Embedded Decision Analysis

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

40

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.

dmatheson@smartorg.com650-470-0180

© 2000-2013 SmartOrg. | Confidential and Proprietary.29