Concepts and Definitions
1. Information. This is knowledge about the decision, the effects of its alternatives, the probability of each alternative, and so forth. A primary focus here is information quality: its reliability, accuracy, and comprehensiveness–in the sense of covering all sides and not being biased or slanted. Note that while substantial information is desirable, the statement that “the more information, the better” is not true. Too much information can actually reduce the quality of a decision. See the discussion on The Effects of Quantity on Decision Making in Part 1.
2. Goals. What is it you want to accomplish? Strangely enough, many decision makers collect a bunch of alternatives (say cars to buy or people to marry) and then ask, “Which should I choose?” without thinking first of what their goals are, what overall objective they want to achieve. Next time you find yourself asking, “What should I do? What should I choose?” ask yourself first, “What are my goals?”
A component of goal identification should be included in every instance of decision analysis.
3. Alternatives.These are the possibilities one has to choose from. Alternatives can be identified (that is, searched for and located) or even developed (created where they did not previously exist). Merely searching for preexisting alternatives will result in less effective decision making. Poor decisions are sometimes made because decision makers choose from a limited set of alternatives, all of which might be poor or at least sub-optimal. “You can’t choose an alternative you are unaware of,” it is said. “What are our choices?” is a key question to ask and ask again.
4. Criteria. These are the characteristics or requirements that each alternative must possess to a greater or lesser extent. Usually the alternatives are rated on how well they possess each criterion. For example, in the decision, “Which car should I buy?” criteria might include fuel economy, safety, durability, and so forth.
5. Ranking or Rating. This is an indication of how well an alternative meets a given criterion. For example, in the choice of which car to buy, alternatve Toyota might rank an 8 on the criterion of economy, while alternative Buick ranks a 6 on the same criterion. Ranking arranges the alternatives in comparison with each other. If there are six alternatives, each one is given a ranking from 1 to 6, with no alternative given the same ranking. A rating represents a measure against a fixed scale, such as 1 to 10, where each alternative is assigned a number independent of the other alternatives. Thus, two alternatives might be given the same rating.
6. Value.Value refers to how important or desirable a particular criterion is. Just as alternatives are ranked or rated, so criteria can be ranked or (better) rated for their importance. In a decision matrix, the valuing of criteria is called weighting.
7. Tradeoffs. It has been said that in problem solving, there are no solutions, only tradeoffs. Every solution comes with its own costs or down side. Hence the idea of cost-benefit analysis. The same idea applies to decision making. It is important to seek out the negatives associated withe each alternative in the decision making process. In other words, understand as fully as possible the impact, good and bad, that a given alternative might have. In your decision about where to live, for example, the alternative of the mountains might score highly on the criteria of esthetics, relaxation, perhaps even cost. But what about the drive time to work? Note that many tradeoffs can be included as criteria, while others might turn out to be show stoppers and cause you to eliminate an alternative altogether. Beware of confirmation bias, where you see only positives and benefits to an alternative.
8. Preferences. These reflect the philosophy and moral hierarchy of the decision maker. We could say that they are the decision maker’s “values,” but that might be confusing with the other use of the word, above. If we could use that word here, we would say that personal values dictate preferences. Some people prefer excitement to calmness, certainty to risk, efficiency to esthetics, quality to quantity, and so on. Thus, when one person chooses to ride the wildest roller coaster in the park and another chooses a mild ride, both may be making good decisions, if based on their individual preferences.
9. Decision Quality. This is a rating of whether a decision is good or bad. A good decision is a logical one based on the available information and reflecting the preferences of the decision maker.
The important concept to grasp here is that the quality of a decision is not related to its outcome: a good decision can have either a good or a bad outcome. Similarly, a bad decision (one not based on adequate information or not reflecting the decision maker’s preferences) can still have a good outcome.
For example, if you do extensive analysis and carefully decide on a certain investment based on what you know about its risks and your preferences, then your decision is a good one, even though you may lose money on the investment. Similarly, if you throw a dart at a listing of stocks and buy the one the dart hits, your decision is a bad one, even though the stock may go up in value.
Good decisions that result in bad outcomes should thus not be cause for guilt or recrimination. If you decide to take the scenic route based on what you know of the road (reasonably safe, not heavily traveled) and your preferences (minimal risk, prefer scenery over early arrival), then your decision is a good one, even though you might happen to get in an accident, or have a flat tire in the middle of nowhere. It is not justified to say, “Well, this was a bad decision.”
In judging the quality of a decision, in addition to the concerns of logic, use of information and alternatives, three other considerations come into play:
A. The decision must meet the stated objectives most thoroughly and completely. How well does the alternative chosen meet the goals identified?
B. The decision must meet the stated objectives most efficiently, with concern over cost, energy, side effects. Are there negative consequences to the alternative that make that choice less desirable? We sometimes overlook this consideration in our search for thrills.
C. The decision must take into account valuable byproducts or indirect advantages. A new employee candidate may also have extra abilities not directly related to the job but valuable to the company nonetheless. These should be taken into account.
10. Acceptance. Those who must implement the decision or who will be affected by it must accept it both intellectually and emotionally.
