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Develop Your Decision Making Skills AUTHOR:  Paul Parcon PUBLISHER:  Lotus Press  DATE OF PUBLICATION:  2006 NUMBER OF PAG...
<ul><li>The moment we all open our eyes in the morning, the decision process begins, and continues to happen all throughou...
Decision-Making Defined   <ul><li>Decision-making is the study of identifying and choosing alternatives based on the value...
<ul><li>Ethics   is defined as the branch of philosophy that defines what is good for the individual and society, and whic...
<ul><li>Decisions whether – the yes/no decisions that need to be made before you proceed with the selection of an alternat...
Components of Decision Making   <ul><li>The decision environment  – the collection of information, alternatives, values, a...
Components of Decision Making   <ul><li>Information  – knowledge about the impact of the decision, effects of its alternat...
<ul><li>Optimizing  – strategy of choosing the best solution to the problem, discovering as many alternatives as possible ...
<ul><ul><li>Identify the decision  to be made together with the goals it should achieve. Determine the scope and limitatio...
Risk-Taking in Decision-Making   <ul><ul><li>Some points: </li></ul></ul><ul><ul><li>Only risk-takers are truly free. All ...
Risk-Taking in Decision-Making   <ul><ul><li>Use imaging or role-playing to work through the various possibilities, succes...
Personal Biases in Decision-Making   <ul><ul><li>Here are some of the more common biases: </li></ul></ul><ul><ul><li>Selec...
Decision-Making Techniques   <ul><ul><li>Pareto analysis  – choosing the most important changes to make. This uses the Par...
Decision-Making in Groups <ul><ul><li>There are two major approaches to decision-making in an organization, namely: </li><...
Decision-Making in One’s Personal Life   <ul><ul><li>Many different kinds of decisions exist, from the very concrete to th...
Decision-Making in Healthcare <ul><ul><li>Decision-making is a crucial element in the field of medicine. Both the doctor a...
The Family Decision-Making Process   <ul><ul><li>To increase your chance for a positive decision-making experience: </li><...
The Buyer Decision-Making Process   <ul><ul><li>Buying Behavior is the decision process and acts of people involved in buy...
Multiple Criteria Decision-Making   <ul><ul><li>In many situations there are many, often conflicting, objectives that make...
Decision-Making in Corporate Finance   <ul><ul><li>Corporate finance is an area of finance dealing with financial decision...
Decision-Making Among Athletes   <ul><ul><li>Athletes are faced with countless numbers of choices and options that shape t...
Be a Wise Decision-Maker   <ul><ul><li>Here are ten basic steps to make wiser decisions. </li></ul></ul><ul><ul><li>Define...
Common Decision-Making Mistakes   <ul><ul><li>Here are some mistakes to watch out for. </li></ul></ul><ul><ul><li>Relying ...
BusinessSummaries.com is a business book Summaries service.  Every week, it sends out to subscribers a 9- to 12-page summa...
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Develop Your Decision Making Skills

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Transcript of "Develop Your Decision Making Skills"

  1. 2. Develop Your Decision Making Skills AUTHOR: Paul Parcon PUBLISHER: Lotus Press DATE OF PUBLICATION: 2006 NUMBER OF PAGES: 128 pages
  2. 3. <ul><li>The moment we all open our eyes in the morning, the decision process begins, and continues to happen all throughout our day until we fall asleep at the end of it, whether we are aware of said process or not. We are thus all decision makers. Whether we are good decision makers or not is the question. However, even if one is not a good decision maker, one need not fret – it is an ability that can be learned by anyone. </li></ul><ul><li>Although people can learn at different rates – some more quickly than others of course – there are no short cuts to learning and everyone has to follow a similar learning process to learn how to make good decisions. One of the things that can be learned is a specific process to make a decision. This book, then, outlines this process for its readers and makes the learning process that much quicker and less complex, and thus helps readers improve their decision-making skills. </li></ul>THE BIG IDEA
  3. 4. Decision-Making Defined <ul><li>Decision-making is the study of identifying and choosing alternatives based on the values and preferences of the decision-maker. When we make a decision we have to choose between alternative choices, and we want not just to identify these alternatives, but also to choose the one/s that fit us best. </li></ul><ul><li>Decision-making is the process of reducing uncertainty and doubt about alternatives to allow one to choose one of them. Uncertainty can only be reduced in most cases, not eliminated; very few decisions can be made with absolute certainty because it is almost impossible to know everything that can be known about all the alternatives. </li></ul>
