khaled wahba msm

BIZ Days

Romania – Bucharest

12 November 2014

Decision Making in

Complex Context Using

Systems Thinking

Paradigm

Khaled Wahba, PhD | kwahba@msmromania.org

Adjunct Associate Professor | MSM Romania & the

Netherlands

Today I am sharing with you

Copyright, 2014 | K. Wahba, PhD | DM-ST2

Decision Making

Complex Context

(Complexity)

Systems Thinking

Decision Making

Processes are there

And are known

No secrete about them, only the execution is the

challenge

Decision Making

The Big Question!

Are all of us supposed to make the

right Decision?

In order to understand the world quickly, look at

the extremes

Decision Making

1) What would happen to our World if we all make the right decision?

2) What would happen to our World if we all make no decision?

Answer! is it the Bottom-Line-Answer (final conclusion)?

1) Life Stops!

2) Life Does not Move!

Decision Making

So we are now happy that we still

make wrong decisions

Life is about making wrong

decisions

Everyone so far is struggling and

busy to make the right decision

Ok, let them do that, life will stop for

Decision Making

So today is

about how to make

Decision

Decision Making

So today is

about how to make

Decision

Decision Making

So today is

about how to make

Decision

Decision Making

We wonder!

Why wrong decision could be right one? and why

right decision could be wrong one? and when the

right is right and when the wrong is wrong?

It is all about HOW the mind is working during the

decision making process

Decision Making (The Mind)

Philosophical View: Plato: Chariot pulled by two horses, Driver, with two

Horses

Metaphor: Charioteer (Reason) & Horses (Emotion)

Psychological View: Freud: ID & Ego (Conflict between Desire, Rational Brain)

William James: Two Thinking Systems

S1 -- Rational and Deliberate

S2 -- Quick and Effortless, Emotional

Neuro-Scientifical View: Rational (logic) vs. Emotional (passion)

Dopamine (neurotransmitter), Orbitofrontal Cortex (OFC)

Decision Making

It is all about how we see our world and how we see our reality

BUT in fact we don’t see our reality and again we are lucky that we don’t see it ;)

We perceive it not see it

Because if we see it, it means we all live the same single reality and hence we will make the right decision again, then Life stops

Visually I propose this view

Decision Making

Reality

Decision Making

Reality

Decision Making

Reality

We deal with

its Image

(Reality)

Hidden

Mental Model

Decision Making

We are the Blind photographer who exploring the

Truth with our own Camera (Mental Model) to picture

My Camera (MM) is unique, with different Lenses,

Power, Resolutions, Detailing, etc …

Who has the best Camera (MM) will have better

vision about the Truth (But never the Truth)

So, our focus now became how to get the best

Camera (MM), but still we need to interpret the

Picture (Reality)

Then the chance for better decision (maybe wrong,

maybe right)

Decision Making

The quality of our interpretation

depends on the amount of details

(Complexity) we have in this picture

(Reality)

Then what defines the degree of

Complexity?

Complexity

Complexity has turned out to be

very difficult to define (Heylighen)

The dozens of definitions that

have been offered all fall short in

one respect or another

The original Latin

word complexus, which signifies

"entwined", "twisted together"

In order to have a complex you

need two or more components,

which are joined in such a way

that it is difficult to separate them

Copyright, 2014 | K. Wahba, PhD | DM-ST

Complexity Defined

The Oxford Dictionary defines something as

"complex" if it is "made of (usually several)

closely connected parts"

Complexity Defined

The Oxford Dictionary defines something as

"complex" if it is "made of (usually several)

closely connected parts"

Complexity Defined

A system would be more complex if more parts

could be distinguished, and if more

connections between them existed

Complexity: Two-Dimensional

The aspects of distinction and connectiondetermine two dimensions characterizing complexity

distinction

connection

Distinction corresponds to variety, to heterogeneity, to

the fact that different parts of the complex behave

differently

Connection corresponds to constraint, to the fact that

different parts are not independent, but that the

knowledge of one part allows the determination of

features of the other parts

distinction

(differences)

connection (dependency)

