Decision Support includes methodologies and processes that leverage information to help you analyze issues and to decide on the best solution. The general steps in decision support include:
- identify and analyze the issue
- develop and evaluate possible solutions
- propose and adopt a decision
- implement and evaluate the decision
Several useful tools are available to help during the analysis and solutions development phases, including Causal Loop Diagrams, MS Excel models, and Stock-and-Flow Model simulations.
Causal Loop Diagrams (CLD)
During analyses and solution generation, it’s important to ensure not only that assumptions are reasonable and confirmed, but also to help avoid solutions that may create problems. One method of getting issues onto the table for team participation is the Causal Loop Diagram.
A CLD is a visual representation of items and their relationship to each other. As a simple example, consider pest control to improve crops yield. On the surface, a simple solution is to apply pesticide to kill pests, stop adding pesticide when the pests are gone, and watch crop output increase (Figure A). This simplified view, however, likely overlooks important and potentially detrimental and unwanted outcomes.
If the pesticide kills not only pests but bees that pollinate crops, then the crops may suffer long-term and more significant reductions than the original crop losses to pests (Figure B). In addition to diminishing vital bee populations, pesticide use may also adversely affect other wildlife, water quality and the health of workers who are applying the pesticide. And all of these issues can affect the bottom line of business. By raising costs through pesticide use and reducing crops yield by bee loss, for example, the business can be faced with severely reduced profits in both the near and long term.
CLD methodology can be applied to practically any business problem or opportunity such as how demand is created and affects capacity, how fixing one product problem may create other problems, or how the launch of a new product may affect legacy and competitive products.
MS Excel Models
A common example of an Excel model is a monthly profit & loss report (Figure C). Unlike static, printed reports, the use of Excel modeling enables interaction with historical data and projection into the future based on different scenarios.
Excel spreadsheets offer the benefits that they are widely used by managers, are generally understood in the business world, and are shareable with anyone using Excel. Spreadsheets can also be developed for advanced analysis, however, they can become challenging to understand and modify as complexity increases and relationships become unclear.
Stock-and-Flow Model Simulations
An alternative to spreadsheet modeling is a Stock-and-Flow Model (SFM) simulation tool. Similar to a Causal Loop Diagram, a Stock-and-Flow model explicitly and visually expresses how a variety of inputs relate, including important feedback loops (Figure D).
SFM offer the means to alter inputs and their relationships by rearranging the symbols and the related formulae. In cases of uncertainty (e.g. the likely range of a product price), SFM simulation can calculate likely outcomes (such as future revenues and profits – Figure E).
The benefits of SFM can be particularly useful when exploring issues such as staffing requirements as product sales grow, and the effect of competitive market forces on pricing, revenues, and profit.
Contact me to discuss how decision support tools can benefit your projects.