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Decision Making Tools And Techniques Essay

Problem solving and decision-making are important skills for business and life. Problem-solving often involves decision-making, and decision-making is especially important for management and leadership. There are processes and techniques to improve decision-making and the quality of decisions. Decision-making is more natural to certain personalities, so these people should focus more on improving the quality of their decisions. People that are less natural decision-makers are often able to make quality assessments, but then need to be more decisive in acting upon the assessments made. Problem-solving and decision-making are closely linked, and each requires creativity in identifying and developing options, for which the brainstorming technique">https://www.businessballs.com/problem-solving-and-decision-making/brainstorming-for-team-building-and-problem-solving-how-to-109/">brainstorming technique is particularly useful. See also the free SWOT analysis template and examples, and PEST analysis template, which help decision-making and problem-solving. SWOT analysis helps assess the strength of a company, a business proposition or idea; PEST analysis helps to assess the potential and suitability of a market. Good decision-making requires a mixture of skills: creative development and identification of options, clarity of judgement, firmness of decision, and effective implementation. For group problem-solving and decision-making, or when a consensus is required, workshops help, within which you can incorporate these tools and process as appropriate. Here are some useful methods for effective decision-making and problem-solving: First a simple step-by-step process for effective decision-making and problem-solving.

decision-making process

  1. Define and clarify the issue - does it warrant action? If so, now? Is the matter urgent, important or both. See the Pareto Principle.
  2. Gather all the facts and understand their causes.
  3. Think about or brainstorm possible options and solutions. (See brainstorming process)
  4. Consider">https://www.businessballs.com/problem-solving-and-decision-making/brainstorming-for-team-building-and-problem-solving-how-to-109/">brainstorming process)
  5. Consider and compare the 'pros and cons' of each option - consult others if necessary or useful - and for bigger complex decisions where there are several options, create a template which enables measurements according to different strategic factors (see SWOT, PEST, Porter).
  6. Select the best option - avoid vagueness and weak compromises in trying to please everyone.
  7. Explain your decision to those involved and affected, and follow up to ensure proper and effective implementation.

Decision-making maxims will help to reinforce the above decision-making process whether related to problem-solving or not, for example:

"We know what happens to people who stay in the middle of the road. They get run down." (Aneurin Bevan)

"In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing." (attributed to Theodore Roosevelt - more maxims on the quotes page)

There is often more than one good answers when you are faced with a complex decision. When you've found the best solution you can find, involve others in making it work, and it probably will.

(More useful rules, acronyms and training ideas on the acronyms page.)

'pros and cons' and 'weighted' decision-making methods

A simple process for decision-making is to compile a 'weighted' scored , of 'pros and cons' list.

Pro means 'for', and con means 'against' - i.e., advantages and disadvantages.

For more complex decisions, several options can be assessed against differing significant criteria, or against a single set of important factors. In any case, factors/options can be weighted and scored appropriately.

The 'pros and cons' method can be used especially for two-option problem-solving and decision-making issues where implications need to be understood and a decision has to be made in a measured objective sense.

Using a 'weighted list' scoring method is especially useful in big organizational or business decisions, especially which involve lots of different strategic considerations (as in SWOT and PEST and Porter's Five Forces concept). In such situations you can assess different options according to a single set of criteria (the most important considerations), or you can allocate weighted/scored criteria differently to each option (examples of templates are below).

Some decisions are a simple matter of whether to make a change or not, such as moving, taking a new job, or buying something, selling something, replacing something, etc. Other decisions involve number of options, and are concerned more with how to do something, involving a number of choices. Use the brainstorming process">https://www.businessballs.com/problem-solving-and-decision-making/brainstorming-for-team-building-and-problem-solving-how-to-109/">brainstorming process to identify and develop options for decision-making and problem-solving. If involving a group in the process then running a workshop is often a good approach.

  1. First you will need a separate sheet for each identified option.
  2. On each sheet write clearly the option concerned, and then beneath it the headings 'pros' and 'cons' (or 'advantages' and disadvantages', or simply 'for' and 'against'). Many decisions simply involve the choice of whether to go ahead or not, to change or not; in these cases you need only one sheet.
  3. Then write down as many effects and implications of the particular option that you (and others if appropriate) can think of, placing each in the relevant column.
  4. If helpful 'weight' each factor, by giving it a score out of three or five points (e.g., 5 being extremely significant, and 1 being of minor significance).
  5. When you have listed all the points you can think of for the option concerned compare the number or total score of the items/effects/factors between the two columns.
  6. This will provide a reflection and indication as to the overall attractiveness and benefit of the option concerned. If you have scored each item you will actually be able to arrive at a total score, being the difference between the pros and cons column totals. The bigger the difference between the total pros and total cons then the more attractive the option is.
  7. If you have a number of options and have complete a pros and cons sheet for each option, compare the attractiveness - points difference between pros and cons - for each option. The biggest positive difference between pros and cons is the most attractive option.
  8. N.B. If you don't like the answer that the decision-making sheet(s) reflect back to you, it means you haven't included all the cons - especially the emotional ones, or you haven't scored the factors consistently, so re-visit the sheet(s) concerned.

