What is Decision Making?

Some Definitions



1. Decision making is the study of identifying and choosing alternatives
based on the values and preferences of the decision maker. Making a
decision implies that there are alternative choices to be considered, and in
such a case we want not only to identify as many of these alternatives as
possible but to choose the one that best fits with our goals, desires,
lifestyle, values, and so on.

2. Decision making is the process of sufficiently reducing uncertainty
and doubt about alternatives to allow a reasonable choice to be made from among
them. This definition stresses the information gathering function of
decision making. It should be noted here that uncertainty is reduced rather than eliminated. Very
few decisions are made with absolute certainty because complete knowledge about
all the alternatives is seldom possible. Thus, every decision involves a
certain amount of risk.

3. Decision making can be
regarded as an outcome of mental processes (cognitive process)
leading to the selection of a course of action among several alternatives.
Every decision making process produces a final choice. The output
can be an action or an opinion.

Kinds of Decisions




There are several basic kinds of decisions.

1. Decisions whether. This is the yes/no, either/or decision that must
be made before we proceed with the selection of an alternative. Should I buy a
new TV? Should I travel this summer? Decisions whether are made by weighing
reasons pro and con. The PMI technique discussed in the next chapter is ideal
for this kind of decision.

It is important to be aware of having made a decision whether, since too
often we assume that decision making begins with the identification of
alternatives, assuming that the
decision to choose one has already been made.

2. Decisions which. These decisions involve a choice of one or more
alternatives from among a set of possibilities, the choice being based on how
well each alternative measures up to a set of predefined criteria.

3. Contingent decisions. These are decisions that have been made but
put on hold until some condition is met.

For example, I have decided to buy
that car if I can get it for the right price; I have decided to write
that article if I can work the necessary time for it into my schedule.


Most people carry around a set of already made, contingent decisions, just
waiting for the right conditions or opportunity to arise. Time, energy, price,
availability, opportunity, encouragement--all these factors can figure into the
necessary conditions that need to be met before we can act on our decision.

Decision Making is a Recursive Process




A critical factor that decision theorists sometimes neglect
to emphasize is that in spite of the way the process is presented on paper, decision
making is a nonlinear, recursive process. That is, most decisions are made
by moving back and forth between the choice of criteria (the characteristics we
want our choice to meet) and the identification of alternatives (the
possibilities we can choose from among). The alternatives available influence
the criteria we apply to them, and similarly the criteria we establish
influence the alternatives we will consider. Let's look at an example to
clarify this.

Suppose someone wants to decide,
Should I get married? Notice that this is a decision whether. A linear approach
to decision making would be to decide this question by weighing the reasons pro
and con (what are the benefits and drawbacks of getting married) and then to
move to the next part of the process, the identification of criteria
(supportive, easy going, competent, affectionate, etc.). Next, we would
identify alternatives likely to have these criteria (Kathy, Jennifer, Michelle,
Julie, etc.). Finally we would evaluate each alternative according to the
criteria and choose the one that best meets the criteria. We would thus have a
scheme like this:

decision whether ... select
criteria ... identify alternatives ... make choice

However, the fact is that our
decision whether to get married may really be a contingent decision. "I'll
get married if I can find the right person." It will thus be
influenced by the identification of alternatives, which we usually think of as
a later step in the process. Similarly, suppose we have arrived at the
"identify alternatives" stage of the process when we discover that
Jennifer (one of the girls identified as an alternative) has a wonderful
personality characteristic that we had not even thought of before, but that we
now really want to have in a wife. We immediately add that characteristic to
our criteria. Thus, the decision making process continues to move back and
forth, around and around as it progresses in what will eventually be a linear
direction but which in its actual workings is highly recursive.

The Components of Decision Making



The Decision Environment




Every decision is made within a decision environment, which
is defined as the collection of information, alternatives, values, and
preferences available at the time of
the decision. An ideal decision environment would include all possible
information, all of it accurate, and every possible alternative. However, both
information and alternatives are constrained because time and effort to gain
information or identify alternatives are limited. The time constraint simply
means that a decision must be made by a certain time. The effort constraint
reflects the limits of manpower, money, and priorities. (You wouldn't want to
spend three hours and half a tank of gas trying to find the very best parking
place at the mall.) Since decisions must be made within this constrained
environment, we can say that the major
challenge of decision making is uncertainty, and a major goal of
decision analysis is to reduce uncertainty. We can almost never have all
information needed to make a decision with certainty, so most decisions involve
an undeniable amount of risk.

