Phones, Boats, Airlines, and Commitment

The Business section of The Washington Post on Sunday, September 27, had four interesting articles about decision making.

Brian Fung discussed the new iPhone and the different ways to pay for it, including payment plans, leases, and traditional contracts (https://www.washingtonpost.com/news/the-switch/wp/2015/09/14/thinking-about-buying-a-new-iphone-read-this-first/).  He identified the best plans for four different types of consumers: bargain hunters, early adopters, owners, and traditionalists.

Barry Ritzhold's column on investing (http://www.washingtonpost.com/business/get-there/never-buy-a-boat-and-other-rash-financial-advice/2015/09/25/b788db36-60a7-11e5-8e9e-dce8a2a2a679_story.html) covered financial advice (like "never buy a boat") and then discussed the importance of recognizing four key issues in any big decision: knowledge, costs, skill, and psychology.  He proposed the following decision-making approach: (1) understand what you are getting into, (2) carefully consider all of the costs of ownership, (3) only buy what you can afford, and (4) make an intelligent decision about using your limited time and money.

Chico Harlan discussed the American Airlines-US Airways merger and how the combined firm is working hard to manage the risks associated with integrating their operations (http://www.washingtonpost.com/business/the-last-days-of-us-airways/2015/09/25/f5530686-60a6-11e5-8e9e-dce8a2a2a679_story.html).  A key decision was retaining the larger reservations system used by American Airlines, which reduced the number of employees who had to learn a new system. 

Finally, Michelle Singletary (http://www.washingtonpost.com/business/get-there/the-pope-has-left-dc-but-his-words-remain-we-must-help-the-poor/2015/09/25/c7b423c6-60a7-11e5-8e9e-dce8a2a2a679_story.html) wondered if the Americans who were inspired by Pope Francis will decide to contribute their time and talents to help the less fortunate and discussed the relevant priciples.

Traveling in Pennsylvania

Last weekend we used the Pennsylvania Turnpike for our drive to the Pittsburgh area.  Because we were headed away from Philadelphia, we were surprised to see roadside emergency signs "warning" us about the visit by Pope Francis.  At the Somerset service plaza, we found cards on every table reinforcing the message (see photo).  The back of the card had advice about safe driving that would normally be relevant to a severe winter storm.

The Turnpike's website also had this "highway advisory" (the original was in ALL CAPS):

To all travelers on the Pennsylvania turnpike Interstate 76, Interstate 276, and Interstate 476. Motorists are advised of the upcoming Pope visit in Philadelphia on September 26 and September 27, 2015. This event is expected to cause significant congestion around the Philadelphia region from the Reading interchange to the Delaware River bridge, and from the Pocono interchange to the mid-county interchange. For travelers not destined for Philadelphia during this time, find an alternate route.

Although the Pope poses no threat, the traffic surrounding his visit will be disruptive, so the Pennsylvania Turnpike staff prepared a standard risk communication message that describes the potential problem, its extent (time and place), and what one can do to mitigate it.

Making Laundry Detergent Safer

The Wall Street Journal reported that American manufacturers of laundry detergent packets (like Tide Pods) have agreed to a voluntary standard for the packaging of these packets.

According to the American Association of Poison Control Centers, in the United States, 7,184 children (age 5 and younger) were exposed to single-load laundry packets in the first seven months of 2015 (http://www.aapcc.org/alerts/laundry-detergent-packets/).

The WSJ article described the changes that the manufacturers will make (including tougher packaging and opaque containers).
It also quoted Nancy Cowles, the executive director of Kids in Danger, a nonprofit organization dedicated to protecting children by improving children’s product safety (http://www.kidsindanger.org/about-us/).
She raised an interesting question about risk monitoring: "We are talking absolute numbers-that's what we want to see a drop in.  What's important is how many children are being injured, and not the rate of injuries relative to how much companies are selling."

What is the right measure of risk in this case: the number of children injured by laundry detergent packets, the number of injured children per household that uses laundry detergent packets, or the number of injured children per million laundry detergent packets sold?

In other areas, risks are measured per unit of activity: for instance, the  European Aviation Safety Agency (EASA) 2013 Annual Safety Review reported both the number of fatal accidents per year and the rate per 10 million flights.  Both numbers have been decreasing since 1994, but the rate varies dramatically around the world.

For the article, see http://www.wsj.com/articles/p-g-other-laundry-pod-makers-agree-to-new-safety-standard-1441397456?mod=rss_Business

How to build better models with end-user modeling

Many decision-makers rely upon analysts to build models for them, and they get involved in a back-and-forth with the analyst who is supporting the decision-maker by evaluating and ranking alternatives using a mathematical model (like decision analysis or optimization). This iteration (called decision calculus by John Little) can waste a lot time.

In some situations, a better option is end-user modeling, in which the decision-maker builds the model.  The approach is quantitative but not analytical, the style is quick and dirty, and the purpose is to gain insight into a decision or problem.  (Tom Grossman and Stephen Powell introduced this style of modeling, which exploits the power of spreadsheets.  Powell and Baker's textbook describes spreadsheet modeling in detail.)

