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Decision-Making Methodology Project

Final Paper

Bill Zender

MGT599 - Cases in Decision Making

Dr. Johnny Morris

December 15, 2004

Memo - XYZ Gaming Corporation

Executive Summary

            The consultant was contracted by XYZ Gaming Corporation regarding their blackjack gaming revenue and hold percentage downturn throughout XYZ Gaming's organization; primarily at the Las Vegas flagship property.  The client had stated the problem in a manner that suggested the diminishing revenues and hold percentage was due to the increase in professional players taking advantage of weakness in their blackjack game structure and procedures, and needs advice and guidance regarding how this downturn can be reversed. 

Table of Contents

Problem Statement

            Over the past ten years the hold percentage in the casino game of blackjack for the XYZ Gaming Corporation, specifically at the XYZ flagship casino property located on the Las Vegas Strip, has shown a downward trend from 15% to the recent low of 11%.  Since hold percentage is used as a measuring stick for performance in all casino live games, XYZ management is quite concerned.  The Senior VP for XYZ believes that the decreasing performance of the blackjack games at their flagship property has to do with the increase attacks on the games by knowledgeable and professional blackjack players.

            The Senior VP is well aware that card counting and other forms of advances strategy and techniques can beat the game of blackjack; the only live casino game that is subject to this weakness because of its nature of depletion and changing card composition.  It is the Senior VP feeling that the casino supervisory personal are not taking effective steps in preventing these unnecessary loses and needs to develop a strategy that will help regain the lost percentage of blackjack gaming revenue.

            The consultant contracting to examine this problem situation knows that there are several reasons why the hold percentage in blackjack could be diminishing and all possibilities need to be analyzed before a true solution or combination of solutions can be recommended.  These areas are as follows:

1. Issues surrounding blackjack game protection and game vulnerability
2. Factors dealing with time and motion issues native to the game of blackjack
3. Customer relations issues regarding comfort conditions and employee interaction

            Gaming is in reality adult entertainment and is a balance of the three previous factors; (1) game protection, (2) time and motion, and (3) customer experience.  In order to optimize the casino game of blackjack, all three factors need to be analyzed, proportioned, and formed into a cohesive combination

Alternative Solutions

            The presenting problem in this situation is XYZ Gaming's diminishing blackjack hold percentage and subsequent loses in revenue due to what senior management feels is an increased attack by knowledgeable blackjack players and management of their gaming properties failing to properly protect the games.  It is also known that there are several factors that can also be affecting the hold percentage and game performance other then through external means.  In order to develop a clear picture of possible alternative solutions these different factors need to be identified, analyzed, and categorized to determine the degree in which they could possible affect the performance of casino blackjack on the present conditions as they exist at XYZ Gaming's flagship property.

Customer comfort issues

            The number of wagering outcomes results in the degree of theoretical financial return to the casino.  The more wagering outcomes from the customers continued stay at the gaming tables the more theoretical revenue the casino will obtain.  This is why customer comfort issues are important to the financial health of the casino.  Poor light, uncomfortable chairs, improper temperature settings, non-friendly frontline employee, and slow service will decrease the amount of time the player stays at the table and creates a detrimental situation for the casino.

Degree of player blackjack playing knowledge

            Blackjack is an unusual casino game because the player's skill or strategy knowledge has a direct affect on the house advantage or edge the casino maintains.  The house advantage (h/a) can vary significantly; for an uneducated player the house advantage could be as high as 2.0%, for the average player the hose advantage could be around 0.5%, and for the basic or ultimate strategy player the house advantage could totally evaporate.  The advanced players, such as a card counter, can actual reverse the house's advantage into their advantage of from 1% to 0.5%.

Game dealing procedures and rules

            The type of blackjack rules a casino uses and the number of decks the casino employs can modify the games house advantage, as well as alter the number of wagering decisions that can be achieved during a specific period of time.  Rules such as the ability of the player to double down on all hands, the need for the dealer to stand on all totals of seventeen, and the re-split aces will decrease the house's advantage, while adding more decks and limiting the player's ability to double down after splitting a hand will increase the house's advantage.  Some rules will slow the progress of dealing the games, causing the decrease in the number of hands that can be dealt during a period of time.  For instance; for game protection purposes, the addition of an extra shuffle or 'pass' in a multiple deck shuffle may increase the shuffle time by up to one minute which reduces the rounds dealt by as many as four rounds an hour.