Very Low and Low High and Very High

Area of

Isolation

Area of

Integration

distinction

(differences)

Very Low and Low

High and Very High

Area of

Disorder

Complexity Matrix

distinction

(differences)

f Inte

Area of Disorder

Area of Order

Complexity Matrix

Perfect Crystal, where the position of a

molecule is completely determined by the

positions of the neighbouring molecules to which

it is bound

distinction

(differences)

Perfect

Complexity Matrix

Perfect Crystal, where the position of a

molecule is completely determined by the

positions of the neighbouring molecules to which

it is bound

distinction

(differences)

Perfect

Complexity Matrix

Perfect Disorder, chaos or entropy, like in a

gas, where the position of any gas molecule is

completely independent of the position of the

other molecules

distinction

(differences)

Perfect

Disorder

Complexity Matrix

Perfect Disorder, chaos or entropy, like in a

gas, where the position of any gas molecule is

completely independent of the position of the

other molecules

distinction

(differences)

Perfect

Disorder

Complexity Matrix Complete

Complexity can only exist if both aspects are

present: neither perfect disorder, nor perfect

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

Complexity Matrix Complete

Complexity increases when the variety

(distinction), and dependency (connection) of

parts or aspects increase, and this in several

dimensions

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

Complexity Types

Weaver has defined two types of Complexities:

Disorganized and Organized

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

Complexity Types

Disorganized coming from large number of

parts and lack of correlation (Chaos and

disordered)

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

Disorganized

Complexity Types

Organized coming from lack of randomness,

high correlation and dependency, connection to

outside, emerges, self-organized

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

Organized

Dealing with Complexity

Disorganized Complexity needs Advanced Statistical

Methods. Organized Complexity needs Modeling and

Simulation

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

OrganizedDisorganized

More Complexity …

distinction

(differences)

Perfect

Disorder

Perfect

Complexity

Simplicity

OrganizedDisorganized

(dynamical)

Systems

Thinking

Systems Thinking

Process of Understanding

Observe …

Think …

Theorize …

Initial Understanding…

Make Decision or Action …

See Results and Consequences …

Update Understanding

Copyright, 2014 | K. Wahba, PhD | DM-ST 41

The Need for Different Perspective

Lucky Medical Doctor!!

Tools, Equipment, Technology …

The X-ray, MRI, Ultrasound …

Different Views, and Angles and Details …

Filter (not every details) …

So, What about us?

How to see the complexity in our reality?

How to deal with it?

We need Tools, Methods to intervene properly and timely

Systems Thinking …

Policy Resistance:

The Law of Unintended Consequences

The counterintuitive behavior of social

systems

People seeking to solve a problem often

make it worse

Policy may create unanticipated side

effects

Attempts to stabilize the system may

destabilize it

Decisions may provoke reactions by others

seeking to restore the balance we upsetCopyright, 2014 | K. Wahba, PhD | DM-ST 43

Romanian Birth Rates: Facts

Crude birth rate in late 1960’s was 15 per 1000

per year

Government imposed policy to stimulate the birth

Modest tax incentives for larger families

Importation of contraceptive devices was outlawed

Propaganda campaigns praising the virtues of large

families

Abortion was banned

Romanian Birth Rates: The results

Crude birth rate 40 per 1000 per year

Fastest growing nation

Birth rate began to fall within months

1970, it reached 20 per 1000 per year

1989, it reached 16 per 1000 per year

The same as in early 1960’s

A Social System has resisted a policy

Policy Resistance: Romanian Birth Rates

What happened?

1966 1967 1968 1969 1970 1971

1971 1994

o Alternative methods for birth control

o Smuggled contraceptive pills from

outside

o Health problems, led to increase in

death rate

Policy Resistance: Limits to Growth

PopulationBirth Rate Death Rate

Tax Incentive& Propaganda

BirthRegulation

Spending in HealthCare Sector

Reinforcing Balancing

System StructureCausal Loop Diagram

Social Resistance

What are we looking for?

