Satisficing

Revision as of 23:17, 19 February 2023

Developed by Aleksander Moczko

Abstract

This article will investigate the Satisficing strategy for decision-making process in project management perspective. The name of this strategy comes from merging two words: satisfy and suffice, with the main purpose to speed-up the decision-making process by picking the first acceptable solution that meets the objectives ^[1]. To narrow down the scope, context of cost and schedule performance indices will be investigated. Satisficing can be a useful approach in the situation where a project is behind the schedule, as it enables to make faster decisions and move the project forward. To address the shortcomings of studied strategy, the concept of “Illusion of Validity” will be introduced. This extension should provide a comprehensive picture of applying Satisficing strategy, while ensuring that it reaches its full potential and brings value to the project managers, who struggle with decision-making process. Lastly, two examples of potential applications will be presented along with a mathematical formulation to showcase the practical use of Satisficing strategy.

Satisficing Theory

Satisficing is a strategy for decision-making process, that was first defined by Herbert Simon in 1947, by merging two words: satisfy and suffice [1]. At its core, using this strategy leads to making choices that are good enough, rather than the best ones. It is tangible solution for administrators (project, programs and/or portfolio managers in this specific case), who can see the complexity of the world, noticing that it is impossible to make objectively the best decision. Humans perception allows to consider only couple of situations and concepts at the same time, meaning that plenty of aspects will be left out anyway, as Herbert elaborates further: *’One can leave out of account those aspects of reality and that means most aspects that appear irrelevant at a given time.’’ (page 119 from [1])* This makes a great limitation that is imposed in human nature. In the project management perspective, a manager who persistently aims to make the best decision possible, rather than just sufficient / satisfactionary (ie. good enough) one will rarely, if ever, achieve better results from manager who satisfices. Projects are being conducted in the real world, where human perception is involved, as well as financial and time aspects. Phrases such as ‘fair price’ or ‘reasonable profit’ reflect the satisficing theory [1], as they suggest that certain amount is good enough, but do not depict the whole scale of potentially maximised outcomes. Satisficing is a strategy that allows its users to balance the trade-off between finding the best solution and the limitations of resources and time.

- expand on the state of the art in the - establish core principles of satisficing strategy - different types of satisficing

Illusion Of Validity Theory

- this chapter starts new theory that I consider to merge with satisficing to make wiki article more comprehensive (please, let me know if you find expanding article using this theory necessary or not)

Simon Herbert defined Satisficing strategy in opposition to neoclassical economists, taking as as starting point a fact that conditions assumed by them where not met as they were not applicable in real world. This understanding was different from Kahneman studies on bounded rationality, who assumed that conditions assumed by neoclassical economists are met, but deviating behaviour represents lack of rationality [2]. Therefore, to provide broader overview of bounded rationality using satisficing, context of Illusion of Validity is introduced. Project managers will largely benefit from learning those two theories, as merging them will allow to make decisions that are good enough, and at the same time remain unbiased from intuition or individual past experience.

bullet points on illusion of validity:

- The illusion of validity is a cognitive bias identified by Daniel Kahneman that can impact decision-making in project management - Project managers can overestimate the accuracy of their judgments based on limited information and their past experiences, as well as intuition. - This bias can be particularly crucial in high-stakes project management situations, where errors can have significant consequences

Application of satisficing

Satisficing strategy is not limited to one model that has to be strictly followed. Depending on practitioner needs, different models can be chosen and followed. There are plenty of comprehensive dynamic mathematical models [3] that require extensive data inputs and calculations. However, those models usually require distinct expertise to use them, while being excessive for majority of the cases [4]. Therefore, focus of this article is limited to descriptive models, that can be easily applied in any project. First, example of using satisficing strategy linked with scheduled performance index is described. It is followed by another, more complex descriptive model, to support decision-making process in the context of outsourcing.

