Analysis of the Decision and the Theory of Bounded Rationality - Boeing 787 Dreamliner - Literature review Example

Report on Boeing 787 Dreamliner Name Course Tutor Date Report on Boeing 787 Dreamliner The Decision The 787 Dreamliner is a 240-seater aircraft developed by Boeing. Prior to its launch, the management had to postpone the event six times since 2007 (Denning, 2013). There were major challenges with regard to the production model used for this Boeing project which resulted delays in delivery. Before the blueprint of the 787, Boeing strategized to design a midsized aircraft which was able of travelling at sonic sound, efficient and comfortable (Denning, 2013). At the end of the project the airline faced a number of challenges that relates to its production including lithium-ion overheating batteries issue. The audit claimed this project was over budgeted by billions of dollars and three years late as planned; the manufacture of the airliner became considerably more challenging than expected. Denning (2013) claims that although the operating costs were more than planned, Boeing reassured its clientele that the speedy cruiser would enhance customer pleasure by saving time. However, due to delays in launching and increased petroleum costs, the consumers turned out to be less focused on the project. There were also delays in the electronic integration. The decision to employ three competing firms to integrate these systems also resulted to further delays. According to Denning (2013), Honeywell International, Smiths Aerospace and Rockwell Collins were recognized as fierce rivals, and instead of working together, they changed to their competitive attitude resulting to delays in the project delivery. The 787 Dreamliner was launched in October 2011. The major result of these decisions was that the project was not finished within the stipulated time. There were also numerous consequences of the preliminary budgeting decision which led to this outcome. Analysis of the Decision and the theory of bounded rationality The decision to invest in sonic airplane had been considered long way back in the 1990s. However, it had not been made serious by this company until in 2001 when there was an attack in the US (Denning, 2013). Other reason for adopting change was because Japanese company All Nippon Airline had launched Dreamliner in 2004 giving them a competitive advantage (Calleam, 2013). Jim Albaugh as the CEO and then president of Boeing Airlines at that time, to counter global competition supported the decision to manufacture Boeing 787. The decision to produce the Boeing 787 Dreamliner by the management is one case of bounded rationality. This is because the company was relying on limited information, most certainly that the market was eroded by the September 2001 attacks and All Nippon airline launch of dreamliner (Calleam, 2013). Acting on bounded rationality the project team came up with a budget that was more than required and also inappropriate time frame (Nielsen, 2011). Because of this, Simon the founder of the bounded rationality model argues that normative models of decision making that presume fully rational and objective judgment are unrealistic since human rationality is limited (Kahneman, 2003, p.1452). He also considers that that economic manager employ heuristics in making decisions as opposed to a strict inflexible tenet of optimization. According to Gigerenzer & Selten (2002), managers act this way because of the difficulty of the state of affairs, and their incapability to compute and process the anticipated utility of each alternative action. Consideration costs may be high and there are frequently other coexisting economic events also desiring decisions. Jim Albaugh’s judgment could have appeared rational to him and people who think like him. However, it cannot said to be rational for their organization and understated distinction regarding rationality mentioned by Storing (Hastie, 2010). For the CEO to ratify the decision that costed the company Billions of money which is in excess and also a lot of time past set date means he did not have adequate knowledge and consciousness of risk that are the situations of normative models and theory of management. For instance, Jim Albaugh’s took it upon himself to assure customers of launching the airline on time. In doing this, he did understand that the time allocated for the project was not enough due to various factors that changed during the project. Both of these limitations were factors resulting in a risk to on-time task completion. The decision to hire three top industry players to integrate electronic system was considered rational because of their reputation and rating (Denning, 2013). However, this decision was not bounded rationally to the organization as it created a new front of competition among these three leading players. Their wars added to the delay of the project by three years. It can be said that lack of communication and cooperation could have also caused the delay. In the current world, there is a need that projects are carried in relation to business, and this relationship completely needs strong and consistence communication. Monahan (2000, p.35) claims that communication forms the operating system of the project and makes it succeed. On their limited knowledge about outsourcing, they decided to hire an outside company to help manufacture 787 Dreamliner (Denning, 2013). For the manufacture of this airline, the company decided on a new strategy so as to reduce costs. This new strategy was to subcontract the key elements of the 787 to various manufacturing firms across the world. For instance, the wings were manufactured in Nagoya Japan by Mitsubishi Heavy