One thing all managers do, regardless of their place in the organizational hierarchy, is
make decisions.
Decisions about whom to hire, what to sell, and even what markets to enter to name a few.
Now of course all decisions aren't weighted equally.
Certainly a decision like whether to acquire another company has a more significant impact
on the organization than lets say deciding what to serve during a working lunch.
But regardless of significance each decision has a unique set of factors that need to be
evaluated.
Now this video isn't about how to make the right decision as what is deemed to be right
is up for debate.
What this video is about, is how to make rational decisions.
For starters lets discussion the basic idea of decision making.
I'll define decision making as simply a process of choosing a course of action out of a number
of different alternatives.
But as managers, we should strive to do more than simply make decisions.
We should strive to make decisions that reflect a careful analysis of the available facts
and that best solve our established problem.
So how do we do such a thing?
Well probably one of most common frameworks for making decisions is what's known as the
rational decision-making model.
To summarize the model, it represents a linear process designed to help the user make more
rational decisions.
There are a total of six stages, each of which is intended to get the user closer to that
final decision.
Now that we know a little bit about the model and its intent, lets get into the different
steps.
The first step to the rational decision-making model is to identify and define a problem.
Now people experience many problems each and everyday, but we don't address all of them
because they may be somewhat insignificant.
In order for someone to address a problem the gap between their current and desired
state needs to be enough to motivate them to exert the energy needed to solve the problem.
Assuming that we identify a problem, we now need to define it.
This can be a very difficult process as people often identify symptoms of a problem but fail
to identify the actual cause of the issue.
Lets say that my problem is that my house is too small and I need a bigger one.
My family is growing, we're accumulating more stuff, and our existing space simply isn't
meeting our needs.
So I guess I need to buy a bigger house?
Well maybe not.
What I'm demonstrating here is that we often make decisions too quickly and also without
considering all available options.
What often happens is we attempt to define a problem, which is good, but we also attempt
to establish a solution without thinking about the alternatives.
Maybe I could have a room added on to my existing home or even place some unused items in storage
to free up space.
Those things may solve my problem, or they may not.
The important thing at this stage is we simply want to define our problem in such a way that
allows us the opportunity to generate a host of solutions later.
So lets say for now that my problem, on its most basic level, is actually related to space.
The next thing that we need to do is identify the criteria that will help us make our decisions.
This criteria consists of specific standards that we'll use as really a guide to our decision-making
process.
It's important to outline this criteria ahead of time so that we avoid basing our decision
on maybe a few factors without considering a host of others.
So lets get back to our problem.
We know that space is an issue and that we need to identify some criteria to help us
generate some solutions to our problem.
Cost is likely to be a key consideration as some options cost more than others.
The time needed to execute a particular solution should also be weighed.
Maybe even the extent to which the problem solves the issue permanently or if its simply
a quick fix.
We could generate more but I'm sure you're beginning to get the point here.
One thing I will mention is that if our problem was actually trying to buy a house instead
of solving a space issue we would establish criteria a little differently.
We'd likely focus on things like quality of schools, distance to activities, crime per
capita, and some other factors.
Now that we've identified some of our decision criteria we need to weigh that criteria.
Because each criteria is unlikely to have the same level of importance we need to weigh
those standards differently.
There are a few ways that we can accomplish this.
The first is by using what is known as an absolute comparison, which you commonly find
in movie ratings, hotel ratings, and several others.
This method of comparison is helpful because it allows the user to compare items side-by-side.
So if you're shopping for a car you can look through consumer reports and compare different
vehicles in specific categories and altogether.
This is accomplished by incorporating a ranking system where users enter a value reflecting
the importance of the criteria on a scale.
Lets say that we establish a scale starting at one and going to ten.
One would indicate that the criteria has virtually no importance to us whatsoever.
A score of ten would indicate that the item is very important.
So we would then go through each criteria and weigh their significance to us.
Since this is an absolute comparison we can assign the same value to different criteria
as well since we're evaluating them on their own merits and not in relation to another
criteria.
Applying absolute comparisons to our example we may rate cost as 6, time as a 8, and whether
or not the solution permanently solves our problem as an 8.
Another method of weighing criteria is to use relative comparisons.
Relative comparisons involve actually comparing each criteria with one another.
So by rating each criteria against one another we obtain an understanding of the criteria
that are most important to us.
This can be useful when attempting to weigh criteria that receive similar ratings under
an absolute comparison.
Take for example our last two criteria.
Chances are that they are not equally important.
So by rating them against one another we firmly establish which one is more important.
The value of weighing our criteria is that we help shape the way that we make decisions
since we know exactly what to emphasize and what to de-emphasize.
Coincidentally, we're running a little short on space ourselves.
So we'll continue with steps four through six of the rational decision-making model
in our next video.
For questions please leave them in the comment box below and I'll do my best to get back
to them in a timely fashion.
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Thanks for watching.