  4. 5. <ul><li>Ethics is defined as the branch of philosophy that defines what is good for the individual and society, and which establishes the nature of obligations or duties which people owe both themselves and one another. </li></ul><ul><li>Making ethical decisions in business is often difficult because business ethics is not just an extension of either an individual’s or a society’s ethics. However, the following support being ethical: </li></ul><ul><ul><li>Trustworthiness - others believe in us and hold us in high esteem; concerns qualities such as honesty, reliability, integrity and loyalty </li></ul></ul><ul><ul><li>Respect – we should treat everyone with respect regardless of who they are and/or what they have done </li></ul></ul><ul><ul><li>Responsibility – we have to be accountable for what we do and who we are </li></ul></ul><ul><ul><li>Fairness – adherence to a balance standard of justice without relevance to one’s feelings or inclinations </li></ul></ul><ul><ul><li>Caring – the heart of ethics and ethical decision-making; we should consciously cause no more harm than is reasonably necessary to perform our duties </li></ul></ul><ul><ul><li>Citizenship – this includes civic virtues and duties which tell us how we ought to behave as part of a community </li></ul></ul>Ethics and Morality in Decision-Making
  5. 6. <ul><li>Decisions whether – the yes/no decisions that need to be made before you proceed with the selection of an alternative. </li></ul><ul><li>Decisions which – these involve a choice of one or more alternatives from a set of possibilities (based on how well each matches up to predefined criteria). </li></ul><ul><li>Contingent decisions – decisions made but put on hold until some condition/s is/are met. </li></ul><ul><li>Decision-making is a recursive process, it is a nonlinear process. Most decisions are made by moving back and forth between the choice of criteria and the identification of alternatives. </li></ul>Kinds of Decisions
  6. 7. Components of Decision Making <ul><li>The decision environment – the collection of information, alternatives, values, and preferences available at the time of the decision. The environment is always constrained because time and effort to gain information or identify alternatives are limited. Decisions must be made within this constrained environment. </li></ul><ul><li>Delaying a decision – potentially good because it allows for the possibility of more information and extended analysis, for the creation of new alternatives, and/or for any changes in the decision maker’s preference/s. </li></ul><ul><li>Effects of quantity – if too much information is obtained, this can delay the decision-making process; also, information overload can occur, as well as mental fatigue. </li></ul><ul><li>Decision streams – decisions can never be made in isolation from one another, but are made in the context of other decisions such that they “flow” into each other, similar to a stream. </li></ul><ul><li>Precision – a combination of the effectiveness of the decision and the use of best practices in the way those strategies are developed </li></ul>
  7. 8. Components of Decision Making <ul><li>Information – knowledge about the impact of the decision, effects of its alternatives, etc. Too much knowledge can be bad, as discussed above. </li></ul><ul><li>Options – possibilities to choose from. </li></ul><ul><li>Standard – characteristics or requirements that each option must possess to a greater or lesser extent. </li></ul><ul><li>Objective – what is it you want to accomplish in the first place? </li></ul><ul><li>Value – how desirable a particular outcome is, and/or its alternatives. </li></ul><ul><li>Decision quality – a rating of whether a decision is good or bad (good decisions are logical, based on the available information and reflect the preferences of the decision maker). </li></ul><ul><li>Acceptance – can conflict with the quality factor; ergo, the best quality solution might not be one that is accepted by the most people. </li></ul><ul><li>Cost of decision – your decision-making’s efficiency is directly related to its costs. </li></ul><ul><li>Agility of decision – how quickly and easily you can implement or change decision strategies. </li></ul>
  8. 9. <ul><li>Optimizing – strategy of choosing the best solution to the problem, discovering as many alternatives as possible and choosing the best. Depends on such factors as importance of the problem, time available for solving it and personal values. </li></ul><ul><li>Satisfactory and satisfying – the first satisfactory alternative is chosen rather than the best overall alternative. </li></ul><ul><li>Maximize the maximums – focuses on evaluating and choosing the alternatives based on the maximum possible payoff. </li></ul><ul><li>Maximize the minimum – the worst possible outcome of each decision is considered and the decision with the highest minimum (or salvage value) is chosen. </li></ul>Decision-Making Strategies
