Decision Making Techniques
How to make better decisions
Good decision making is an essential skill for career success generally, and effective leadership particularly. If you can learn to make timely and well-considered decisions, then you can often lead your team to spectacular and well-deserved success. However, if you make poor decisions, your team risks failure and your time as a leader will, most likely, be brutally short.
The techniques in this section help you to make the best decisions possible with the information you have available. They help you map out the likely consequences of decisions, work out the importance of individual factors and choose the best course of action to take.
The section starts with some simple techniques that help you to make decisions where many factors are 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.
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
Decision Tree Analysis
Choosing Between Options by Projecting Likely Outcomes
Decision Trees are excellent tools for helping you to choose between several courses of action. They provide a highly effective structure within which you can lay out options and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action.
How to use tool
You start a Decision Tree with a decision that you need to make. Draw a small square to represent this towards the left of a large piece of paper.
From this box draw out lines towards the right for each possible solution, and write that solution along the line. Keep the lines apart as far as possible so that you can expand your thoughts.
At the end of each line, consider the results. 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. Squares represent decisions, and circles represent uncertain outcomes. Write the decision or factor above the square or circle. If you have completed the solution at the end of the line, just leave it blank.
Starting from the new decision squares on your diagram, draw out lines representing the options that you could select. From the circles draw lines representing possible outcomes. Again make a brief note on the line saying what it means. Keep on doing this until you have drawn out as many of the possible outcomes and decisions as you can see leading on from the original decisions.
An example of the sort of thing you will end up with is shown in Figure 1:
Once you have done this, review your tree diagram. Challenge each square and circle to see if there are any solutions or outcomes you have not considered. If there are, draw them in. If necessary, redraft your tree if parts of it are too congested or untidy. You should now have a good understanding of the range of possible outcomes of your decisions.
Evaluating Your Decision Tree
Now you are ready to evaluate the decision tree. This is where you can work out which option has the greatest worth to you. Start by assigning a cash value or score to each possible outcome. Estimate how much you think it would be worth to you if that outcome came about.
Next look at each circle (representing an uncertainty point) and estimate the probability of each outcome. If you use percentages, the total must come to 100% at each circle. If you use fractions, these must add up to 1. If you have data on past events you may be able to make rigorous estimates of the probabilities. Otherwise write down your best guess.
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. You can ignore all the calculations that lead to that result from then on.
Calculating The Value of Uncertain Outcome Nodes
Where you are calculating the value of uncertain outcomes (circles on the diagram), do this by multiplying the value of the outcomes by their probability. The total for that node of the tree is the total of these values.