Quality Progress - March 2013 - (Page 52)

StatiSticS Roundtable BY Christine M. Anderson-Cook let’s be Realistic Strengthen decision making with formal structure DECISION MAKING is all about in terms of time and money—to select this ing the slot will be $1 and walking understanding and comparing trade- choice? away is $0. For the second choice, the offs between choices: What benefits are Articulating and quantifying benefits, risk-reward portion is also quite simple: possible, what are the risks and can they risks and costs are often difficult and There is no financial risk because there be mitigated, and what will each of the may require a substantial investment of is no financial outlay, and there also is alternatives cost? Consider each of these energy and thought. However, a thorough no financial reward. Alternative No. 1 aspects in the context of a few examples examination including these elements is a bit more complicated, even though to gain some understanding about what will lead to improved decision making. In you know that the expected return is they might involve and what role statistics addition to this quantification exercise, it $0.75. Clearly, if there was exactly a $0.75 might play in assessing alternatives in is also important to consider the role of return on every slot pull, no one would the presence of imperfect or incomplete uncertainty associated with each aspect. play. But the expected return is a sum- knowledge. A proper understanding of uncertainty mary of the long-term behavior. For this can give you a solid foundation on which example, you only have a single dollar to build you decisions. to spend, so the long-term behavior is On the positive side of any decision, there are desirable consequences that may relevant but incomplete. be realized. You should consider not only what is possible, but also the probability Playing the slots of each of the outcomes. The types of To get started, consider a simple example. ting this expected return. For example, benefits can be multifaceted and include You are in front of a $1 slot machine with different (very simple) slot machines economic advantage and improved a dollar bill in your hand. An inquiry at the could offer a 10% chance of winning $7.50 satisfaction, safety or security. The risks casino reveals the expected return on this (expected return = $7.5 x 0.1 + $0 x 0.9), also have a similar makeup: The various particular machine is $0.75, and you’re a 1% chance of winning $75, or a 0.001% outcomes each have different severity of trying to decide whether to part with your chance of winning $75,000, and all have consequence and associated probability. money. In the short term, there are two the same expected return. It’s helpful to The third aspect considers the costs of the alternatives: play the slot or walk away. combine the consequence of a result with alternatives: What will I need to give up— First, the cost is pretty clear: Play- There are many potential ways of get- the probability of it occurring to give: Risk = consequence x probability. Benefit = consequence x probability. Probability is the overall chance of the event occurring. In other applications, this is sometimes broken down into the probability of a result on each trial multiplied by the total number of trials for high-volume processes. For this slot machine example, the quantification of risk (what you could lose) and benefit (what you could win) is straightforward with the consequence and the probability of that outcome being clearly specified. The role of intangibles This approach makes events with different characteristics more comparable by 52 QP • www.qualityprogress.com http://www.qualityprogress.com

Table of Contents for the Digital Edition of Quality Progress - March 2013

Up Front
LogOn
Expert Answers
Keeping Current
Mr. Pareto Head
The Right Ingredients
Before the Fact
Apples to Oranges?
Five at the Forefront
Innovation Imperative
Measure for Measure
Quality in the First Person
Career Corner
Statistics Roundtable
Standards Outlook
QP Toolbox
QP Reviews
One Good Idea

Quality Progress - March 2013

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