  9. 10. <ul><ul><li>Identify the decision to be made together with the goals it should achieve. Determine the scope and limitations of the decision; clarify goals. </li></ul></ul><ul><ul><li>Get the facts. Get as many as possible; it is impossible to get all of them. </li></ul></ul><ul><ul><li>Develop alternatives. Make a list of all the possible choices you have, including the choice of doing nothing at all. </li></ul></ul><ul><ul><li>Rate each alternative. Consider the negative and the positive of each. </li></ul></ul><ul><ul><li>Rate the risk of each alternative. Rate the degree of uncertainty of the choice by using percentages, ratios, rankings, grades or any such form. </li></ul></ul><ul><ul><li>Make the decision! Apply your preferences and choose the path to follow. Implement the decision and then evaluate the implementation. </li></ul></ul>Decision-Making Procedure
  10. 11. Risk-Taking in Decision-Making <ul><ul><li>Some points: </li></ul></ul><ul><ul><li>Only risk-takers are truly free. All decisions of consequence involve risk. </li></ul></ul><ul><ul><li>There is no such thing as permanent security. </li></ul></ul><ul><ul><li>You are supposed to be afraid when you risk. </li></ul></ul><ul><ul><li>Risking normally involves a degree of separation anxiety, the anxiety you feel when you are removed from something that makes you feel secure. </li></ul></ul><ul><ul><li>Tackling risk in decision-making </li></ul></ul><ul><ul><li>Decide whether the risk is necessary or desirable. </li></ul></ul><ul><ul><li>Risk for the right reasons and when you are calm and thoughtful. Don’t take a risk when you are emotional. </li></ul></ul><ul><ul><li>Have a goal. Have clear purposes in mind. </li></ul></ul><ul><ul><li>Determine the possible loss as well as the gain – know exactly what the consequences of failure will be. </li></ul></ul><ul><ul><li>Make an accurate estimate about the probability of each case. </li></ul></ul><ul><ul><li>When possible, take one risk at a time. </li></ul></ul>
  11. 12. Risk-Taking in Decision-Making <ul><ul><li>Use imaging or role-playing to work through the various possibilities, successes and failures. </li></ul></ul><ul><ul><li>Use a plan, a timetable with a list of steps to take. </li></ul></ul><ul><ul><li>Act decisively as soon as you’ve evaluated the risk and decided to go for it. </li></ul></ul><ul><ul><li>Don’t expect complete success – be realistic. </li></ul></ul><ul><ul><li>Dismiss extremely remote or unrealistic possibilities that are highly/extremely improbable. </li></ul></ul><ul><ul><li>Avoid catastrophes whenever possible (at any reasonable cost). </li></ul></ul><ul><ul><li>Recognize the tradeoffs – neither deny the risks in living nor worry excessively about life. </li></ul></ul><ul><ul><li>Maximize expected values – go for the greatest probability of the greatest good. </li></ul></ul>
  12. 13. Personal Biases in Decision-Making <ul><ul><li>Here are some of the more common biases: </li></ul></ul><ul><ul><li>Selective search for evidence – disregarding facts that support conclusions we do not favor. </li></ul></ul><ul><ul><li>Premature termination of the search for evidence – we tend to accept the first alternative that looks like it might work. </li></ul></ul><ul><ul><li>Conservatism and inertia – unwillingness to change thought patterns that worked before. </li></ul></ul><ul><ul><li>Experiential limitations – the rejection of the unfamiliar. </li></ul></ul><ul><ul><li>Wishful thinking or optimism – we tend to want to see things in a positive light and it can distort our perception and thinking. </li></ul></ul><ul><ul><li>Recency – neglect of older information and favoring of more recent information. </li></ul></ul><ul><ul><li>Group think – peer pressure to conform to the options held by a group. </li></ul></ul><ul><ul><li>Repetition bias – willingness to believe what we have heard most often. </li></ul></ul>
  13. 14. Decision-Making Techniques <ul><ul><li>Pareto analysis – choosing the most important changes to make. This uses the Pareto principle, which states that by using 20% of work you can generate 80% of the advantage of using the entire job. </li></ul></ul><ul><ul><li>Grid analysis – making a choice where many factors must be balanced. Decision matrices are most effective where a number of good alternatives exist and each must be taken into account. </li></ul></ul><ul><ul><li>Plus/minus/interesting (PMI) – weighing the pros and cons of a decision. More than just helping select a course of action, PMI helps determine if the choice is really going to improve the situation. </li></ul></ul><ul><ul><li>Force field analysis – understanding the pressures for and against change. A useful technique for looking at all forces for and against the decision and a specialized method of weighing pros and cons. </li></ul></ul><ul><ul><li>Six thinking hats – looking at a decision from all points of view. This forces one to move outside of one’s habitual thinking style and get a more rounded view of any situation. </li></ul></ul><ul><ul><li>Cost/benefit analysis – evaluating quantitatively whether to follow a course of action. Add up the value of the benefits of a course of action and subtract the costs associated with it. </li></ul></ul>