Events

Pattern of Behavior

System StructurePopulationBirth Rate Death Rate

Incentive

Regulation

Spending in Health

Care Sector

Reinforcing Balancing ?Copyright, 2014 | K. Wahba, PhD | DM-ST 48

Structure …?

Systems Thinking Language

PopulationBirth Rate Death Rate

Tax Incentive& Propaganda

BirthRegulation

Spending in HealthCare Sector

Reinforcing Balancing

Negative Feedback Loop

“Balancing”

Positive Feedback Loop

“Reinforcing”

Feedback

Driving signals

Why there is problem? stop unwanted feedback loops

How to solve it …? trigger feedback loops

Anatomy and Behavior of

Complex Dynamic Systems

There are different mode of behavior, but also common

Anatomy and Behavior of Complex

Dynamic Systems: Exponential Growth

PopulationBirth Rate

DebtOutstanding

Interest Due

Dynamic Systems: Goal Seeking

Change in Price

CompetitorsPrice

CorrectiveActoins

Discrepancy

DesiredInventory

InventoryLevel

ProductionRate

Dynamic Systems: Oscillation

Discrepancy

DesiredInventory

InventoryLevel

ProductionRate

Dynamic Systems: S-Shaped Growth

Inflection point: the system shifts from acceleration to deceleration

Dynamic Systems: S-Shaped Growth

Inflection point: the system shifts from acceleration to deceleration

Fractional IncreaseBirth Rate (%)

AdequacyResource

Reserve (Food,Energy, Cash)

Dynamic Systems: S-Shaped Growth with Overshoot

AdequacyResource

Dynamic Systems: S-Shaped Growth with OSH &

Collapse

Dynamic Systems: S-Shaped Growth with OSH &

Collapse

AdequacyResource

Consumption ofThe Reserve

What Actions to be taken (Intervention Points) to

avoid the Collapse?

AdequacyResource

What Actions to be taken (Intervention Points) to

avoid the Collapse?

AdequacyResource

B Refill the Reserve,Intervention Point (Long

Slow Down Actions,Intervention Point (Short

Business Context: Think Proactively

Business(Customers)

CustomersAcquisition Rate

Business DevelopmentEffort, Marketing, Sales

Resources Availablefor Operations

Reserve (HR, Assets,Patents, Experience,

Running Out ofReserve

B Refill the Reserve(R&D, Banks, Investors)

Slow DownBusiness

Management Paradigms

• Total Quality Management (TQM)

• Business Process Reengineering (BPR)

• Systems Thinking and Learning

Organization

• Project Management

• Six Sigma

What is a System?

It is collection of parts that interact with one

another to function as a whole.

Examples:

Mechanical Systems (thermostat)

Ecological Systems (population/food)

Biological Systems (digestive, body

temp.)

Social-economic systems (production)

Systems Thinking … !!!

Systems Thinking is a paradigm and

methodology for dealing with complex situations

underlying business, economics, scientific, and social

systems.

Systems Thinking views the organization as a

whole and focuses on interdependencies and links

between various departments, functions and divisions

and how they impact each other and the entire

organization. Complexity is a new paradigm drawing

from Relativity and Quantum theories.

Systems Thinking

Systems thinking is the process of understanding

how things influence one another within a whole.

In nature, systems thinking examples include

ecosystems in which various elements such as

air, water, movement, plants, and animals work

together to survive or perish.

In organizations, systems consist of people,

structures, and processes that work together to

make an organization healthy or unhealthy.

Systems Thinking

Systems thinking is crucial to problem

solving including Economic, Social,

Organizational

No problem exists in isolation, all are part

of a larger system of interacting networks;

social networks, biogeophysical networks,

political networks, and economic

networks.