Statistic fluctuation normal to gambling

            One of the more common reasons for blackjack hold percentage increases and decreases is statistical fluctuation.  A more common name for fluctuation is 'luck'.  If the casino wins more money they their average dictates they are considered 'lucky', and the win is below standards they can be considered 'unlucky'.  The acceptance of statistical fluctuation is primarily misunderstood, or in some cases, ignored in the gaming industry because of its unpredictable and intangible qualities.  For example; based on the past thirty six month hold percentages of the XYZ flagship property, analysis indicates that the average blackjack hold percentage is 14.6% with standard deviation of 1.3%.  Based on a 95% degree of confidence the monthly upper and lower confidence intervals for blackjack hold percentage at this property are 17.3% and 12.0% respectively (see Appendix A.).  Most gaming executive find this degree of variance totally appalling (Zender, 2004).

First Client Meeting

            The first client meeting will be used to provide both parties with a better understanding of the next phase of the contracted consulting project.  The client will gain a better understanding of what the consultant needs in the way of data collection, availability requirements, length of project, and manner of feedback, while the consultant learns more about how the client has been managing the problem and what forms of resistance the consultant can expect.  Through the first meeting and the subsequent discovery and dialogue the consultant will be able to develop alternative solutions that will serve as a basis for the recommendation (s) he will render during the second client meeting (Block, 2000, pp.186-187).

Information to be supplied by the client

            Using the flagship property as the primary target of the investigation, the collection of specific data will include;

1. Game procedure manuals and memos indicating any changes in procedures during the last three years
2. Game pace audits (GPA) conducted by surveillance over the last several years
3. Drop, win, and hold percentage financial figures for the last three years in blackjack
4. All customer complaint information regarding the live games department during the last three years if available
5. The ability to have access to the three live gaming shift managers, the director of surveillance, the internal auditing department, director of engineering, and any others deemed necessary to interview during the discovery stage of the project

Tools and information supplied by the consultant

            The consultant will provide the following tools and data that will assist him in the funneling and analysis of the data during the project.  This will include;

1. State Gaming financial reports for the past several years
2. Statistical spread sheets to analyze trends and standard statistical fluctuation confidence intervals
3. A time and motion spreadsheet model developed to represent the theoretical conditions of XYZ Gaming's flagship property

Time scheduled for the project

            Based on the need to interview several key personal, the need to collect a variety of data, and anticipate creation of several analytical spreadsheets and models, the consultant would anticipate being prepared to engage the client in a second meeting within a one week period.  The client and consultant need to agree that some interaction may take place between now and the scheduled date of the second meeting based on discovery and further need for dialogue and information.

Perceived resistance due to the nature of gaming and sensitive information gathering

            From the very beginning of the project it is anticipated that there will serious resistance by both senior management and the flagship property management due to anxieties created by issues of vulnerability.  This issue relates to the importance that management's actions in trying to resolve the presenting problem, on both the corporate and local level, were done in a positive and sensible manner.  The gaming industry by nature harbors egocentric behavior and the penalty for poor decision making or embarrassment can result in career damaging ramifications.

            In addition, it has become an industry norm to be more worried of perceived dangers from external elements then to worry about disadvantages created in an attempt to stem this uncertain problem.  A drop in live game hold percentage usually is not recognized as resulting from statistical negative fluctuation.  Negative fluctuation is an intangible, unpredictable, and uncontrollable event.  Management cannot touch, smell, see, or alter the nature statistical fluctuation so they have a tendency to search for more tangible reasons for their temporary downward turn in gaming revenue.  Issues regarding assaults by card counters and advantage players, and lack of game protection measures are something that management can see, experience and read about in gaming periodicals, and are recognized as the primary reasons for low production efficiency.

            Subsequently, the prevailing attitude of gaming management is to 'play it safe', regardless of any other affect it might have on the performance of their games or the negative perception it might have with the gaming customer.  Any suggestion or alternative contrary to this prevailing belief will be faced with stiff resistance at both the individual property and corporate level.

