynamic
Hypothesis
Copyright, 2014 | K. Wahba, PhD | DM-ST 77
Causal Loop Modeling
Causal Loop Diagram CLD
Copyright, 2014 | K. Wahba, PhD | DM-ST 78
Business(Customers)
CustomersAcquisition Rate
Business DevelopmentEffort, Marketing, Sales
Resources Availablefor Operations
Reserve (HR, Assets,Patents, Experience,
Cash)
+
++
+
-
+
R
B
Running Out ofReserve
+
-
B Refill the Reserve(R&D, Banks, Investors)
+
Slow DownBusiness
-
Causal Loop Modeling
According to P. Senge, 1990 Causal Loop Diagram provides “… a framework
for seeing interrelationships rather than things, for seeing patterns of change rather than static snapshots”
Causal Loop Diagram (CLD) is a tool for revealing the casual relationships among a set of variables (factors) operating in a complex system
Copyright, 2014 | K. Wahba, PhD | DM-ST 79
Leverage versus Solution
System Thinking is not about Problem Solving Methodology (by product)
Problem is not isolated and unstructured
Short term, local, optimal, neat, content, symptoms
Leverage
It refers to actions or interventions that can have a lasting impact on the system,
Long term, global, fundamental, realistic, content and context, cause
Copyright, 2014 | K. Wahba, PhD | DM-ST 80
Systems Archetypes
Systems Archetypes are generic systems
models or templates that represent a wide range
of situations
It provides a high-level map of dynamic
processes
It is the Communalities – SD Group, MIT
They are more than 8+
Copyright, 2014 | K. Wahba, PhD | DM-ST 81
Systems Archetypes
Fixes that Fail
Short term and solve the symptoms rather than the
problem and is associated with side effects
+
+
+
+
-
-
Copyright, 2014 | K. Wahba, PhD | DM-ST 82
Systems Archetypes
Shifting the Burden
Helen Keller
Parent Dependency
Nanny Teaching, helping
+
+
+
-
-
-
Copyright, 2014 | K. Wahba, PhD | DM-ST 83
Systems Archetypes
Limits to Success (Growth)
People Express – No. of Passengers, Revenue, QoS
+
+
+
-
-
Copyright, 2014 | K. Wahba, PhD | DM-ST 84
Systems Archetypes
Co
pyrig
ht, 2
01
4 | K
. Wa
hb
a, P
hD
| DM
-ST 85
Tragedy of the Commons
Common-sense
Cars per family and traffic problem, convenience
+
+
+
+
+
+
+
++
-
Textbooks and Software
Business Dynamics: Systems Thinking and Modeling for a Complex World, John D. Sterman, www.mhhe.com 2000, by the McGraw-Hill Companies, Inc. ISBN 0-07-231135-5.
Systems Thinking, and Modelling, Understanding Change and Complexity, Kambiz E. Maani, Robert Y. Cavana, 2nd Ed., 2008, Prentice Hall,
The Art of Systems Thinking, Essential Skills for Creativity and Problem Solving, Joseph O’Connor and Ian McDermott, 1997, Thorsons, ISBN 0-7225-3442-6.
SoftwareIthink, http://www.iseesystems.com/Vensim, http://www.vensim.comPowersim, http://www.powersimsolutions.com/
86
87
BIZ Days
Romania – Bucharest
12 November 2014
Thank You
Decision Making in Complex Context
Using Systems Thinking Paradigm
Khaled Wahba, PhD | [email protected]
Adjunct Associate Professor | MSM Romania & the
Netherlands