Decision Making Techniques

Gumi and Company

In business, decision making is a critical process that involves choosing among alternative courses of action. Decision making techniques are systematic processes that help individuals and organizations make better decisions by reducing uncertainty and maximizing outcomes.

These methods help to ensure that decisions are made based on facts, data, and a clear understanding of the potential consequences of each choice. In this article we will touch on the importance of decision making techniques and various decision making techniques.

Why Are Decision Making Techniques Important?

Decision making is a necessity in our everyday lives and it’s equally important in every venture or business. Effective decision making allows for the success of any organization. Decision making techniques help to reduce uncertainty, increase objectivity, and ensure that decisions are made based on data and facts. These techniques also help organizations to identify potential risks and opportunities, which can help them to stay ahead of the competition.

1. Reducing Uncertainty: Business decisions are often made in an environment of ambiguity and unpredictability, where the outcomes of different choices are uncertain. Factors such as changes in the market, competition, technology, regulations, and consumer preferences can all contribute to uncertainty. Decision making techniques help to reduce this uncertainty by providing structured processes for evaluating options and identifying potential risks and opportunities.
2. Increasing Objectivity: Subjectivity can be a challenge in decision making. It often leads to personal bias and reliance on assumptions. Decision making techniques help to increase objectivity by ensuring that decisions are made based on data and facts rather than subjective opinions or biases.
3. Improving Collaboration: Some techniques often involve multiple perspectives and opinions. After all, they say, two heads are better than one. Increased collaboration and teamwork leads to better decisions and increased buy-in.
4. Enhancing Efficiency: Decision making techniques provide a systematic approach that can help individuals and organizations to make decisions more efficiently, saving time and resources.
5. Maximizing Outcomes: By using decision making techniques, individuals and organizations can maximize their outcomes as it allows them to consider all available options and choose the best course of action based on objective criteria.
6. Identifying Potential Consequences: Every decision has a consequence. As a result, a critical part of the decision making process is identifying what the potential consequences are. Decision making techniques help individuals and organizations to identify the potential consequences of each option, including both short-term and long-term impacts. This can help to avoid unintended consequences and ensure that decisions align with the organization’s goals and values.
7. Adapting to Change: Change is a constant. Hence the need for a flexible process to evaluate options and make decisions. This can help organizations to respond quickly to new challenges and opportunities, staying ahead of the competition.

Decision Making Techniques and How To Apply Them

• SWOT Analysis: This technique involves analyzing an organization’s strengths, weaknesses, opportunities, and threats. This helps businesses to identify areas of competitive advantage and potential risks. A small business owner can apply SWOT analysis to identify areas where they need to improve and opportunities they can take advantage of.
• Cost-Benefit Analysis: Cost-benefit analysis has to do with evaluating the potential costs and benefits associated with various alternatives. To illustrate, a business entity that is considering launching a new product line could apply cost-benefit analysis to ascertain whether the venture is financially viable or not.
• Decision Trees: A decision tree is a flowchart where each inner node is a “test” on a particular attribute (e.g. whether it will be rainy or sunny). Each branch represents the possible outcome of the test, while each terminal node, or leaf, denotes a class label (decision arrived at after evaluating all attributes).

Fig. 1 Decision Tree Illustration by: https://www.geeksforgeeks.org

• Six Thinking Hats: The Six Hats method is a technique that involves six different perspectives for examining a decision or an issue; instructing individuals on “how to think” rather than “what to think.” It encourages collaborative thinking and supports innovative, out-of-the-box ideas by employing various perspectives one at a time. The order in which the hats are used is flexible, though deciding on a sequence beforehand may be beneficial.

Depending on the meeting’s objectives, not all hats need to be worn. The Blue Hat sets the rules, usually leading and closing the session, while the White Hat collects and analyzes data. The Green Hat promotes creativity, and the Yellow Hat encourages optimistic views. The Red Hat allows for emotional expression, while the Black Hat applies a critical viewpoint to consider potential negative outcomes.. For example, a team can use six thinking hats to analyze a new product design.

