Daily Archives: June 19, 2021

Identify the heuristics that decision makers might use in making estimates in the situations listed below. Explain how biases might emanate from the use of these heuristics.

(a) Members of an interview panel making estimates of the probability that a candidate would be a successful appointment.

(b) A marketing manager of a company manufacturing computer peripherals making a forecast of the number of new orders that will be obtained next month.

(d) A manager of an international construction company making an estimate of the risk of civil unrest in a country which was formerly part of the Soviet Union and where the company is considering making investments.

(e) A company doctor estimating….

Discuss the heuristics which the employees might have employed to estimate these probabilities and any biases which might have emanated from the use of these heuristics.

The employees of a leading mail-order computer software company are secretly thinking of breaking away to form their own rival company. This would require an investment of $3 million and the employees will make the decision largely on the basis of the net present value of this investment. To help them with their decision a risk analysis model has been formulated. Development of the model involved estimating a large number of probabilities including those set out below:

(a) probability distributions for the size of the market (measured in total turnover) for each of the next five years – following the recent launch of a major new international software product, the employees have experienced a buoyant market over the last few months;

(b) probability distributions of the market share….

’ Comment on these extracts from the report in the light of Tversky and Kahneman’s work on heuristics and biases.

A chemical plant is due for a major overhaul and the manager has to make an assessment of a number of uncertainties associated with the project. These include the time the overhaul will take to complete (after 35 days the losses of production caused by the overhaul could have serious consequences for the company) and the risks that there will be leakage of dangerous chemicals into local watercourses during the cleaning process. The following extracts have been taken from the manager’s draft report which details plans for the overhaul:

(i) ‘I assessed the most likely duration of the overhaul to be 30 days. I then tried to take an optimistic view and assumed that, if all goes well, we could finish the work 5 days earlier than this….

Identify the areas where risk management is likely to be most effective.

The AB Charity is planning its annual campaign to raise money. This year three alternative methods are being considered: (i) street collections, (ii) a television advertising campaign and (iii) a directmail appeal. After using simulation to assess the risk associated with the alternatives the charity’s managers have opted for a direct-mail appeal.

The direct-mail appeal will involve sending out 343 000 letters to selected people. To encourage donation these will include a free ballpoint pen displaying the charity’s logo and people not replying after three weeks will receive a reminder. While the fixed costs of the campaign and the cost of sending out each letter and reminder are known for certain the charity’s managers have had to estimate probability distributions for the following four factors:

(a) The percentage….

Discuss the problems which are likely to be involved in obtaining a decision for the group and evaluate possible ways of tackling these problems.

A supermarket chain intends to open a new shop near Sheffield, in England, next year. Four possible locations have been identified:

(i) Moortop (Site A); (ii) Silver Hill (Site B); (iii) Cheston Common (Site C); and (iv) the River Shopping Complex (Site D). The decision on the location will be taken by four decision makers who have each used the Simple Multi-attribute Rating Technique (SMART) to help them to clarify their understanding of the decision problem (in the models the monetary costs of the sites were treated as just another attribute). Details of the values which each decision maker allocated to the sites are given below.

Discuss the problems which are likely to be involved in obtaining a decision for the group and evaluate possible ways of….

Discuss possible reasons for the discrepancy between the model’s recommendation and the view of the senior managers which was apparent at the last meeting.

Because of recent increases in student numbers, East University has to decide whether to relocate from its existing campus at Byron Avenue to a new campus at Beach Park, a green field site. The senior managers of the university have to agree on which course of action to recommend to the Governing Body. The main criteria to be used in the decision are the cost of developing the site, working conditions for staff and students, the public image of the university, scope for further expansion in the future, accessibility to public transport facilities and reduction in road congestion. To provide a formal structure to the decision and a defensible rationale, the Simple Multi-attribute Rating Technique (SMART) was used by each manager to determine his or her perception of….

You are invited to observe this month’s meeting of the managers of a hospital, which will take place in the senior manager’s office.

You are invited to observe this month’s meeting of the managers of a hospital, which will take place in the senior manager’s office. The main item on the agenda relates to the issue of whether a particular ward should be temporarily closed because of funding problems. Before the meeting the senior manager tells you that the hospital management prides itself on efficient decision making. ‘My staff and I work as a coherent team,’ he tells you. ‘We are busy people so at our meetings we don’t waste time on endless discussion. There is usually little dissent and we make decisions quickly and with confidence that what we are doing is right. I think that you’ll see that my colleagues will agree with me that the closure should go….

What is the probability that at this time: (a) All three machines will be out of action?

A group of executives have to allocate investment funds between six possible product lines. Their objectives are: (i) to maximize the growth of the company, (ii) to maximize export earnings, (iii) to maximize profit and (iv) to minimize risk. After much debate the group decide to assign the following acrosscriteria weights: Growth, 100; Exports, 10; Profit, 80; Risk, 20. Discuss how these weights could have been derived and explain what they mean.

Q76.

Three machines, A, B and C, operate independently in a factory. Machine A is out of action for 10% of the time, while B is out of action for 5% of the time and C for 20% of the time. A rush order has to be commenced at midday tomorrow. What is the probability that….

Develop five criteria that you think are key to satisfying customers.