Discovery and Dialogue

Redefining the presenting problem

            The true problem is not the problem XYZ presented the consultant, but it is the symptom created by the problem.  The problem is not whether or not professional blackjack players are penetrating XYZ Gaming's defenses; the core problem can be redefined as, 'why is there a diminishing hold percentage and a decrease in blackjack revenue?'  To correct the problem one must first find the real reason or group of reasons for the decrease in revenue, and then develop solutions that will halt the downward trend, and outline a strategy that can be implemented to return blackjack revenues to their previous or higher levels.

Choosing a decision-making methodology

            Since this situation requires the identification of the root difficulty of the presenting problem, the establishing of alternative solutions, and the focusing on the best solution to the problem, the best decision-making methodology would be to use the systematic problem-solving model.  This model is constructed to allow the analyst to explore the problem, explore alternative solutions, decide on the best solution(s), plan and implement the necessary changes, and gather feedback to correctly recommend additional changes (Stevens, 2004).

Eliminating alternatives and focusing on the true solution

            The consultant needs to develop methodology strategy that will objectively examine all alternative solutions, and either accepted or rejected these alternatives in order for the consultant to narrow the scope of solutions and focus on the solutions that will result in the best implementation strategy (Block, 2000, pp.179-180).  Based on the information collected and the key personal interviewed the consultant can draw the following preliminary conclusions:

1. Customer comfort is not and issue.  Management substantiates the fact that engineering at XYZ Gaming's flagship property regularly check to insure that present table lighting candle power, sound decibel levels, and temperature conditions remain at previously established satisfactory standards.  In addition the chairs used at the table are purchased from one of the major casino furniture manufacturers and the table rims and layouts are repaired on a regular basis to provide the players with a clean and comfortable playing service.  A review of customer complaint forms failed to show any problems with customer service in the live gaming area, while the casino's commitment to ongoing customer service training of all frontline employees supports this finding.
2. Blackjack dealer game pace is not an issue.  A review of the game pace audits conducted by surveillance indicated that the blackjack employees, for the most part, are within the guidelines for standard dealer performance, while anyone who falls below that standard is consulted about their substandard performance.  GPA evaluations are effective in evaluating the dealer's game pace, however the GPA system does not take into consideration all elements involved in blackjack game time and motion issues.
3. An external attack by professional blackjack players is not an issue.  After reviewing surveillance documentation on card counting and other extraordinary occurrences the consultant failed to discover any indication of any sustained attacks against XYZ Gaming's blackjack games.  It was also noted that the surveillance department at the XYZ Gaming's flagship property was well trained, properly staffed, and possessed all the necessary equipment and software to make correct player evaluation and are in a good position to detect professional players.  It was also noted that several game protection procedures were in place that made the casino extremely unattractive to the profession players in the first place.
4. Statistical fluctuation may be an issue and needs to be examined further.  Analysis of the properties thirty-six month blackjack hold percentage indicates that the monthly percentages are within normal confidence limits; however there is indication that there has been a change in hold percentage trends over the last twelve months.  This downward trend would indicate that there are other forces at work outside of normal statistical fluctuation.
5. Game procedures and rules indicate they may present issues that have affected the hold percentage.  The elimination of several continual shuffling machines being trialed by the casino, and the addition of several new game protection procedures that normally retard the pace of the blackjack game, could be decreasing the number of rounds and wagering results, and need to be examine further.  The construction of a time and motion model based on present casino conditions should determine the approximate effect each game protection procedure has on blackjack hold percentage and revenue.

Conducting the trend analysis

            A trend analysis is necessary to establish whether the hold percentage at the XYZ Gaming's flagship property confidence level have changed over the past several months.  In order to conduct a comprehensive analysis the thirty-six month period needs to be converted to a six month moving average to reduce the statistical peaks and valley so that a relative trend line can be observed.  Once the numbers have been smooth and a trend line created the consultant will be able to determine whether or not a downward trend exists.  If this appears to be the situation then conclusions can be drawn as to the approximate starting point of the downward trend and new confidence interval limits established.

