- An alcohol-free beer company is facing plummeting sales after ridicule from a famous comedian. The company needs to choose options to address this problem. - Decision making involves selecting a course of action from multiple alternatives. It can be done rationally using methods like cost-benefit analysis or intuitively based on gut feeling. - Rational decision making frameworks involve defining criteria, evaluating alternatives based on how well they meet criteria, and using methods like weighted sums to score and compare options. This allows bolstering cases but does not work well in uncertain or turbulent environments.

1. the Bottom line
Rotterdam, 6 september 2010

2. Making decisions

3. Impact & Effort
Consider you are selling an alcohol-free beer, that gets ridiculed
by the country’s leading stand-up comedian.
as a result sales are plummeting
think of some options and write five of your best on post-it notes.

5. Making decisions
“Decision making can be regarded as the mental processes
(cognitive process) resulting in the selection of a course of action
among several alternatives.” - wikipedia
the science of decision making:
CAPM, net value (risk assesment)
Analytical network process
decision trees
etc...

6. Some vocabulary
Utility= expected outcome (“attractiveness”) of a decision
Risk= the probable distribution of outcomes is known
Uncertainty= the nature of the outcomes is unknown
Regret= measure of how much better a decisionmaker could
have done had he known the nature of the outcomes

7. Decisions under risk (decision tree)
Risk means the probability of the outcomes is known, as are the
values.
(IMHO these instances are actually pretty rare in “normal”
businesses. but the purpose is to illustrate decisions and
outcomes)

8. http://en.wikipedia.org/wiki/Decision_tree

9. Rational decision making process (simplified)
“What is the problem that needs solving?”
therefore which criteria must my solution adress
“how “important” are these criteria?
What solutions do I have?
How (well) do they adress the problem?
What do they cost?

10. Weighted sum method
issue 1 issue 2 issue 3 score
weight 1 0.2 0.6
strategy 1 10 5 4 13.4
strategy 2 5 10 8 11.8
strategy 3 10 5 10 17

11. Recap
Decision making can be done rationally or on gut feeling
Neither has been proven to be “better”
In a case competition / presentation setting you might want to use
the “rational” method to bolster your case.
the rational method does not work well in enviroments of high
uncertainty, complexity and/or turbulence

12. Next week:
defining the business problem
making your case