An Overview of Decision-Making

Prospect theory, devised by psychologists Amos Tversky and Daniel Kahneman, states that decision-makers respond more strongly to the prospect of losses than gains (this is known as loss aversion). The theory also says that we tend to overestimate the likelihood of low-probability events, and underestimate the likelihood of high-probability events. [1]

When it comes to framing the issue, it is vital for decision-makers to be aware of these biases and to remain as objective as possible at this early stage of the decision-making process.

2. Identify and Gather Information

There are two main types of information that can assist decision-making: primary sources, which come directly from a person or organization, and secondary sources, which interpret and comment on primary information. Both types can be useful but, by their very nature, secondary sources may not always be as reliable as primary sources, so be sure to select them carefully.

It is also important to be aware of the difference between quantitative and qualitative data. Quantitative data is definable,measurable, and is normally expressed in figures, while qualitative data is descriptive and may involve value judgements or opinions. Quantitative information is often the more efficient and technically accurate of the two, but it can miss contextual data (i.e. it might present an answer or solution, but fail to indicate the reasons behind it). Qualitative information is richer but subjective, and can therefore be less accurate and conclusive than quantitative data.

Depending on the decision-making scenario, it is likely that a combination of primary and secondary information sources that provide both quantitative and qualitative data will be useful. This might involve consulting sources such as:

• internal documents
• external websites
• other people (either internally or in external networks)
• industry magazines, journals or periodicals
• management books
• reference material
• official/government publications and legislation

To assess the validity of the gathered information, it is important to take into account the credibility of the source and the objectivity of the material. It is also vital to consider whether the information is up to date and, above all, whether it is relevant to the decision you are making.

3. Analyze Options and Make a Decision

After gathering the relevant information, the next stage of the process is to identify the options that are available, analyze them, and make a decision. Research conducted at the information-gathering stage might suggest that a certain course of action should be taken or avoided. Alternatively, a new set of solutions might present themselves. All this should be taken into account during the analysis stage.

It is important to consider the potential impact of each option on the whole organization, not just one department or business area. To this end, it might be helpful to seek the input of a colleague, or, if appropriate, a trusted peer or friend from outside the organization, who may be able to offer an objective perspective.

While decision-makers should always spend some time analyzing their options, it is vital to avoid falling into the trap of ‘paralysis by analysis’. After deciding on an appropriate course of action, it is good practice to move onto the next stage of the decision-making process as soon as possible.

4. Communicate and Implement the Decision

On reaching a decision, it is vital to communicate this to everyone involved (e.g. managers, colleagues, customers). Depending on the situation, the decision could be communicated face-to-face, either in team meetings or one-to-one meetings, or via email. The communication should include details of the decision, the reasons it was made, and how it might affect those involved. It is also a good idea to offer individuals the opportunity to ask questions.

It is good practice to treat the implementation of the decision as a small project. When an implementation plan has been identified, it is important to update everyone affected by the decision and let them know what to expect.

Decision-Making Techniques

A range of tools and techniques exist to support every aspect of the decision-making process. Tools such as Implement your Decision (available in the Decision-Making topic) can help decision-makers consider the potential impact of their decision, while the simple checklist can be used to assess whether the information that has been gathered is robust and credible. At the analysis stage of the decision-making process, the Simple Influence Diagrams technique can help decision-makers identify the pros and cons of different options. Plus Minus Implications can be used to support to complex decision-making, and for decisions that require the input of several different stakeholders, techniques such as Critical Decision-Making Techniques and the RAPID Decision-Making can be extremely helpful.

In each decision-making situation, it’s important to use the most appropriate tool. When considering which technique to use, be sure to take into account the nature and complexity of the decision at hand. Remember that decision-making techniques are designed to support decision-making; the outcomes of a technique should be taken into account along with any other information that comes to light during the decision-making process.

Managing Ambiguity

Ambiguity means not knowing exactly what is going to happen. It can occur in almost any aspect of working life and can often have a serious impact on people’s ability to make timely and well-informed decisions. When it comes to managing ambiguity, Philip Hodgson and Randall White, authors of Relax, It’s Only Uncertainty, argue that people’s ability to do this depends on their attitude, behavior and capability. In ambiguous situations, it is important to both remain productive and take steps to reduce the ambiguity wherever possible. This might involve seeking out new information, re-prioritizing tasks or breaking the problem down into smaller components.

You can find further advice and guidance on this aspect of decision-making in The KJ-Method for Establishing Priorities. And you can read an overview of Hodgson and White’s findings in Hodgson and White on Managing Ambiguity.

Beliefs and Biases in Decision-Making

Even when we follow a structured decision-making process, there are a number of innate cognitive biases that can affect our ability to make good decisions. These biases include the ‘bandwagon effect’ (a tendency to do or believe things because many other people do) and ‘confirmation bias’ (the tendency to seek out information that supports our existing beliefs). These biases are innate and everyone is susceptible to them. However, quite often, the best way to avoid these biases (or at least reduce their effects) is to be aware that they exist. Dan Ariely’s Predictably Irrational and Jonah Lehrer’s How We Decide both provide a fascinating insight into the phenomenon of decision-making bias. Audio interviews with each of these authors are available to download from the Decision-Making topic.

Summary

While decision-making can be challenging, there are a number of steps that leaders can take to tackle this important aspect of their role successfully. Following each stage of the decision-making process in order, wherever possible, and using the appropriate tools or techniques for each situation will help leaders to approach the different aspects of decision-making effectively. Where ambiguity exists, remaining productive, while taking steps to reduce the level of ambiguity will help to ensure that it doesn’t derail the decision-making process. Meanwhile, being aware of the biases to which everyone is susceptible will prevent them from having an undue influence on the final decision. Adopting this approach will help leaders to make timely, well-informed decisions with confidence.