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Currently viewing the tag: "decision making models"

9253825882?profile=RESIZE_400xDo people always follow a rational linear process to come to a decision?  Studies have suggested that a combination of Decision Making Models are used by people to reach quality decisions.

Strategic Decision Making is a complex process with a lot riding on those decisions.  Eliminating risk from Decision Making is unthinkable but radically enhancing chances of success is a realistic goal.

In making Strategic Decisions, executives tend to rely only on those Decision Support Tools they know best.  The usage of non-optimal Decision Support Tools is, in part, due to lack of knowledge about which tools work best in a particular scenario and, in part, due to lack of information regarding what tools are available out there.

Having access to a variety of Decision Support Tools increases the likelihood of making a successful decision provided the decision maker has knowledge of which tool to employ or a combination thereof in various scenarios.

The following 5 Decision Support Tools or their combination is applicable in a variety of Decision Making scenarios:

  1. Conventional Capital-Budgeting Tools
  2. Quantitative Multiple Scenario Tools
  3. Qualitative Scenario Analysis
  4. Case-based Decision Analysis
  5. Information Aggregation Tools

In some cases, just one tool is needed while in others an assortment of tools makes for the best combination.

Let us delve a little deeper into some of these tools.

Conventional Capital Budgeting Tools

Projected Incremental Cash Flows are used from likely investments to ascertain whether a project merits being funded through the firm’s Capitalization Structure.  Included in it are Discounted Cash Flow, Expected Rate of Return, and Net Present Value models. 

Quantitative Multiple Scenario Tools

Decisions are analyzed by completely specifying possible outcomes and their probabilities. Mathematical, Statistical, and Simulation methods are employed to distinguish the Risk and Return properties of prospective choices.  The tools include:

>  Monte Carlo Methods

>  Decision Analysis

>  Real Options

Qualitative Scenario Analysis

These techniques are beneficial to decision makers who encounter excessive levels of uncertainty about outcomes because the techniques do not assume a conclusive and entirely specified set of possible outcomes.

Real-life business Decision Making often comprises of judgments that are based on incomplete and uncertain information.  This can be mitigated by using appropriate Decision Support Tools.  However, which tools are appropriate will depend on the answer to the following critical questions:

  1. Do I know what it will take to succeed?
  2. Can I predict the range of possible outcomes?

The Causal Model question—combination of Critical Success Factors (CSFs) and economic conditions leading to success—needs settling before we can proceed to answer the 2nd question regarding Outcome Prediction.

Managers need to ask the following in order to clarify the state of the Causal Model hence the answer to the question:

  1. Do I comprehend what combination of Critical Success Factors will decide if my decision leads to a successful outcome?
  2. Do I recognize what metrics need to be met to guarantee success?
  3. Do I have an accurate understanding of how to attain success?

The other question to answer is: Can I predict the range of possible outcomes?

Managers should ask the following in scenarios predicting various outcomes and probabilities:

  1. Can I outline the range of outcomes that may result as a consequence of my decision, both as a whole and for each Critical Success Factor?
  2. Can I measure the probability of each outcome?

Even where the CSFs and Model for Success are understood, it sometimes becomes difficult to predict range of outcomes and their probabilities due to uncertain conditions.

Interested in learning more about Decision Support Tools?  You can download an editable PowerPoint on Decision Support Tools here on the Flevy documents marketplace.

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8971202493?profile=RESIZE_400xHow do people make decisions?  Do they always follow a rational linear process to come to a conclusion? 

Studies have suggested that the traditional Decision Making model—commonly known as the Rational Decision Making Model—does not explain the whole ambit of Decision Making.

People, including managers of organizations, arrive at decisions using a variety of routes.  Experts suggest that there are at least 3 Decision Making Models that work in consonance to make the best decisions.  The 3 Decision Making Models are:

  1. Thinking First – Rational Decision Making
  2. Seeing First – Insight-driven Decision Making
  3. Doing First – Experimentation-based Decision Making

The latter 2 models need to supplement the 1st in order, for people in general and managers in particular, to improve the quality of Decision Making.  Developing a strong understanding of these foundational Decision Making models is recommended for any Business Leader who seeks to make better, more informed, more rational decisions.

Experts have suggested that people have the capacity to use all 3 models for arriving at a decision and so do organizations.

The 3 approaches to Decision Making draw a parallel from science, art, and craft.  People who are partial to Thinking are more into facts, those who favor Seeing appreciate ideas, and people who prefer Doing always value experiences.

Let us delve a little deeper into the details of the 3 Decision Making Models—Thinking, Seeing, Doing. 

Thinking First

More commonly known as the Rational Decision Making Model, this model has a clearly identified process.  It is linear, logical, effortless, and iterative—i.e., keeps travelling back and forth with interludes for new events, alterations for opportunities until conclusively arriving at a decision.

Thinking First Model is associated with science and is mainly verbal in nature i.e., comprising of linear words.  People leaning towards the Thinking Model prefer facts.

Usually, the Thinking First Model is used in well-founded production processes.  Thinking First succeeds when:

  • The matter is well-defined.
  • The data is trustworthy.
  • The situation is structured.
  • Thoughts can be restrained.
  • Discipline can be applied.

However real-life Decision Making exposes some limitations in the Thinking First Model as rational Decision Making is uncommon. 

Seeing First

Decisions are motivated as much by what is Seen as by what is thought.  Visualization and conceptualization of a problem or situation is the basis for the Seeing First Model.  It is usually used in creative solution finding.  Experts have identified 4 steps in creative discovery:

  1. Preparation
  2. Incubation
  3. Illumination
  4. Verification

An example of Seeing First Model will be Mozart’s allusion to the best part of creating his music; “when I am able to see the whole of it at a single glance in my mind.”

Seeing First Model works ideally in circumstances where:

  • Numerous elements have to be pooled into a creative solution.
  • Commitment to the solution is steadfast.
  • Communication takes place beyond boundaries.

Doing First

When stumped for a solution, diving head first and tinkering with a problem—bringing Problem Solving Mindset characteristics into play—leads to the necessary insights following trial and error.  Attempting various things, discovering which among them functions, finding meaning in that and repeating the productive behaviors while abandoning the rest is the gist of Doing First Model.

Experts have identified 3 stages of this process:

  1. Enactment
  2. Selection
  3. Retention

Doing First Model is ideal, when for example, companies are faced with disruptive technologies or unchartered territories.

Interested in learning more about the 3 Decision Making Models: Thinking, Seeing, Doing?  You can download an editable PowerPoint on Decision Making Models: Thinking, Seeing, Doing here on the Flevy documents marketplace.

Want to Achieve Excellence in Organizational Leadership (OL)?

Gain the knowledge and develop the expertise to become an expert in Organizational Leadership (OL).  Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts.  Click here for full details.

For both the current executives and leaders of tomorrow, our frameworks address 2 facets of Leadership:

1. How to elevate your management skills to becoming a Leader in your organization.

2. How to elevate your organization to becoming the Leader in your Industry.

Learn about our Organizational Leadership (OL) Best Practice Frameworks here.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market.  They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions.  I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power.  For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients.  In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over!  The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd