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Techniques for Effective Decision Making
The techniques in this section help you to make the best decisions possible with the information you have available. ...
The section starts with some simple techniques which help you to make decisions where many factors a re claiming your attention. It then moves on to a number of more powerful techniques such as use of Decision Trees, 6 Thinking Hats and Cost/Benefit Analysis which are routinely used in commercial decision-making.
As with the articles on complexity, decision-making is a complex and well-developed area - we can only go so far in these articles, introducing you to relatively simple techniques. ... Alternatively, decision-making skills are core components of most good MBA courses - some of the resources on the left will introduce you to these.
Introduction
Pareto Analysis - Choosing What to Change
Paired Comparison Analysis - Working Out the Relative Importance of Different Options
Grid Analysis - Making a Choice Taking Into Account Many Factors
Decision Trees- Choosing by Valuing Different Options
PMI - Weighing the Pros and Cons of a Decision
Force Field Analysis - Analyzing the Pressures For and Against Change
Six Thinking Hats - Looking at a Decision From Different Perspectives
Cost/Benefit Analysis - Seeing Whether a Decision Makes Financial Sense
Introduction
Decision Making Techniques
The techniques in this chapter help you to make the best decisions possible with the information you have available. ...
Tools we will discuss are:
• Selecting the most important changes to make - Pareto Analysis
• Evaluating the relative importance of different options - Paired Comparison Analysis
• Selecting between good options - Grid Analysis
• Choosing between options by projecting likely outcomes - Decision Trees
• Weighing the pros and cons of a decision - PMI
• Analyzing the pressures for and against change - Force Field Analysis
• Looking at a decision from all points of view - Six Thinking Hats
• Seeing whether a change is worth making - Cost/Benefit Analysis
In this chapter we look at decision-making tools in two stages. Firstly we will look at a set of good techniques that help you to select between different options. This part finishes by discussing Decision Trees, which are excellent decision-making tools. ...
These techniques build on the tools discussed in the section on Tools for Understanding Complex Situations, in that decision-making follows on from an understanding of the situation. ...
Do remember, though, that the tools in this chapter exist only to assist your intelligence and common sense - these are your most important assets in good decision-making. ...
Grid Analysis
- Making a Choice Where Many Factors Must be Balanced
How to use tool:
Grid Analysis is a useful technique to use for making a decision. ...
The first step is to list your options and then the factors that are important for making the decision. ...
Next work out the relative importance of the factors in your decision. ...
The next step is to work your way across your table, scoring each option for each of the important factors in your decision. ... Note that you do not have to have a different score for each option - if none of them are good for a particular factor in your decision, then all options should score 0. ... This will give them the correct overall weight in your decision. ...
If the wind-surfer still feels unhappy with the decision, maybe he has underestimated the importance of one of the factors. ...
Decision Tree Analysis
- Choosing Between Options by Projecting Likely Outcomes
How to use tool:
Decision Trees are excellent tools for helping you to choose between several courses of action. ...
Drawing a Decision Tree
You start a Decision Tree with a decision that you need to make. ... If the result of taking that decision is uncertain, draw a small circle. If the result is another decision that you need to make, draw another square. ... Write the decision or factor above the square or circle. ...
Starting from the new decision squares on your diagram, draw out lines representing the options that you could select. ...
Evaluating Your Decision Tree
Now you are ready to evaluate the decision tree. ...
This will give you a tree like the one shown in Figure 2:
Calculating Tree Values
Once you have worked out the value of the outcomes, and have assessed the probability of the outcomes of uncertainty, it is time to start calculating the values that will help you make your decision.
Start on the right hand side of the decision tree, and work back towards the left. As you complete a set of calculations on a node (decision square or uncertainty circle), all you need to do is to record the result. ...
Calculating The Value of Decision Nodes
When you are evaluating a decision node, write down the cost of each option along each decision line. ... This will give you a value that represents the benefit of that decision.
Note that amounts already spent do not count for this analysis - these are sunk costs and (despite emotional counter-arguments) should not be factored into the decision.
When you have calculated these decision benefits, choose the option that has the largest benefit, and take that as the decision made. This is the value of that decision node.
Figure 4 shows this calculation of decision nodes in our example:
In this example, the benefit we previously calculated for new product, thorough development was £210,000. ... On this branch we therefore choose the most valuable option, new product, thorough development, and allocate this value to the decision node. ...
Key points:
Decision trees provide an effective method of decision-making because they:
• clearly lay out the problem so that all options can be challenged
• allow us to analyze fully the possible consequences of a decision
• provide a framework to quantify the values of outcomes and the probabilities of achieving them
• help us to make the best decisions on the basis of existing information and best guesses.
As with all decision-making methods, decision tree analysis should be used in conjunction with common sense - decision trees are just one important part of your decision-making tool kit.
PMI
- Weighing the Pros and Cons of a Decision
How to use tool:
PMI stands for Plus/Minus/Implications. ...
PMI is an important decision-making tool: the mind tools used so far in this section have focused on selecting a course of action from a range of options. ...
By this stage it may already be obvious whether or not you should implement the decision. ...
Key points:
PMI is a good way of weighing the pros, cons and implications of a decision. ...
If the decision is still not obvious, you can then score the table to show the importance of individual items. The total score should show whether it is worth implementing the decision
Force Field Analysis
- Understanding The Pressures For and Against Change
How to Use the Tool:
Force Field Analysis is a useful technique for looking at all the forces for and against a decision. ...
By carrying out the analysis you can plan to strengthen the forces supporting a decision, and reduce the impact of opposition to it. ...
Six Thinking Hats
- Looking at a Decision From All Points of View
Six Thinking Hats is an important and powerful technique. ...
Black Hat:
Using black hat thinking, look at all the bad points of the decision.
Approximate Word count = 6016
Approximate Pages = 24.1
(250 words per page double spaced)
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