The fact that decisions must be made within a limiting decision environment
suggests two things. First, it explains why hindsight is so much more accurate
and better at making decisions that foresight. As time passes, the decision
environment continues to grow and expand. New information and new alternatives
appear--even after the decision must be made. Armed with new information after
the fact, the hindsighters can many times look back and make a much better
decision than the original maker, because
the decision environment has continued to expand.

The second thing suggested by the decision-within-an-environment idea
follows from the above point. Since the decision environment continues to
expand as time passes, it is often advisable to put off making a decision until
close to the deadline. Information and alternatives continue to grow as time
passes, so to have access to the most information and to the best alternatives,
do not make the decision too soon. Now, since we are dealing with real life, it
is obvious that some alternatives might no longer be available if too much time
passes; that is a tension we have to work with, a tension that helps to shape
the cutoff date for the decision.

Delaying a decision as long as reasonably possible, then, provides three
benefits:

1. The decision environment will be larger, providing more information.
There is also time for more thoughtful and extended analysis.
2. New alternatives might be recognized or created.
3. The decision maker's preferences might change. With further thought, wisdom,
maturity, you may decide not to buy car X and instead to buy car Y.

The Effects of Quantity on Decision Making




Many decision makers have a tendency to seek more
information than required to make a good decision. When too much information is
sought and obtained, one or more of several problems can arise. (1) A delay in
the decision occurs because of the time required to obtain and process the
extra information. This delay could impair the effectiveness of the decision or
solution. (2) Information overload will occur. In this state, so much
information is available that decision-making ability actually declines because
the information in its entirety can no longer be managed or assessed appropriately.
A major problem caused by information overload is forgetfulness. When too much
information is taken into memory, especially in a short period of time, some of
the information (often that received early on) will be pushed out.

The example is sometimes given of
the man who spent the day at an information-heavy seminar. At the end of the
day, he was not only unable to remember the first half of the seminar but he
had also forgotten where he parked his car that morning.

(3) Selective use of the information will occur. That is, the decision maker
will choose from among all the information available only those facts which
support a preconceived solution or position. (4) Mental fatigue occurs, which
results in slower work or poor quality work. (5) Decision fatigue occurs, where
the decision maker tires of making decisions. Often the result is fast,
careless decisions or even decision paralysis--no decisions are made at all.

The quantity of information that can be processed by the human mind is
limited. Unless information is consciously selected, processing will be biased
toward the first part of the information received. After that, the mind tires
and begins to ignore subsequent information or forget earlier information.

Decision Streams




A common misconception about decision making is that
decisions are made in isolation from each other: you gather information,
explore alternatives, and make a choice, without regard to anything that has
gone before. The fact is, decisions are made in a context of other decisions.
The typical metaphor used to explain this is that of a stream. There is a
stream of decisions surrounding a given decision, many decisions made earlier
have led up to this decision and made it both possible and limited. Many other
decisions will follow from it.

Another way to describe this situation is to say that most decisions involve
a choice from a group of preselected alternatives, made available to us from
the universe of alternatives by the previous decisions we have made. Previous
decisions have "activated" or "made operable" certain
alternatives and "deactivated" or "made inoperable" others.


For example, when you decide to go
to the park, your decision has been enabled by many previous decisions. You had
to decide to live near the park; you had to decide to buy a car or learn about
bus routes, and so on. And your previous decisions have constrained your
subsequent ones: you can't decide to go to a park this afternoon if it is three
states away. By deciding to live where you do, you have both enabled and
disabled a whole series of other decisions.

As another example, when you enter
a store to buy a VCR or TV, you are faced with the preselected alternatives
stocked by the store. There may be 200 models available in the universe of
models, but you will be choosing from, say, only a dozen. In this case, your
decision has been constrained by the decisions made by others about which
models to carry.