You will find that writing things down in this way will help you to see things more clearly, become more objective and detached, which will help you to make clearer decisions.

Using a scoring template also allows for the involvement and contribution of other people, far more objectively, controllably and usefully, than by general discusssion without a measurement framework.

'pros and cons' and weighted decision-making templates - examples

This first simple example below enables the weighting of the pros and cons of buying a new car to replace an old car.

The methodology is easily adapted for more complex decisions, such as in business strategy and consideration of more complex factors (notably found within other tools such in SWOT and PEST and Porter's Five Forces).

(The actual scores below are examples and are not suggested weightings of how to make such a decision, which must be your own ideas).

Decision-making criteria depend on your own personal situations and preferences. Criteria and weighting will change according to time, situation, etc.

Your own mood and feelings can also affect how you assess things, which is additional justification for the need of a measurable and robust method.

In bigger strategic business decision-making, it is often beneficial to seek input from others as to factors and weighting scores. In such situations, a template offers a way for people to contribute in a managed structured way.

The main template question can be whatever suits your purposes - it can be about timing, where, who, how, and is not necessarily restricted to two columns. The same methodology can be used to compare a series of several options.

For more complex situations, especially which entail many more rows and columns, it's sensible to use a spreadsheet.

Use whatever scoring method makes good sense to you for your situation. The example shows a low score method, but you can score each item up to 10, or 20 or 100, or an 'A/B/C' or three-star scoring method - whatever works best for you.

Should I replace my old car with a new one?
pros (for - advantages)scorecons (against - disadvantages)score
better comfort3cost outlay will mean making sacrifices5
lower fuel costs3higher insurance3
lower servicing costs4time and hassle to choose and buy it2
better for family use3disposal or sale of old car2
better reliability5big decisions like this scare and upset me4
it'll be a load off my mind2
 total 6 pros20 total 5 cons16

In the above example, on the basis of the pros and cons and the weighting applied, there seems to be a clear overall quantifiable advantage in the decision to go ahead and buy a new car.

Notice that with this decision-making method it's even possible to include 'intangible' emotional issues in the pros and cons comparison, for example 'it'll be a load off my mind', and 'decisions scare and upset me'.

A decision-making pros and cons list like this helps remove the emotion which blocks clear thinking and decision-making. It enables objectivity and measurement, rather than reacting from instinct, or avoiding the issue altogether. Objective measurement helps in making a confident decision.

The total weighted scores are the main deciding factor rather than the total number of pros and cons, although there is not a scientific 'right' or 'wrong' way to consider the total number of pros and cons compared with the total weighted scores.

If the weighted scores are indicating a decision which makes you feel uncomfortable, then check your weightings, and also check that you've not missed out any factors on either side of the table.

If the decision makes you feel uncomfortable and this is not reflected in the table, then add it as a factor and give it a score.

Seeking feedback or input from a trusted neutral friend can be helpful in confirming your factors and their scores.

blank pros and cons decision-making template

You should be able to cut and paste this template into a text editor or spreadsheet. Add more rows or columns as required.

For more complex decisions, especially strategic/organizational, the sub-headings 'pros' and 'cons' should be replaced by the names of the different options.

Refer to other tools such as SWOT and PEST and Porter's Five Forces as appropriate.

question/decision/option:
pros (for - advantages)scorecons (against - disadvantages)score
totalstotals

Note: The above methods are similar to - but not the same as - 'Force Field Analysis', an analytical theory developed by psychologist Kurt Lewin (1890-1947), originally to assess factors influencing group behaviour. The Lewin model is typically shown as a simplified diagram, with horizontal arrows alongside each factor pointing to the space between the columns. Explained above is an different and logically developed weighted decision-making method, not Lewin's Force Field Analysis.

Here's a three-option template example:

This approach enables different criteria to be allocated to each option and weghtred accordingly.

strategic decision weighted template (state decision/issue):
option 3scoreoption 3scoreoption 3score
totals

Here's a three option template which enables weighting/scoring across a single set of criteria:

strategic decision weighted template (state decision/issue):
criteriaopt 1opt 2opt 3
totals

complex problems and decisions - tips

For complex decisions and problems involving more than two possible options you can use a template with additional columns, in which case each column represents a different option, and the rows enable scoring according to the different weighted strategic considerations.