Constructing the time and motion model

            To help the consultant develop a better picture of the efficiency of the blackjack games at the flagship property, a time and motion model needs to be constructed that will combine all the elements and procedures of the game to determine daily and monthly win and hold percentage projection, and number of rounds dealt per hour.  The basic model takes into consideration the following blackjack information;

1. Average number of blackjack games open during a twenty-four hour period
2. Average number of players per table during a twenty-four hour period
3. The average monetary amount the players would be wagering on any given hand
4. The estimated average house advantage per player hand
5. The number of rounds traditional dealt per hour in blackjack
6. The historical hold percentage of the property for blackjack

            This information can be taken from several sources.  The information about average games open, average players per table, and average bet can be taken from reviewing surveillance video tapes over a several week period.  Although this method is extremely accurate, it's quite costly in time and resources, and will take several weeks to compile.  Instead there is a method which is almost as accurate but much quicker and requires not additional expense.  This is accomplished by collectively tapping the casino's three primary shift managers for the information, and combining their input into a workable average.

Develop conclusions of how the problem has been managed

            Conversations with management have reveled that any mention of discussing alternatives that alter their present stance on game protection issues will meet with stiff resistance at both the property and corporate levels.  Before the consultant can expect the client to consider relaxing security issues both the property and corporate management will have to be totally convinced through overwhelming evidence that time and motion issues are more important and more likely to have a positive effect on blackjack revenue.  It might be a wise strategy to have the client involved in the collection and analysis phase of the project.  By involving the client or representative of the client at this juncture the possibility for solution acceptance and implementation will be greatly increased.  It will also be imperative to convince the client that the consultant's participation in the final decision and implementation meetings is mandatory (Block, 2000, p.35).

Results of analysis

            A trend analysis was conducted on the past thirty-six month data of the hold percentage in blackjack at the flagship property.  The six month moving average show marked changes in the average hold percentage approximately ten months prior to this project (See Appendix B).  After examining procedural changes during the last two years it was noted that the drop in hold percentage corresponded with the end of the continual shuffling machine trial period and three procedure changes.  These changes which occurred in January and February 2004 were:

1. Management decided to remove several of the continual blackjack shuffling machines from their casino floor the first week in January.  This was based on industry rumors and their belief that the machines might be flawed and wouldn't produce the increase in revenue management have estimated.  Industry rumors about these devices are totally contrary to theoretical assumptions developed by the manufacture and other gaming experts.
2. Management changed the policy for deck penetration in their six deck shoe (percentage of cards in the shoe that will be dealt to the players).  In the past the games were dealt until an approximately one and one half decks remained in the shoe (75%).  It was XYZ Gaming belief that reduce shoe penetration to cutting off two decks (66%) would prevent card counters from taking advantage of their games once the continual shuffling machines were removed.
3. In a further attempt to thwart a possible threat from card counters, management instituted the procedure of 'no mid shoe entry' on all shoe games (90% of the casino's blackjack games are 6 deck shoes).
4. In an answer to decreasing hold percentage and to prevent attacks on their six deck shoe games from advantage players utilizing shuffle tracking techniques, beginning in February management instituted a third pass to the six deck manual shuffle.  (Note: the number of passes represents the number of times all cards are shuffled together.  Standard practice in the industry includes one, two, and three pass shuffles.)

            Based on the consultants past experience, he was aware that the drop in blackjack hold percentage and the changes in game protection procedures were not totally coincidental.  To support this position the consultant used the time and motion model to show the theoretical effects of these changes on the game of blackjack.  It was noted that the procedure changes of reducing the shoe penetration point to 4 decks from 4.5 decks, and the institution of no mid-shoe entry cost each blackjack game an average of 9.5 rounds per hour.  This change reduced the rounds an hour from 60 down to 50.5.  The final procedure change of adding an addition pass to the manual six deck shuffle during the following month decreased the number of rounds dealt per hour even further; down 4.2 rounds to 46.3 rounds dealt per hour.  The loss of rounds directly effects the amount of theoretical the games expect to win.  The loss of month revenue can be estimate to be approximately $350,000 with a decrease in average hold percentage estimated at approximately 3% (see Appendix C).