We might say, then, that every decision (1) follows from previous decisions,
(2) enables many future decisions, and (3) prevents other future decisions.
People who have trouble making decisions are sometimes trapped by the
constraining nature of decision making. Every decision you make precludes other
decisions, and therefore might be said to cause a loss of freedom. If you
decide to marry Terry, you no longer can decide to marry Shawn. However, just
as making a decision causes a loss of freedom, it also creates new freedom, new
choices and new possibilities. So making a decision is liberating as well as constraining.
And a decision left unmade will often result in a decision by default or a
decision being made for you.

It is important to realize that every decision you make affects the decision
stream and the collections of alternatives available to you both immediately
and in the future. In other words, decisions have far reaching consequences.

Concepts and Definitions




1. Information. This is knowledge about the decision,
the effects of its alternatives, the probability of each alternative, and so
forth. A major point to make here is that while substantial information is
desirable, the statement that "the more information, the better" is
not true. Too much information can actually reduce the quality of a decision.
See the discussion on The Effects of Quantity on Decision Making above.

2. Alternatives. These are the possibilities one has to choose from.
Alternatives can be identified (that is, searched for and located) or even
developed (created where they did not previously exist). Merely searching for
preexisting alternatives will result in less effective decision making.

3. Criteria. These are the characteristics or requirements that each
alternative must possess to a greater or lesser extent. Usually the
alternatives are rated on how well they possess each criterion. For example,
alternative Toyota
ranks an 8 on the criterion of economy, while alternative Buick ranks a 6 on
the same criterion.

4. Goals.
What is it you want to accomplish? Strangely enough, many decision makers
collect a bunch of alternatives (say cars to buy or people to marry) and then
ask, "Which should I choose?" without thinking first of what their
goals are, what overall objective they

4. Goals. What is it you want to accomplish? Strangely enough, many
decision makers collect a bunch of alternatives (say cars to buy or people to
marry) and then ask, "Which should I choose?" without thinking first
of what their goals are, what overall objective they want to achieve. Next time
you find yourself asking, "What should I do? What should I choose?"
ask yourself first, "What are my goals?"

A component of goal identification should be included in every instance of
decision analysis.

5. Value. Value refers to how desirable a particular outcome is, the
value of the alternative, whether in dollars, satisfaction, or other benefit.

6. Preferences. These reflect the philosophy and moral hierarchy of
the decision maker. We could say that they are the decision maker's
"values," but that might be confusing with the other use of the word,
above. If we could use that word here, we would say that personal values
dictate preferences. Some people prefer excitement to calmness, certainty to
risk, efficiency to esthetics, quality to quantity, and so on. Thus, when one
person chooses to ride the wildest roller coaster in the park and another
chooses a mild ride, both may be making good decisions, if based on their
individual preferences.

7. Decision Quality. This is a rating of whether a decision is good
or bad. A good decision is a logical one based on the available information and
reflecting the preferences of the decision maker.

The important concept to grasp here is that the quality of a decision is not
related to its outcome: a good decision can have either a good or a bad
outcome. Similarly, a bad decision (one not based on adequate information or
not reflecting the decision maker's preferences) can still have a good outcome.


For example, if you do extensive
analysis and carefully decide on a certain investment based on what you know
about its risks and your preferences, then your decision is a good one, even
though you may lose money on the investment. Similarly, if you throw a dart at
a listing of stocks and buy the one the dart hits, your decision is a bad one,
even though the stock may go up in value.

Good decisions that result in bad outcomes should thus not be cause for
guilt or recrimination. If you decide to take the scenic route based on what
you know of the road (reasonably safe, not heavily traveled) and your
preferences (minimal risk, prefer scenery over early arrival), then your
decision is a good one, even though you might happen to get in an accident, or
have a flat tire in the middle of nowhere. It is not justified to say,
"Well, this was a bad decision."

In judging the quality of a decision, in addition to the concerns of logic,
use of information and alternatives, three other considerations come into play:


A. The decision must meet the
stated objectives most thoroughly and completely. How well does the
alternative chosen meet the goals identified?

