Problem Solving and Decision Making

Uncertainty and an overwhelming number of alternatives are two key factors that make decision making difficult. Business analytics approaches can assist by identifying and mitigating uncertainty and by prescribing the best course of action from a very large number of alternatives.

Business analytics involves tools as simple as reports and graphs, as well as some that are as sophisticated as optimization, data mining, and simulation.

Problem Solving

It consists of using generic or ad hoc methods, in an orderly manner, for finding solutions to problems. Some of the problem-solving techniques developed and used in artificial intelligence, computer science, engineering or mathematics

Problem-solving is used in many disciplines, with different perspectives, and often with different terminologies. For instance, it is a mental process in psychology and a computerized process in computer science. Problems can also be classified into two different types (ill-defined and well-defined) from which appropriate solutions are to be made. Ill-defined problems are those that do not have clear goals, solution paths, or expected solution. Well-defined problems have specific goals, clearly defined solution paths, and clear expected solutions.

Being able to solve problems sometimes involves dealing with pragmatics (logic) and semantics (interpretation of the problem). The ability to understand what the goal of the problem is and what rules could be applied represent the key to solving the problem. Sometimes the problem requires some abstract thinking and coming up with a creative solution.

Problem-solving strategies are the steps that one would use to find the problem(s) that are in the way to getting to one’s own goal. Some would refer to this as the ‘problem-solving cycle’. In this cycle one will recognize the problem, define the problem, develop a strategy to fix the problem, organize the knowledge of the problem cycle, figure-out the resources at the user’s disposal, monitor one’s progress, and evaluate the solution for accuracy. The reason it is called a cycle is that once one is completed with a problem another usually will pop up.

The following techniques are usually called problem-solving strategies’

• Abstraction: solving the problem in a model of the system before applying it to the real system
• Analogy: using a solution that solves an analogous problem
• Brainstorming: (especially among groups of people) suggesting a large number of solutions or ideas and combining and developing them until an optimum solution is found
• Divide and conquer: breaking down a large, complex problem into smaller, solvable problems
• Hypothesis testing: assuming a possible explanation to the problem and trying to prove (or, in some contexts, disprove) the assumption
• Lateral thinking: approaching solutions indirectly and creatively
• Means-ends analysis: choosing an action at each step to move closer to the goal
• Method of focal objects: synthesizing seemingly non-matching characteristics of different objects into something new
• Morphological analysis: assessing the output and interactions of an entire system
• Proof: try to prove that the problem cannot be solved. The point where the proof fails will be the starting point for solving it
• Reduction: transforming the problem into another problem for which solutions exist
• Research: employing existing ideas or adapting existing solutions to similar problems
• Root cause analysis: identifying the cause of a problem
• Trial-and-error: testing possible solutions until the right one is found

Decision Making

Decision-making is directly associated with selecting one course of action among two or more possible alternatives. Decision-making is driven by a desire to solve problems or exploit opportunities. A problem refers to some type of event that requires a response to avoid a negative consequence. Conversely an opportunity is an event or situation where a response is required to make something desirable happen.

It can be regarded as a problem-solving activity terminated by a solution deemed to be satisfactory. It is, therefore, a process which can be more or less rational or irrational and can be based on explicit knowledge or tacit knowledge.

Human performance with regard to decisions has been the subject of active research from several perspectives:

• Psychological: examining individual decisions in the context of a set of needs, preferences and values the individual has or seeks.
• Cognitive: the decision-making process regarded as a continuous process integrated in the interaction with the environment.
• Normative: the analysis of individual decisions concerned with the logic of decision-making and rationality and the invariant choice it leads to.

A major part of decision-making involves the analysis of a finite set of alternatives described in terms of evaluative criteria. Then the task might be to rank these alternatives in terms of how attractive they are to the decision-maker(s) when all the criteria are considered simultaneously. Another task might be to find the best alternative or to determine the relative total priority of each alternative

Decision making is the process of making choices by setting goals, gathering information, and assessing alternative occupations. There are seven steps in effective decision making, which are

• Step 1: Identify the decision to be made. You realize that a decision must be made. You then go through an internal process of trying to define clearly the nature of the decision you must make. This first step is a very important one.
• Step 2: Gather relevant information. Most decisions require collecting pertinent information. The real trick in this step is to know what information is needed, the best sources of this information, and how to go about getting it. Some information must be sought from within yourself through a process of self-assessment; other information must be sought from outside yourself-from books, people, and a variety of other sources. This step, therefore, involves both internal and external “work”.
• Step 3: Identify alternatives. Through the process of collecting information you will probably identify several possible paths of action, or alternatives. You may also use your imagination and information to construct new alternatives. In this step of the decision-making process, you will list all possible and desirable alternatives.
• Step 4: Weigh evidence. In this step, you draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. You must evaluate whether the need identified in Step 1 would be helped or solved through the use of each alternative. In going through this difficult internal process, you begin to favor certain alternatives which appear to have higher potential for reaching your goal. Eventually you are able to place the alternatives in priority order, based upon your own value system.
• Step 5: Choose among alternatives. Once you have weighed all the evidence, you are ready to select the alternative which seems to be best suited to you. You may even choose a combination of alternatives. Your choice in Step 5 may very likely be the same or similar to the alternative you placed at the top of your list at the end of Step 4.
• Step 6: Take action. You now take some positive action which begins to implement the alternative you chose in Step 5.
• Step 7: Review decision and consequences. In the last step you experience the results of your decision and evaluate whether or not it has “solved” the need you identified in Step 1. If it has, you may stay with this decision for some period of time. If the decision has not resolved the identified need, you may repeat certain steps of the process in order to make a new decision. You may, for example, gather more detailed or somewhat different information or discover additional alternatives on which to base your decision.

Biases usually creep into decision-making processes, like

• Selective search for evidence or confirmation bias: People tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions. Individuals who are highly defensive in this manner show significantly greater left prefrontal cortex activity as measured by EEG than do less defensive individuals.
• Premature termination of search for evidence: People tend to accept the first alternative that looks like it might work.
• Cognitive inertia is unwillingness to change existing thought patterns in the face of new circumstances.
• Selective perception: People actively screen out information that they do not think is important. In one demonstration of this effect, discounting of arguments with which one disagrees (by judging them as untrue or irrelevant) was decreased by selective activation of right prefrontal cortex.
• Wishful thinking is a tendency to want to see things in a certain – usually positive – light, which can distort perception and thinking.
• Choice-supportive bias occurs when people distort their memories of chosen and rejected options to make the chosen options seem more attractive.
• Recency: People tend to place more attention on more recent information and either ignore or forget more distant information. The opposite effect in the first set of data or other information is termed primacy effect.
• Repetition bias is a willingness to believe what one has been told most often and by the greatest number of different sources.
• Anchoring and adjustment: Decisions are unduly influenced by initial information that shapes our view of subsequent information.