Fig. 2 Thinking Hats Illustration by: Edrawmind

• Pareto Analysis: Pareto Analysis is a decision-making technique that helps assess competing problems by measuring their impact and prioritizing solutions that offer the most benefit. The Pareto Principle is also known as the “80/20 Rule.” The 80/20 principle asserts that 80% of a project’s benefit comes from 20% of the work or that 80% of problems can be traced back to 20% of causes.

Pareto Analysis helps identify and prioritize problems and tasks, allowing people to organize their workloads more efficiently, improve productivity, and increase profitability. As a new department head, using Pareto Analysis can help to determine which challenges to tackle first, ultimately delivering the greatest positive impact.

• Pros and Cons List: The pros and cons list is commonly used and is often an easy go to technique. It involves creating a list of the advantages and disadvantages of each option. A business owner can use a pros and cons list to decide whether to invest in a new technology platform.

To create a pros and cons list, note down the potential advantages for taking the proposed action in a “Pros” section, and all the possible drawbacks in a “Cons” section. Assign a score to each pro and con to indicate its significance. The overall score will assist in determining whether it is advisable to proceed with the decision or not.

• Delphi Method: The Delphi method, also referred to as the estimate-talk-estimate technique (ETE), is a qualitative and systematic approach to forecasting that involves gathering opinions from a panel of experts through multiple rounds of questions in a structured, organized manner. Participants work independently to generate ideas, then come together to discuss and evaluate each idea. This method relies on experts who possess knowledge and expertise in a specific field to provide forecasts regarding future outcomes, assess the probability of an event occurring, or achieve agreement on a particular topic.

The Delphi method is commonly employed in research and economics to elicit opinions on a research question or a specific topic, typically through questionnaires, from a dispersed group of experts who are not required to be physically present. For example, a healthcare organization can use the Delphi method to gather expert opinions on the best way to implement a new medical procedure.

• Mind Mapping: A mind map is a visual tool used to arrange information into a structured system, demonstrating how various components are interrelated. It’s commonly employed to assist with everyday decision-making by displaying the thought process and reasoning that occur in our minds.

To create a mind map, we can start by writing a central topic or idea and then branching out to associated concepts, ideas, and information. By highlighting the critical points and relationships between them, it is possible to organize information in a way that promotes a better understanding and memory retention. This technique is effective in mapping knowledge and can aid in enhancing one’s comprehension and recall abilities.

Fig. 3 Mind Map Illustration by: Jacob Harry

• Nominal Group Technique: This decision making technique involves gathering input from a group of people in a structured, organized manner. Participants work independently to generate ideas, then come together to discuss and evaluate each idea. This technique helps to ensure that all voices are heard and can lead to more creative and innovative solutions.

A good example of this technique is product brainstorming sessions where members of a team pull in ideas and decide on the next pivotal steps to take regarding a product. The nominal group technique is used to gather input and ideas from each team member, evaluate each idea, and select the most promising one based on the group’s consensus.

• Multi-Criteria Decision Analysis (MCDA): Just like the name implies, the multi-Criteria Decision Analysis evaluates options based on multiple criteria, such as cost, risk, and impact. MCDA helps organizations to make more informed decisions by considering multiple factors and weighing their relative importance.

Let’s say you’re trying to choose between two different software systems for your business. You could use MCDA to evaluate each option based on criteria such as cost, user-friendliness, scalability, and security, and select the option that best meets your organization’s needs.

Conclusion

There are various decision making techniques out there and it’s important to explore various techniques to arrive at positive outcomes. Each technique has its unique application, but they all aim to provide a systematic approach to evaluate options and make effective decisions based on data and facts. Decision-making processes help individuals and organizations arrive at solid conclusions and make the most out of opportunities.

By using these techniques, individuals and organizations can reduce uncertainty and increase objectivity. The techniques discussed above are just a few examples of the many available to businesses. By choosing the right technique for each situation, businesses can make better decisions and increase their chances of success.