We can’t understand the behavior of

system by studying its parts; we need to

Systems Thinking Scope

Design of New Systems Re-engineering or Improvement of Existing

Systems Prediction of Behavior of Complex System

under varying Conditions Understanding the Interaction of

Components sub-Systems Strategy Development and Testing Scenario Modeling and Testing Group and Organizational Learning

Systems Thinking Scope

National Macroeconomic, monetary policy

Industrial/Sectoral Supply Chain Management

Organizational Value Chain, Human Resource

Individual Learning

Systems Thinking Benefits

Systems thinking enables leaders and organizations:

Effectively deal with uncertainty and complexity

Foresee the consequences of their actions, policies and

strategies

Identify fundamental causes and solutions to chronic

problems

Avoid misjudging problem symptoms for their causes

Reconcile dilemma of short-term fixes vs long terms

strategies

Resolve endemic staff morale and productivity problems

Bring alignment of vision and action to teams and groups

Become a Living and Learning Organization

Systems Thinking as Language

Systems Thinking provides a tool for understanding complexity and dynamic decision making

The Language … Is visual and diagrammatic (CLD)

Has a set of precise rules

Translates perceptions into explicit pictures

Emphasizes closed interdependencies (circular language)

Systems Thinking Process

1. Problem Articulation

(Boundary Selection)

3. Formulation4. Testing

5. Policy

Formulation

& Evaluation

2. Dynamic

Hypothesis

Causal Loop Modeling

Causal Loop Diagram CLD

Business(Customers)

CustomersAcquisition Rate

Business DevelopmentEffort, Marketing, Sales

Resources Availablefor Operations

Reserve (HR, Assets,Patents, Experience,

Running Out ofReserve

B Refill the Reserve(R&D, Banks, Investors)

Slow DownBusiness

Causal Loop Modeling

According to P. Senge, 1990 Causal Loop Diagram provides “… a framework

for seeing interrelationships rather than things, for seeing patterns of change rather than static snapshots”

Causal Loop Diagram (CLD) is a tool for revealing the casual relationships among a set of variables (factors) operating in a complex system

Leverage versus Solution

System Thinking is not about Problem Solving Methodology (by product)

Problem is not isolated and unstructured

Short term, local, optimal, neat, content, symptoms

Leverage

It refers to actions or interventions that can have a lasting impact on the system,

Long term, global, fundamental, realistic, content and context, cause

Systems Archetypes

Systems Archetypes are generic systems

models or templates that represent a wide range

of situations

It provides a high-level map of dynamic

processes

It is the Communalities – SD Group, MIT

They are more than 8+

Systems Archetypes

Fixes that Fail

Short term and solve the symptoms rather than the

problem and is associated with side effects

Systems Archetypes

Shifting the Burden

Helen Keller

Parent Dependency

Nanny Teaching, helping

Systems Archetypes

Limits to Success (Growth)

People Express – No. of Passengers, Revenue, QoS

Systems Archetypes

-ST 85

Tragedy of the Commons

Common-sense

Cars per family and traffic problem, convenience

Textbooks and Software

Business Dynamics: Systems Thinking and Modeling for a Complex World, John D. Sterman, www.mhhe.com 2000, by the McGraw-Hill Companies, Inc. ISBN 0-07-231135-5.

Systems Thinking, and Modelling, Understanding Change and Complexity, Kambiz E. Maani, Robert Y. Cavana, 2nd Ed., 2008, Prentice Hall,

The Art of Systems Thinking, Essential Skills for Creativity and Problem Solving, Joseph O’Connor and Ian McDermott, 1997, Thorsons, ISBN 0-7225-3442-6.

SoftwareIthink, http://www.iseesystems.com/Vensim, http://www.vensim.comPowersim, http://www.powersimsolutions.com/

BIZ Days

Romania – Bucharest

12 November 2014

Thank You

Decision Making in Complex Context

Using Systems Thinking Paradigm

Khaled Wahba, PhD | kwahba@msmromania.org

Adjunct Associate Professor | MSM Romania & the

Netherlands

khaled wahba msm

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