Or establish a single set of criteria across which to score several different otions.

So, in using more than one two columns you can assess options according to:

  • differing weighted criteria for each of the options, or
  • a single set of criteria.

Choose the method(s) which offer you the easiest approach, given the types of options available, and whether you are involving other people in the process.

Where a team of people, or different departments, are involved in the decision-making for lots of options/variations within a big complex situation, it can be useful to delegate the formulation of different two-column 'pros and cons' templates to different teams/people, and this can be a powerful aid to subsequent group discussions. This enables options to be eliminated and filtered and a shortlist of fewer options to be estabished.

In complex situations the wording of the options is important, for example, if considering the best path for one's own career and work development the options might be:

  • be employed, working for a big company
  • be self-employed, working as a consultant or freelancer from home
  • start a business, with premises and staff

A situation like this can be approached by completing three separate pros and cons tables and then comparing the net effects (difference between weighted pros and cons) of each one, or by completing one three-column template, and scoring the main considerations across all three options.

Here's an example of a three-option organizational decision:

  • develop a range of industrial cleaning products
  • develop a range of industrial cleaning services
  • develop a network of distributors for industrial cleaning products and services

Criteria for weighting/scoring and thereby comparing the above three strategic options might typically include factors such as:

  • investment/costs required
  • profitability (gross margin, financial contribution, etc)
  • overhead use/demand
  • competitive advantage
  • ease of market access
  • training needs
  • speed, etc, etc

In both of the above examples the scoring criteria can be more precisely and relevantly established with the aid of other tools like SWOT and PEST and Porter's Five Forces.

Also consider that some decisions and challenges are difficult because you don't have the necessary knowledge or experience, in which case you need first to decide if the decision or challenge is actually appropriate and necessary for you at this stage.

If you don't have the necessary knowledge or experience to compile a decision-making template, then you are not in a good position to make the decision, and you need to bring in the necessary knowledge and experience.

Some decisions have to be made when you are not ready, in which case it is all the more importnat to be as measured as you can be, rather than resort purely to instinct.

Other decisions may seem urgent and necessary, but actually - if you probe and challenge the situation - might not actually be necessary at all.

Do not be forced into a decision if having considered the implications carefully you decide that it's not the best thing to do. The decision to do nothing is often a perfectly good option.

Whatever you do - try to be as objective and measured as you can be, and where it's appropriate or necessary, definitely seek input from others.

Well prepared decisions are easier to make and to implement, and generally produce the best results.




Capital Budgeting Decision Making Tools Essay

Capital Budgeting, the decision making process regarding assets, resources, principal and investments, and how they are to be utilitized within a company. "Capital investment decisions comprise the long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders" (en.wikipedia.org).

Careful budgeting is essential in marketing decisions, for any business. "Decisions on investment, which take time to mature, have to be based on the returns which that investment will make. Unless the project is for social reasons only, if the investment is unprofitable in the long run, it is unwise to invest in it now. Often, it would be good to know what the present value of the future investment is, or how long it will take to mature (give returns)". It could be much more profitable putting the planned investment money in the bank in order to earn interest, or to invest it. Typical Capital budget decisions include the decision to build or invest. A smaller business manager may need "to evaluate whether to spend more on advertising or increase the sales force, although it is difficult to measure the sales to advertising ratio" (www.fao.org/decrep). The following methods will evaluate Capital budgeting:

- Initial Investment Outlay includes the cash needed to purchase new equipment or to construct a new building, less any cash proceeds from the disposal of the replaced equipment. "The initial outlay also includes any additional working capital related to the new equipment. Only changes that occur at the beginning of the project are included as part of the initial investment outlay" (www.moneyinstructor.com).

Net Cash benefits can be described as savings from operations, minus taxes and any change in working capital, which includes the net cash generated from the sale of any assets and the effects of taxes; this is referred to as terminal cash flow.

- The Capital Budgeting Process includes investing in assets or a project that will amount in value to a significant portion of the total assets of the organization. "Capital expenditure decisions, therefore, form a foundation for the future profitability of a company" (Duncan Williamson, 2005) The steps to the capital budgeting process are: establishing the project, identify and consider alternatives, the appraisal (number crunching), analyze the feasibility, plan, and monitor and audit the project.

- The expenses that the project requires must be controlled, using a cost benefit, approach such as "the payback, rate of return, net present value, internal rate of return and the profitability index, there are other techniques of course; but the technique to be used will depend on a range of things, including the knowledge and sophistication of the management of the organization, the...

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