Acceptance is a critical factor because it occasionally conflicts with one of the quality criteria. In such cases, the best thing to do may be to choose a lesser quality solution that has greater acceptance.
For example, when cake mixes first were put on the market, manufacturers put everything into the mix–the highest quality and most efficient solution. Only water had to be added. However, the mixes didn’t sell well–they weren’t accepted. After investigation, the makers discovered that women didn’t like the mixes because using the mixes made them feel guilty: they weren’t good wives because they were taking a shortcut to making a cake. The solution was to take the egg and sometimes the milk out of the mix so that the women would have something to do to “make” the cake other than just adding water. Now they had to add egg and perhaps milk, making them feel more useful. The need to feel useful and a contributor is one of the most basic of human needs. Thus, while the new solution was less efficient in theoretical terms, it was much more acceptable. Cake mixes with the new formula became quite popular.
Thus, the inferior method may produce greater results if the inferior one has greater support. One of the most important considerations in decision making, then, is the people factor. Always consider a decision in light of the people implementation.
A decision that may be technologically brilliant but that is sociologically stupid will not work. Only decisions that are implemented, and implemented with thoroughness (and preferably enthusiasm) will work the way they are intended to.
Approaches to Decision Making
There are two major approaches to decision making in an organization, the authoritarian method in which an executive figure makes a decision for the group and the group method in which the group decides what to do.
1. Authoritarian.
The manager makes the decision based on the knowledge he can gather. He then must explain the decision to the group and gain their acceptance of it. In some studies, the time breakdown for a typical operating decision is something like this:
make decision, 5 min.; explain decision, 30 min.; gain acceptance, 30 min.
2. Group. The group shares ideas and analyses, and agrees upon a decision to implement. Studies show that the group often has values, feelings, and reactions quite different from those the manager supposes they have. No one knows the group and its tastes and preferences as well as the group itself. And, interestingly, the time breakdown is something like this:
group makes decision, 30 min.; explain decision, 0 min.; gain acceptance, 0 min.
Clearly, just from an efficiency standpoint, group decision making is better. More than this, it has been shown many times that people prefer to implement the ideas they themselves think of. They will work harder and more energetically to implement their own idea than they would to implement an idea imposed on them by others. We all have a love for our own ideas and solutions, and we will always work harder on a solution supported by our own vision and our own ego than we will on a solution we have little creative involvement with.
There are two types of group decision making sessions. First is free discussion in which the problem is simply put on the table for the group to talk about. For example, Joe has been offered a job change from shift supervisor to maintenance foreman. Should he take the job?
The other kind of group decision making is developmental discussion or structured discussion. Here the problem is broken down into steps, smaller parts with specific goals. For example, instead of asking generally whether Joe should take the job, the group works on sub questions: What are Joe’s skills? What skills does the new job require? How does Joe rate on each of the skills required? Notice that these questions seek specific information rather than more general impressionistic opinions.
Developmental discussion (1) insures systematic coverage of a topic and (2) insures that all members of the group are talking about the same aspect of the problem at the same time.
Some Decision Making Strategies
As you know, there are often many solutions to a given problem, and the decision maker’s task is to choose one of them. The task of choosing can be as simple or as complex as the importance of the decision warrants, and the number and quality of alternatives can also be adjusted according to importance, time, resources and so on. There are several strategies used for choosing. Among them are the following:
1. Optimizing. This is the strategy of choosing the best possible solution to the problem, discovering as many alternatives as possible and choosing the very best. How thoroughly optimizing can be done is dependent on
A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values
Note that the collection of complete information and the consideration of all alternatives is seldom possible for most major decisions, so that limitations must be placed on alternatives.
2. Satisficing. In this strategy, the first satisfactory alternative is chosen rather than the best alternative. If you are very hungry, you might choose to stop at the first decent looking restaurant in the next town rather than attempting to choose the best restaurant from among all (the optimizing strategy). The word satisficing was coined by combining satisfactory and sufficient. For many small decisions, such as where to park, what to drink, which pen to use, which tie to wear, and so on, the satisficing strategy is perfect.
3. Maximax. This stands for “maximize the maximums.” This strategy focuses on evaluating and then choosing the alternatives based on their maximum possible payoff. This is sometimes described as the strategy of the optimist, because favorable outcomes and high potentials are the areas of concern. It is a good strategy for use when risk taking is most acceptable, when the go-for-broke philosophy is reigning freely.
4. Maximin. This stands for “maximize the minimums.” In this strategy, that of the pessimist, the worst possible outcome of each decision is considered and the decision with the highest minimum is chosen. The Maximin orientation is good when the consequences of a failed decision are particularly harmful or undesirable. Maximin concentrates on the salvage value of a decision, or of the guaranteed return of the decision. It’s the philosophy behind the saying, “A bird in the hand is worth two in the bush.”
Quiz shows exploit the uncertainty many people feel when they are not quite sure whether to go with a maximax strategy or a maximin one: “Okay, Mrs. Freen, you can now choose to take what you’ve already won and go home, or risk losing it all and find out what’s behind door number three.”