companies, flaps and ailerons were produced in Australia by Boeing. Stabilizers were made in Italy by Alenia Aeronautic while these parts were assembled at Boeing’s major Plant in Everett, Washington (Calleam, 2013). By outsourcing the company did not identify the precise particulars of the parts but acted on limited information about the matter while encouraging the producers to develop solutions for their problems. Bubnicki (2003) claims that “Acting on bounded rationality without consulting widely can sometimes bring set backs in a progressing project” as displayed by Boeing. However, when moving to the assembly of the airliner, tests showed that test of quality failed. Because of this fault, Boeing engineers were called to look into the defect and solve the issue. The situation to meet deadline for this maiden flight build tension amongst Boeing’s engineers because they had to work extra hours to solve these structural problems. The technical problems and the delays costed Boeing a loss of up to $1.6 billion (Calleam, 2013). Reflection and bounded rationality In an honest situation, Chief executive officer of Boeing Commercial Airplanes Jim Albaugh agreed that Boeing managers did not understand the whole cost repercussions of their out-sourcing plan. In his speech at Seattle University in January 2011, Albaugh was quoted saying ”We spent a lot more money in attempting to recover than we ever would have spent if we would have tried to sustain the major technologies closer to home” (Calleam, 2013). Due to these mistakes, if I would have been the project manager, I would have made decisions based on the concept of bounded rationality which argues that information is always available. In a nutshell, I would have used available information and combine them with decision model and procedure to analyze project budget. As a manager, I would have conducted a lot of research to ensure that there is enough information available to make financial decisions that do not leave the company exploited and money wasted as in the case of Boeing 787 project. Research is all about collecting data, analyzing them and making an informed decision based on the outcome (Gilboa, 2011). Collecting information must involve stakeholders; in this case the engineers about the parts required, the financial analysts for budgeting purposes and the customers on what type of airline that suits them. Project is normally carried out to take advantage of the market, as such it involves collecting information about competitors, evaluating them and coming up with a product better than theirs (Hastie, 2010). Therefore, as a manager I would have conducted competitors’ analysis, in particular All Nippon Company who had already invested in a Dreamliner before making a rational decision on which type of airline to make. Based on bounded rationality, I would have ratified a decision that our engineers work hand in hand with other outsourced engineers. The company engineers are people who have worked in the company for quite some time therefore I presume that I would have understood their personality and competence, hence making judgment in relation to what they can do. As a leader I would have encouraged both command and control leader and Transformational Leadership. As far as transformational leadership seems the best, it may not be good for project because it encourages delays. Bubnicki (2003) asserts that transformational leadership is a type of leadership in which organization encourage staff to make decisions, take responsibility, have ownership for any success or failure. Previously, Boeing Company had presented suppliers with very comprehensive information on what they require when outsourcing (Denning, 2013). However, with production of 787 Boeing, the company allowed suppliers to carry out the design and production. This is established to be the basis of the problems at the final stages of assembly at Everett, Washington. Owing to these issues associated with project, I would have alternated these two forms of leadership to stop any delays and problems related to assembly from reoccurring. Using vein of fairness, I would have recognized implications of information to the project. Hall, Ariss & Todorov (2007, p.277) contends that a project where there is less flow of information tends to get stacked along the way. As such, I would have made it mandatory for all the contracted teams whether internal or outsourced to provide information on a daily basis. This minimizes excess budgeting and delays. References Bubnicki, Z. (2003). Analysis and decision making in uncertain systems. New York, NY: Springer-Verlag. Calleam. (2013). Why Projects Fail: Boeing Commercial Aeroplanes. accessed on 4th October 2013 http://calleam.com/WTPF/?p=4617 Denning, S. (2013). What Went Wrong At Boeing? Accessed on 4th October 2013 http://www.forbes.com/sites/stevedenning/2013/01/21/what-went-wrong-at-boeing/ Gigerenzer, G & Selten, R. (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press. Gilboa, I. (2011). Rational choice. Cambridge, MA: MIT Press. Kahneman, D. (2003). Maps of bounded rationality: psychology for behavioral economics. The American Economic Review, 93 (5), 1449–75. Hall, C.C., Ariss, L. & Todorov, A. (2007). The illusion of knowledge: When more information reduces accuracy and increases confidence. Organizational Behavior and Human Decision Processes, 103, 277-290 Hastie, R. (2010). Rational choice in an uncertain world: The psychology of judgment and decision making. Thousand Oaks, CA: Sage. Monahan, G. (2000). Management Decision Making. Cambridge: Cambridge University Press. Nielsen, H. (2011). Bounded rationality in decision making. Dobbs Ferry, NY: Manchester University Press. Read More