  14. 15. Decision-Making in Groups <ul><ul><li>There are two major approaches to decision-making in an organization, namely: </li></ul></ul><ul><ul><li>Authoritarian – the manager makes the decision based on the knowledge he gathers, and then explains the decision to the group to get their acceptance. </li></ul></ul><ul><ul><li>Group – the group shares ideas and analyses and agrees upon a decision to implement, in either a free discussion format (in which the problem is simply put on the table for people to discuss) or a structured discussion (which ensures systematic coverage). This can be better in some circumstances because people prefer to implement the ideas they themselves think of. </li></ul></ul><ul><ul><li>A critical aspect for decision-making groups is the ability to converge on a choice. They may do so through politics (the power or ability to influence the individuals in a group) or decision rules such as unanimity, majority or consensus. </li></ul></ul>
  15. 16. Decision-Making in One’s Personal Life <ul><ul><li>Many different kinds of decisions exist, from the very concrete to the very vague. Either way one can usually choose how to implement whatever decision one makes. </li></ul></ul><ul><ul><li>Here are three factors to think about when making personal decisions: </li></ul></ul><ul><ul><li>Responsibility – some decisions are not choices at all; they are requirements and one is responsible for them. </li></ul></ul><ul><ul><li>Spontaneity versus impetuousness – there can sometimes be no reason at all to act on a whim or make a quick choice. While it can be healthy to be spontaneous, one has to guard against being impetuous and foolhardy. </li></ul></ul><ul><ul><li>Long-term effects – decisions one makes now may have effects that stay with one a long time. </li></ul></ul>
  16. 17. Decision-Making in Healthcare <ul><ul><li>Decision-making is a crucial element in the field of medicine. Both the doctor and the patient have to determine what is wrong, what is best for the patient, and how to act accordingly, and health policy makers and insurers have to decide what to promote and what to discourage. </li></ul></ul><ul><ul><li>Here are the steps of making a decision in the health care field: </li></ul></ul><ul><ul><li>Benefits of the action </li></ul></ul><ul><ul><li>Risks in the action </li></ul></ul><ul><ul><li>Alternatives to the prospective action </li></ul></ul><ul><ul><li>Nothing: doing nothing at all </li></ul></ul><ul><ul><li>Decision </li></ul></ul>
  17. 18. The Family Decision-Making Process <ul><ul><li>To increase your chance for a positive decision-making experience: </li></ul></ul><ul><ul><ul><ul><li>Respect each family member as an individual. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Be open to others’ ideas and suggestions. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Actively listen to others’ points of view. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Select a time when all family members who may be affected by the decision are able to participate. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Communicate effectively by listening. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>If feeling out of control, wait until you are able to communicate in a calmer manner. </li></ul></ul></ul></ul>
  18. 19. The Buyer Decision-Making Process <ul><ul><li>Buying Behavior is the decision process and acts of people involved in buying and using products. This process can be affected by various personal, psychological (motives, ability, knowledge, personality) and social factors (family influences, reference groups and the like). </li></ul></ul><ul><ul><li>The process consists of: </li></ul></ul><ul><ul><li>Want recognition </li></ul></ul><ul><ul><li>Search for information on products that can satisfy the buyer’s needs </li></ul></ul><ul><ul><li>Alternative selection </li></ul></ul><ul><ul><li>The decision – whether or not to buy the product </li></ul></ul><ul><ul><li>Post-purchase behavior </li></ul></ul>