Satisficing strategy using SPI

To showcase how satisficing strategy can be applied, Schedule Performance Index (SPI) is considered. SPI is an index that measures the schedule performance of given project. If SPI equals 1, project is exactly on schedule. Any value above 1 indicates that project is ahead of the schedule, whereas value dropping below that number means that project is behind the schedule. This index is dynamic and changes throughout the lifetime of the project and therefore creates great value for project managers interested in applying satisficing strategy in decision-making process. In the most simple terms, satisficing strategy can be plotted on two axis chart (See figure below), one reflecting the aspirational level that can be adjusted, based on time measure (in this case SPI index). The core principles for applying satisficing strategy can be determined as setting an aspirational level and trying to reach it. If no solution is found at the aspiration level in the time period t, the aspiration level should be lowered appropriately to ensure responsible allocation of resources.

To apply satisficing strategy using Schedule Performance Index, let’s assume that there is a need to hire a person to become a head for internal anti-doping testing in the project of organising tennis tournament in Spain. Since project is new and not part of the ATP tour yet, the testing is run internally. Lets consider six relevant characteristics for person to work at this position:

a1 - fluency in Spanish

a2 - previous experience in IDTM or other anti-doping agency recognised worldwide

a3 - master degree in biology, chemistry or similar

a4 - minimum 5 years of experience in running anti-doping tests

a5 - minimum 8 years of experience in running anti-doping test

a6 - friendly and approachable personality, as well calm and organised person

Now, depending on the value of SPI the project manager can hire the right candidate, while ensuring that this decision will be taken in a timely manner and with responsible allocation of resources. If project is well ahead of the schedule (eg. SPI = 1.3), a candidate must fulfil all points from a1 to a5, whereas a6 is optional and lacking this factor will not impact decision on hiring the candidate. With the SPI decreasing from 1.3 to 1.2, and then 1.1 the requirement of 8 years of experience is reduced to 5 years of experience. Eventually, if project is on the schedule (SPI = 1), or behind it (SPI < 1) the experience restrictions are dropped and candidate that is fluent in Spanish, has experience in anti-doping agency and got master degree in biology, chemistry or similar will be hired. Note, how those restriction will never be dropped as all of them are critical and regardless of the value of SPI, those conditions must be met.

Outsourcing

- short introduction to outsourcing and its role in projects - 4 main stages: initiation, evaluation, management, outcome - outsourcing considered on individual basis - difference in outsourcing for project vs portfolio

Illusion of validity in the context of satisficing strategy

- article main and core theme is satisficing, this section will expand the concept of satisficing and address its hindrances

Relevance of satisficing in program and portfolio management

- as main sections and examples focus on project managment, this short chapter will provide short description of satisficing for program and portfolio management - emphasis will be placed on main differences compared to project management - core idea is to finish up the article showcasing how universal satisficing strategy can be - table with examples

Limitations

- article focuses on descriptive models only - using purely satisficing strategy for decision-making process is not recommended, it should be considered more as additional dimension to toolbox of project manager

Draft of Bibliography (expected to grow significantly)

Herbert A. Simon, 1947, Administrative Behavior: A Study of Decision-Making Processes in Administrative Organization.

BARRY SCHWARTZ, YAKOV BEN-HAIM, CLIFF DACSO, 2010, What Makes a Good Decision? Robust Satisficing as a Normative Standard of Rational Decision Making

Artinger, Florian M., Gerd Gigerenzer, and Perke Jacobs. 2022. "Satisficing: Integrating Two Traditions." Journal of Economic Literature, 60 (2): 598-635.

Kahneman, D. (2011). Thinking, fast and slow. Farrar, Straus and Giroux.

Wall, Kent D. 1993. “A Model of Decision Making under Bounded Rationality.” Journal of Economic Behavior and Organization

Simon, Herbert A. 1955. “A Behavioral Model of Rational Choice.” Quarterly Journal of Economics 69 (1): 99–118.

Juan Gaytan, Pilar Arroyo, 2006, A satisficing model of outsourcing