Example: I could put my $10,000 in a genetic engineering company, and if it creates and patents a new bacteria that helps plants resist frost, I could make $50,000. But I could also lose the whole $10,000. But if I invest in a soap company, I might make only $20,000, but if the company goes completely broke and gets liquidated, I’ll still get back $7,000 of my investment, based on its book value.
Example: It’s fourth down and ten yards to go on your twenty yard line. Do you go for a long pass or punt? Maximax would be to pass; Maximin would be to punt.
Decision Making Procedure
As you read this procedure, remember our discussion earlier about the recursive nature of decision making. In a typical decision making situation, as you move from step to step here, you will probably find yourself moving back and forth also.
1. Identify the decision to be made together with the goals it should achieve. Determine the scope and limitations of the decision. Is the new job to be permanent or temporary or is that not yet known (thus requiring another decision later)? Is the new package for the product to be put into all markets or just into a test market? How might the scope of the decision be changed–that is, what are its possible parameters?
When thinking about the decision, be sure to include a clarification of goals: We must decide whom to hire for our new secretary, one who will be able to create an efficient and organized office. Or, We must decide where to go on vacation, where we can relax and get some rest from the fast pace of society.
2. Get the facts. But remember that you cannot get all the facts. Get as many facts as possible about a decision within the limits of time imposed on you and your ability to process them, but remember that virtually every decision must be made in partial ignorance. Lack of complete information must not be allowed to paralyze your decision. A decision based on partial knowledge is usually better than not making the decision when a decision is really needed. The proverb that “any decision is better than no decision,” while perhaps extreme, shows the importance of choosing. When you are racing toward a bridge support, you must decide to turn away to the right or to the left. Which way you turn is less important than the fact that you do indeed turn.
As part of your collection of facts, list your feelings, hunches, and intuitive urges. Many decisions must ultimately rely on or be influenced by intuition because of the remaining degree of uncertainty involved in the situation.
Also as part of your collection of facts, consult those who will be affected by and who will have to implement your decision. Input from these people not only helps supply you with information and help in making the decision but it begins to produce the acceptance necessary in the implementers because they feel that they are part of the decision making process. As Russell Ackoff noted in The Art of Problem Solving, not consulting people involved in a decision is often perceived as an act of aggression.
3. Develop alternatives. Make a list of all the possible choices you have, including the choice of doing nothing. Not choosing one of the candidates or one of the building sites is in itself a decision. Often a non decision is harmful as we mentioned above–not choosing to turn either right or left is to choose to drive into the bridge. But sometimes the decision to do nothing is useful or at least better than the alternatives, so it should always be consciously included in the decision making process.
Also be sure to think about not just identifying available alternatives but creating alternatives that don’t yet exist. For example, if you want to choose which major to pursue in college, think not only of the available ones in the catalog, but of designing your own course of study.
4. Rate each alternative. This is the evaluation of the value of each alternative. Consider the negative of each alternative (cost, consequences, problems created, time needed, etc.) and the positive of each (money saved, time saved, added creativity or happiness to company or employees, etc.). Remember here that the alternative that you might like best or that would in the best of all possible worlds be an obvious choice will, however, not be functional in the real world because of too much cost, time, or lack of acceptance by others.
Also don’t forget to include indirect factors in the rating. If you are deciding between machines X, Y, and Z and you already have an employee who knows how to operate machine Z, that fact should be considered. If you are choosing an investigative team to send to Japan to look at plant sites and you have very qualified candidates A, B, and C, the fact that B is a very fast typist, a superior photographer or has some other side benefit in addition to being a qualified team member, should be considered. In fact, what you put on your hobbies and interests line on your resume can be quite important when you apply for a job just because employers are interested in getting people with a good collection of additional abilities.
5. Rate the risk of each alternative. In problem solving, you hunt around for a solution that best solves a particular problem, and by such a hunt you are pretty sure that the solution will work. In decision making, however, there is always some degree of uncertainty in any choice. Will Bill really work out as the new supervisor? If we decide to expand into Canada, will our sales and profits really increase? If we let Jane date Fred at age fifteen, will the experience be good? If you decide to marry person X or buy car Y or go to school Z, will that be the best or at least a successful choice?
Risks can be rated as percentages, ratios, rankings, grades or in any other form that allows them to be compared. See the section on risk evaluation for more details on risking.
6. Make the decision. If you are making an individual decision, apply your preferences (which may take into account the preferences of others). Choose the path to follow, whether it includes one of the alternatives, more than one of them (a multiple decision) or the decision to choose none.
And of course, don’t forget to implement the decision and then evaluate the implementation, just as you would in a problem solving experience.
One important item often overlooked in implementation is that when explaining the decision to those involved in carrying it out or those who will be affected by it, don’t just list the projected benefits: frankly explain the risks and the drawbacks involved and tell why you believe the proposed benefits outweigh the negatives. Implementers are much more willing to support decisions when they (1) understand the risks and (2) believe that they are being treated with honesty and like adults.
Remember also that very few decisions are irrevocable. Don’t cancel a decision prematurely because many new plans require time to work–it may take years for your new branch office in Paris to get profitable–but don’t hesitate to change directions if a particular decision clearly is not working out or is being somehow harmful. You can always make another decision to do something else.