I encourage all of you to write in and share you concerns and opinions about the business world. I also enjoy receiving requests for possible future articles. This entry is a response from one of my readers in Dubai.
The reader wanted guidance on decision making. How to “make” a decision, how to defend it and what to do when it is wrong.
The decision making process
I have coached hundreds of people and decision making seems to stress out many of them. Before we start talking about the process, I want you to take a step back and realize you already make dozens of decisions each day. From the time you wake up until the time you go back to sleep, you are constantly making decisions.
What is decision making?
Decision making is the process of choosing a course of action based on available information, the desired outcome and personal preference.
We all know that perfect information is not available each time we need to make a decision. Every decision also involves the process of risk management. The less perfect the information, the more risk management will be required.
In its simplest form, risk management is the act of balancing the desired outcome against the slew of possible negative occurrences, the impact of each and the likelihood each may occur.
No such thing as perfect
In a perfect world, you would be given all of the required information and plenty of time to make your decisions but that isn’t usually what happens in the real world. Generally we are asked to make decisions with imperfect information because we are short on time (to consider all the alternatives or to collect additional information), money (the cost of delaying the decision or the cost of obtaining it) or expertise (we don’t have access to counsel for educated guidance).
No matter how you slice it, there are always two sides.
We often get caught up with the actual decision at hand and forget to look at the bigger picture. What is the desired end result? How will making this decision help you reach that target?
What you find may surprise you. Sometimes you may realize that the decision is not relevant and doesn’t even need to be made. Other times you may realize that by looking at the bigger picture, new options may surface. Never accept the fact that your decision has to be limited to options A or B. Always demand options C, D and E.
How much information is required to take the proper decision? Too little information means you are guessing. Too much information may lead to information overload and brain lock.
Our decisions are rarely made in isolation. Each decision impacts the other one and this has to be considered. Will approving this project mean the other project gets cancelled? Also, what is the impact of a bad decision. If the impact is minimal then make it quickly and move on. If it is severe, maybe you need to look at it more closely.
Knowing the desired outcome means that sometimes the best decision may not be the cheapest but the fastest to implement. It may not be the fastest to implement but the most reliable one.
Time constraints also play an important role in decision making. How much time do you actually have to make the decision?
Understanding your intuition
You make decisions on a daily basis and often never realize the process you use.
There are several different decision frameworks, here are some of the more business relevant ones:
-Optimal Outcome Framework This is the process you use when the only acceptable outcome is the best one available. This framework is not always possible because it requires time to make the decision and lots of support information.
-Quickest Outcome Framework This is the process you use to choose the first outcome that satisfies your minimum requirements. This is a time saver since you search for outcomes until you find the first one that meets your minimum criteria.
-Maximization of Outcome Framework This is the process you use to choose the outcome with the best payback.
-Minimax Framework This is the process where the worst case loss is minimized when considering all available outcomes.
Common sense prevails
By knowing what the ideal desired outcome is, you can choose the appropriate decision framework. It will also dictate how much information you should consider at minimum before taking a decision.
The rule of thumb is to collect as much information as financially and reasonably possible. Remember that too much information will cloud your judgment.
For each alternative, consider the best and worst case scenario. Rate the risk of each possible option along with the various outcomes. How much risk are you willing to accept?
As an example, the one outcome may have the biggest payoff and the biggest chance of success but failure with that choice could wipe out your company. Are you willing to take this risk?
The last and final step is to make your decision. The best decision will be part methodical analysis, part gut feeling. Some of the most successful business people say they make their selection using “gut instinct”.
By now you know your desired outcome, you have collected the right amount of information and have decided on the optimal decision framework. You can use one of the business analysis models to further guide your decision making.
-Pareto analysis This is the 20/80 rule you have heard countless times. It states that doing 20% of the work should yield 80% of the desired results. You can read up on it here: http://en.wikipedia.org/wiki/Pareto_analysis
-Grid Modeling The easiest way to understand this is to think of a spreadsheet. You use a column and row type layout to illustrate the options and the impact of each.
-Plus, Minus and Interesting You draw 3 columns on a piece of paper with the headings “Plus, Minus and Interesting”. Each row becomes one possible outcome. For each row, you write down the positive aspects in the Plus column. You write the negative aspects in the Minus column. You write down the implications and possible outcomes in the Interesting column. It is a way to consider each outcome fully.
-Forcefield analysis Is a tool to analyse and understand the pressures for and against change. There is a great write-up and free worksheet for this technique here : http://www.mindtools.com/pages/article/newTED_06.htm
-Six Thinking Hats This is a tool that helps you look at the decision from all points of view. It helps you move outside of your comfort zone and make a well rounded decision. You can read up on it here : http://en.wikipedia.org/wiki/SixThinkingHats
-Cost Benefit analysis No enumeration of decision models would be complete without this mainstay in the business world. It is simply the act of adding up the value generated from each option, subtracting associated costs and choosing the one that makes the most mathematical sense.
Remember that every decision involves some level of risk. There is no such thing as a risk free decision.
Most people will feel a certain amount of fear when making decisions with moderate risk. This is completely normal. Decision making means you are “getting out of your comfort zone” and this too is sometimes uncomfortable and may cause anxiety.
As long as you make a decision based on fact which is congruent with your ethics and morals, you will be fine. I find that imagining the various possible outcomes sometimes helps make the choice easier. Use the power of visualization. When visualizing it, does it feel right?
Once you have considered “enough” of the possibilities, make a decision without delay. Waiting too long often becomes paralyzing.
Not every decision you make will be the best one. The important is to learn from each decision to ensure the next one is just a little better. We all make mistakes.