decision making models

Decisions Decisions Decisions

A brief overview of decision making models

Rational Models

The Rational ModelA rational decision model assumes that there is one best, or optimal, outcome. Because of this it is sometimes called an optimizing decision making model.The model assumes that it is possible to consider every option, to know the future consequences of each decision and the “utility” (value) associated with each outcome. This impractical in all but the simplest of situations.The rational model often underpins other methods of decision making.

Example Rational ModelHere is a six step model of rational decision making often taught in schools:1. define the situation and the desired outcome2. research and identify options3. compare and contrast each alternative and its consequences4. make a decision / choose an alternative5. design and implement an action plan6. evaluate results

Other Rational Based ModelsOther related models include● Decision Matrix Analysis● Pugh matrix● SWOT analysis● Pareto analysis● Decision Trees

Even the simple “two-column” list of pros and cons to help make a choice about whether to do a thing is underpinned by rational model assumptions (you can list all pros and cons, you know the value of all, you know the likelihood etc etc.).Perhaps more importantly, it also assumes that this is an ‘OR’ not an “AND”...

Rational model and economicsThe rational model, and the concept of the rational actor (us) making rational decisions, underpins traditional economic theory.

More recent work in behavioural economics seeks to address the difference between how the rational model assumes decisions are made, and how decisions are actually made by individuals and groups.

Basically we’re nothing like as rational as the rational model assumes.

Bounded [Rational] ModelsA refinement on the rational model, bounded models, recognise that it is not possible to consider all the possible outcomes, their probability and their utility (value). Key elements of bounded decision making models are1. Limited time and limited access to information means we need to

recognise that we have imperfect information2. We need to recognise that there is ambiguity3. Aim is to select the first satisfactory option (something that is “good

enough”)4. Introduces the concept of “satisficing” - seeking a satisfactory outcome

rather than the optimal outcome

Other Models / Tools

Deciding who to include in the decision

Vroom-Jago: decision process typesThe Vroom-Jago decision model is used by leaders to determine whether they should make a decision alone or involve a group, and to what extent the group should be involved.

5 Processes of decision making defined by V-J:

A1 Autocratic l You, the decision maker, use the information available to make the decision yourself.

A2 Autocratic ll You request information from members of your team. They may or may not know why you want such information. They neither define the situation, alternatives or final choice.

C1 Consultative l You explain the situation to the individual members of the group but they do not get together as a group. You make the final decision.

C2 Consultative ll There is group discussion where you explain the situation and gather ideas and suggestions. Again, you're responsible for the final decision making.

G2 Group llThe group as a whole make the decision. You as the leader present the situation and the group defines alternatives and reaches a consensus decision. The leader acts as a facilitator and allows the group to agree on the final choice.

Vroom-Jago: choosing the processQuestions are used to determine the right approach. V-J uses 7 questions in a decision tree.1. Is high quality important here or is a good solution absolutely critical? (is this a case where it

would not be acceptable having lots of equal alternatives?)

2. As the leader, do you have enough information of your own to make a good decision?

3. Is the problem structured in that it is clearly defined, organized and has recognized solutions?

4. Do the members of the group have to accept this decision for it to work?

5. If you make this decision yourself, are you sure the group will accept it?

6. Are the group members aligned with the same goals that you are trying to achieve?

7. Is disagreement likely among group members in reaching a decision?

Vroom-Jago: Decision Tree

Q1: Is high quality important here or is a good solution absolutely critical?

Q2: As the leader, do you have enough information of your own to make a good decision?

Q1

Q2

Q4

Q6

Q3

Q4

Q4: Do the members of the group have to accept this decision for it to work?

Q3: Is the problem structured in that it is clearly defined, organized and has recognized solutions?

Q5: If you make this decision yourself, are you sure the group will accept it?

Q6: Are the group members aligned with the same goals that you are trying to achieve?

Q7: Is disagreement likely among group members in reaching a decision?

Q4

Q4

Q5

Q5

Q5

A1

G2

A2

C2

A1

A1

A1

A2

Q6

Q7

C2

C1

Q7

G2

C2

G2

In the example, if the quality requirement is not high, choose the upper limb. With regards to question 4, if they have to accept it, choose 'yes', then 'yes' again if you know they will accept your decision. This points you at A1, so you go ahead and make the decision yourself.

YES

NO

A1 Autocratic I

A2 Autocratic II

C1 Consultative I

C2 Consultative II

G2 Group II

Deciding what role each person plays

Bain Decision Making Model

Focuses on the roles of people involved in the decision

AGREE

INPUT RECOMMEND DECIDE PERFORM

Someone who’s formal agreement with the recommendation is required for sign-off

Bain must haves:- Design clear decision processes- Assign Specific Roles

5 Roles

Analytical SkillsCommon SenseOrganisational Smarts

Must be taken seriously, because those providing it may be involved in implementing the decision

The person with “the D” is ultimately held accountable for it.

Those in the perform role are responsible for executing the final decision

Bain Decision Making Process and Roles

Org Role / Decisions Product Management

Central Marketing Regulatory Marketing -

Creative

Sales / Customer

Service

What is the overall messaging strategy R / D I / P

What claims do we want to make? What features and benefits do we want to emphasise?

D R A I / P I

What is the look and feel of the materials? I D I R / P

Example Bain Decision Matrix

(attempting) to avoid the weaknesses of rational

models

WRAP“WRAP” Decision Making - seeking to avoid the pitfalls of narrow focus, selective bias,

perspective and fixed opinions- Dan and Chip Heath

“WRAP” Decision Making

Authors (and brothers) Chip and Dan Heath propose four steps for improving decision making. Below is an overview of that process, whose initials spell “WRAP.” It’s elaborated in their new book,Decisive: How to Make Better Choices in Life and Business (Crown Business, March 2013).

Widen your optionsFor example: Consider at least two robust options for every decision.Important because: Adding just one alternative makes very good strategic decision making more likely—six times more likely, according to one research study.

Reality test your assumptionsFor example: Enforce vigorous debate on both sides of an issue and resolve debates with data by running small experiments to test assumptions.Important because: We are two times more likely to consider information that tends to confirm our assumptions than information that tends to disconfirm them.

Attain some distance

For example: “Fire” yourself and ask what your successor would do. That’s how Andy Grove broke through Intel’s indecision in the mid-1980s about whether to divert resources from the company’s long-standing core business in memory chips and go full force into microprocessors.Important because: The status quo is powerful. Research shows that over time, even arbitrary choices are regarded as valuable and right.

Prepare to be wrong

For example: Set a clear tripwire now: “If we don’t achieve a market share greater than 20 percent in the first year, we’ll revisit our idea of entering the Southern market.”Important because: Our predictions are often incorrect, even when made with high confidence. In one study, doctors who expressed complete certainty in a diagnosis were wrong 40 percent of the time.

Thinking differently

6 HatsDe Bono

De Bono’s Six Thinking HatsEdward de Bono's Six Thinking Hats attempts to combine rational and intuitive aspects of decision making. The idea is to consider a decision from multiple perspectives by wearing different hats to give a wiser, more rounded decision.

● White hat: Consider data available and plug any gaps● Red hat: Use intuition and consider emotional aspects● Black hat: Critically consider weaknesses and produce work arounds● Yellow hat: Optimistic view, useful when all seems lost● Green hat: Creativity and how to apply it● Blue hat: Controller, organizes the thinking