  19. 20. Multiple Criteria Decision-Making <ul><ul><li>In many situations there are many, often conflicting, objectives that make decision making quite problematic. The goal would be to choose the “fair” alternative that aggregates the preferences of the decision makers to balance these objectives in a fair way. </li></ul></ul><ul><ul><li>The Analytic Hierarchy Process (AHP) is a mathematical decision-making technique that uses very simple calculations to assign numerical values to factors and alternatives. Simply decompose the goal into its constituent parts, progressing from general to specific. Then assign a relative weight to each one and, after weighing the criteria and collecting the information, put it into the model. Scoring is on a relative basis and is synthesized through the model. </li></ul></ul>
  20. 21. Decision-Making in Corporate Finance <ul><ul><li>Corporate finance is an area of finance dealing with financial decisions made by corporations and the tools and analyses used to make these decisions, for the long- and short-term. </li></ul></ul><ul><ul><li>Companies may have to decide regarding: </li></ul></ul><ul><ul><li>Capital investment – which projects receive investment, whether to finance investment with equity or debt, when or whether to pay dividends to shareholders. </li></ul></ul><ul><ul><li>Financing – management must decide the “optimal mix”, the capital structure resulting in maximum value. </li></ul></ul><ul><ul><li>Dividends – management also needs to decide whether to invest in additional projects, reinvest in existing operations, or return free cash to shareholders. </li></ul></ul>
  21. 22. Decision-Making Among Athletes <ul><ul><li>Athletes are faced with countless numbers of choices and options that shape their future. The ability to focus and not let unnecessary distractions affect one’s goals is an essential part of success in athletics. </li></ul></ul><ul><ul><li>Responsible decision-making in sports involves: </li></ul></ul><ul><ul><li>Basing decisions on accurate, current information. </li></ul></ul><ul><ul><li>Being aware of one’s responsibilities. </li></ul></ul><ul><ul><li>Showing consideration for the wellbeing and needs of others. </li></ul></ul><ul><ul><li>Incorporating a clear and positive sense of one’s physical, financial, social, mental and legal wellbeing into the decision. </li></ul></ul>
  22. 23. Be a Wise Decision-Maker <ul><ul><li>Here are ten basic steps to make wiser decisions. </li></ul></ul><ul><ul><li>Define, as specifically as you can, the decision that needs to be made. </li></ul></ul><ul><ul><li>Write down as many alternatives as you can think of. Let your imagination run free. </li></ul></ul><ul><ul><li>See where more information about possible alternatives can be found. </li></ul></ul><ul><ul><li>Check out your alternatives. Find out more about the specifics of each option. </li></ul></ul><ul><ul><li>Sort through all the alternatives. Evaluate them to see which one/s work best for you. </li></ul></ul><ul><ul><li>Visualize the outcome of each alternative. </li></ul></ul><ul><ul><li>Do a reality check. Cross out those that are least likely to work. </li></ul></ul><ul><ul><li>Which alternative “fits” best? Review the remaining ones and decide which of them are most comfortable. </li></ul></ul><ul><ul><li>Get started! Get moving once you have made your decision. </li></ul></ul><ul><ul><li>Be sure to review your decision at specified points along the road. Remember that you can always change your mind. </li></ul></ul>
  23. 24. Common Decision-Making Mistakes <ul><ul><li>Here are some mistakes to watch out for. </li></ul></ul><ul><ul><li>Relying too much on “expert” information. Experts are only human and have biases and prejudices like the rest of us. Seek information from a lot of different sources. </li></ul></ul><ul><ul><li>Overestimating the value of information received from others. They may not know as much about the problem as you may. Their values may be different. The bottom line is that it is important to keep their opinions in perspective. </li></ul></ul><ul><ul><li>Underestimating the value of information received from others. We may tend to discount information we receive from individuals such as children, low status groups, blue-collar workers or even women. We should not do so as information from these and other such groups can help us gain a better perspective of the problem as a whole. </li></ul></ul><ul><ul><li>Only hearing what you want to hear or seeing what you want to see. Be aware of your prejudices and expectations, and stay open to everything coming your way. </li></ul></ul><ul><ul><li>Not listening to feelings or gut reactions. Tune into your intuition and you will make better decisions in the long run. </li></ul></ul>
  24. 25. BusinessSummaries.com is a business book Summaries service. Every week, it sends out to subscribers a 9- to 12-page summary of a best-selling business book chosen from among the hundreds of books printed out in the United States. For more information, please go to http://www.bizsum.com. ABOUT BUSINESSSUMMARIES

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