The end-user modeling process, which accelerates the process of using models to understand a situation, has three steps: (1) plan the model (with the computer off); (2) program the model, and (3) craft the user interface.


For the planning stage, start by identifying the key relationships between the inputs and outputs, sketching the layout of a worksheet to calculate the outputs, and drawing the key charts and graphs that will provide the needed insight.

When programming, build the spreadsheet one section at a time, checking the each section works correctly, and using good spreadsheet programming techniques.

For the user interface, use color and formatting and comments to make it clear how to use the model (one can quickly forget after setting it down for awhile).  Clearly identifying the inputs, parameters, calculations, and outputs is very helpful.

As Grossman stated, end-user modeling gives one "the ability to roughly compute the effects of a proposed change ('what-if' modeling)" and "the ability to obtain quick, rough insight on actions that are likely to improve the business."

For further reading:

Grossman, Tom, "End-User Modeling," OR/MS Today, October 1997. Link: http://lionhrtpub.com/orms/orms-10-97/IiE.html

Little, John D.C., “Models and managers: the concept of a decision calculus,” Management Science, Volume 16, Number 8, pages B-466-485, 1970.  Link: http://pubsonline.informs.org/doi/abs/10.1287/mnsc.1040.0267

Powell, Stephen G. "The teachers' forum: From intelligent consumer to active modeler, two MBA success stories." Interfaces 27, no. 3 (1997): 88-98.  Link: http://pubsonline.informs.org/doi/abs/10.1287/inte.27.3.88

Powell, Stephen G., and Kenneth R. Baker, The Art of Modeling with Spreadsheets, John Wiley & Sons, Inc., Hoboken, New Jersey, 2004.  Link: http://www.wiley.com/WileyCDA/WileyTitle/productCd-EHEP002883.html

Accepting the Risk of a Derailment

According to an article in The Wall Street Journal, based on documents from the National Transportation Safety Board investigation into the 2014 crude oil train derailment in Lynchburg, Virginia, CSX Corp. knew of a flaw in the section of track where the derailment occurred.
On April 29, 2014, a track inspection had revealed the flaw, and CSX decided to replace a 40-foot piece of track on May 1.  The accident, which caused an estimated $1 million in damage, occurred on Wednesday, April 30.

The track inspection indicates that CSX was monitoring the risk of a derailment, and their decision to replace the track segment (given the inspection result) shows that they were reacting to the increased risk (indicated by the precursor: the internal flaw).

Until the NTSB releases its final report, we can propose scenarios that illustrate the difficulty of risk management:  The decision to continue using that line before the replacement was done suggests that someone at CSX was willing to accept the derailment risk.  Risk mitigation has costs, and greater risk aversion costs more.  Perhaps the cost of closing that line (with the consequent disruption to shipping and revenue) for two days was too large.

Another possibility is that those who detected the flaw and scheduled the track replacement failed to communicate the increased risk to the those responsible for the operations on that track.

Deciding to Save New Orleans

Ten years after Hurricane Katrina, the city of New Orleans has done much to mitigate the risk of a hurricane.  The August 22 issue of The Washington Post included an article by Chris Mooney (http://www.washingtonpost.com/sf/national/2015/08/21/the-next-big-one/) about an important decision that remains to be made: whether to use sediment diversion to protect the wetlands that protect New Orleans.  In addition to slowing the loss of wetlands, the advantages include a relatively low one-time cost and a potential economic value from sportsmen and tourists who would enjoy the wetlands.  The key disadvantage is the disruption to the local fishing industry.  A key uncertainties are whether the diversions will actually work because there are many factors that influence wetland restoration and the impact of the wetlands on the storm surge may be limited.

The decision-making process appears to be an analytic-deliberative one: a state advisory board has scientific experts, while fishermen have organized a group to oppose the diversions and (if necessary) block construction, and a state agency needs to make a decision before the end of the year.

Mitigating the Risk of Equipment Maintenance

Earlier this month I led a course on engineering risk management for a group of engineers and managers at a manufacturing firm that does sheet metal work and makes a variety of air distribution systems and components.  They have numerous machines that use multiple sources of power, which makes equipment maintenance more challenging.  They use lockout and tagout (LOTO) procedures (https://www.osha.gov/SLTC/controlhazardousenergy/index.html) but were interested in a systematic procedure for managing the risk associated with equipment maintenance.  While covering the process of risk management, the associated activities, and the fundamentals of decision making, we discussed how they could apply these steps to make their equipment maintenance operations safer.  The discussion included the potential problems of their current lockout procedures.

The bottom line: establishing and documenting lockout and tagout (LOTO) procedures are useful steps, but they don't replace a systematic risk management process that assesses, analyzes, evaluates, mitigates, and monitors the risks of equipment maintenance.  Look for the potential problems, identify the root causes, put in place safeguards that prevent them, and have contingency plans that can react promptly to keep a problem from getting worse.

P.S. I would like to thank the IIE Training Center (http://www.iienet2.org/IIETrainingCenter/Default.aspx) for the opportunity to lead this course.  Please contact them if you're interested in a short course on engineering decision making and risk management.