Developing a Conclusion

            Based on the data analysis and interviews with key personal it can be established that XYZ Gaming needs to eliminate the game protection procedures of no mid-shoe entry, remove the third pass of their manual shuffle, and increase deck penetration, while at the same time considering further procedural changes which would speed up their blackjack games to increase revenue gains past previous levels.  These changes would consist of introducing a one pass shuffle and increasing six deck shoe penetration to five decks.  In an attempt to reduce some degree of management anxiety over game protection issues, it is also suggested that the client consider increasing card counter and professional player awareness by developing an ongoing training program for all supervisory and surveillance personal.  These programs will increase their blackjack game knowledge and reduce levels of card counting paranoia.

Second Client Meeting

Feedback Presentation

            The consultant arranged a presentation regarding XYZ Gaming's diminishing Blackjack revenue and hold percentage to the client and all stakeholders involved in Blackjack gaming at the XYZ Gaming Corporation's flagship property in Las Vegas.  The presentation was primarily done orally incorporating group discussions concerning each step of the problem analysis.  Both the consultant, and the client's representative who has been working along with the consultant regarding the problem analysis, moderated the structure of the presentation.    The presentation included the following categories;

1. An outline of the presented problem
2. Discussion about the redefined problem
3. Analysis of the problem including PowerPoint slide examples (Appendix A ÐD)
4. Discussion about alternative solutions to the existing problem
5. A group decision regarding the solution or group of solutions to be implemented
6. Establish a date when an implementation meeting can be held

Client's Response to the Presentation

            Based on common beliefs in the gaming industry there was much resistance to the alternative solutions suggested in the second client meeting.  Many of the meeting participants still felt more reliance on the safety of the game protection instead of the more aggressive strategy of increasing the number of hands dealt and gaming decisions achieved.  By re-reviewing the PowerPoint slides containing the financial advantages created by speeding the Pace of the blackjack game, and true affect that professional players have over the game of blackjack, all stakeholders finally realized the huge financial advantage of eliminating the old game protection procedures and implementing the new and faster procedures.  At the conclusion of the meeting all stakeholders were convinced of these advantages and were eager to make the changes.

Recommendations for Implementation and Client Engagement

            Base on the decisions agreed upon during the second client meeting, the following steps need to be accomplished in order to assure successful problem solution implementation.  The implementation steps suggested by the consultant are as follows;

1. Determine the various procedures that need to be eradicated and which procedures need to be instituted
2. Plan a series of open dialogue meetings to inform all frontline Blackjack employees of the rule changes and what the changes are intended to accomplish
3. Continually monitor the Blackjack game results after implementation and conduct periodical reviews
4. Monitor the activity levels of card counters and professional players for continuing evaluation of game protection/game speed trade-off

            Since implementation will occur immediately when the procedures are changed, there should be an emphasis placed on the monitoring of results of the change.  This measurement program needs to take into consideration the both the financial and the game protection effects of the implemented procedure changes to insure the changes continue to provide significant profit for the XYZ Gaming Corporation.  It is also strongly suggested that the consultant be involved in the periodical metric reviews.

Final Reflection

Implementation Limitations and Final Recommendations

            For these procedure changes to be successful the client needs to extend as much support for the implementation as possible.  XYZ Gaming's executive committee has to stand firm and not waiver from their new position in the face of any possible negative statistical fluctuations that are normal to the gaming industry.  There are several past examples in the gaming industry that indicate the correction of procedures to increase game pace of blackjack have been reversed as soon as revenues and hold percentages dropped temporality.  Many gaming executives are very myopic in their live game procedure strategy, and will modify live game rules in an attempt to alter short-term trends.  This belief appears to be a 'safe harbor' solution, but will retard the casinos ability to produce revenue, as well as create a negative perception with their regular gambling customers.  The client needs to make a solid long-term commitment to abiding by the consultants discover and analysis, and the decision to implement the new procedures to increase gaming revenues through increased wagering decisions.

References

Block, Peter (2000). Flawless Consulting: Second Edition. New York: Jossey-            Bass/Pfeiffer.

Stevens, T. (2004). Systematic Problem-Solving: Make Better Decisions.  Retrieved on             November 6, 2004 from http://front.csulb.edu/tstevens/wsps.htm.

Zender, Bill (2004).  Seminar on Casino Mathematics, University of Nevada, Reno.             PowerPoint Presentation format.  Seminar presented on November 9, 2004.

Appendix A

Appendix B

Six Month Moving Average Trend Analysis

Appendix C

Cause and Effect Ð Six Deck Shoe

Appendix D