B. The decision must meet the
stated objectives most efficiently, with concern over cost, energy, side
effects. Are there negative consequences to the alternative that make
that choice less desirable? We sometimes overlook this consideration in our
search for thrills.

C. The decision must take into
account valuable byproducts or indirect advantages. A new employee
candidate may also have extra abilities not directly related to the job but
valuable to the company nonetheless. These should be taken into account.

8. Acceptance. Those who must implement the decision or who will be
affected by it must accept it both intellectually and emotionally.

Acceptance is a critical factor because it occasionally conflicts with one
of the quality criteria. In such cases, the best thing to do may be to choose a
lesser quality solution that has greater acceptance.

For example, when cake mixes first
were put on the market, manufacturers put everything into the mix--the highest
quality and most efficient solution. Only water had to be added. However, the
mixes didn't sell well--they weren't accepted. After investigation, the makers
discovered that women didn't like the mixes because using the mixes made them
feel guilty: they weren't good wives because they were taking a shortcut to
making a cake. The solution was to take the egg and sometimes the milk out of
the mix so that the women would have something to do to "make" the
cake other than just adding water. Now they had to add egg and perhaps milk,
making them feel more useful. The need to feel useful and a contributor is one
of the most basic of human needs. Thus, while the new solution was less
efficient in theoretical terms, it was much more acceptable. Cake mixes with
the new formula became quite popular.

Thus, the inferior method may produce greater results if the inferior one
has greater support. One of the most important considerations in decision
making, then, is the people factor. Always consider a decision in light of the
people implementation.

A decision that may be technologically brilliant but that is sociologically
stupid will not work. Only decisions that are implemented, and implemented with
thoroughness (and preferably enthusiasm) will work the way they are intended
to.

Approaches to Decision Making




There are two major approaches to decision making in an
organization, the authoritarian method in which an executive figure makes a
decision for the group and the group method in which the group decides what to
do.

1. Authoritarian. The manager makes the decision based on the
knowledge he can gather. He then must explain the decision to the group and
gain their acceptance of it. In some studies, the time breakdown for a typical
operating decision is something like this:

make decision, 5 min.; explain decision, 30 min.; gain acceptance, 30 min.

2. Group. The group shares ideas and analyses, and agrees upon a
decision to implement. Studies show that the group often has values, feelings,
and reactions quite different from those the manager supposes they have. No one
knows the group and its tastes and preferences as well as the group itself.
And, interestingly, the time breakdown is something like this:

group makes decision, 30 min.; explain decision, 0 min.; gain acceptance, 0
min.

Clearly, just from an efficiency standpoint, group decision making is
better. More than this, it has been shown many times that people prefer to implement the ideas they
themselves think of. They will work harder and more energetically to
implement their own idea than they would to implement an idea imposed on them
by others. We all have a love for our own ideas and solutions, and we will
always work harder on a solution supported by our own vision and our own ego
than we will on a solution we have little creative involvement with.

There are two types of group decision making sessions. First is free
discussion in which the problem is simply put on the table for the group to
talk about. For example, Joe has been offered a job change from shift
supervisor to maintenance foreman. Should he take the job?

The other kind of group decision making is developmental discussion
or structured discussion. Here the problem is broken down into steps, smaller
parts with specific goals. For example, instead of asking generally whether Joe
should take the job, the group works on sub questions: What are Joe's skills?
What skills does the new job require? How does Joe rate on each of the skills
required? Notice that these questions seek specific information rather than
more general impressionistic opinions.

Developmental discussion (1) insures systematic coverage of a topic and (2)
insures that all members of the group are talking about the same aspect of the
problem at the same time.

Some Decision Making Strategies




As you know, there are often many solutions to a given
problem, and the decision maker's task is to choose one of them. The task of
choosing can be as simple or as complex as the importance of the decision
warrants, and the number and quality of alternatives can also be adjusted
according to importance, time, resources and so on. There are several
strategies used for choosing. Among them are the following:

1. Optimizing. This is the strategy of choosing the best possible
solution to the problem, discovering as many alternatives as possible and choosing
the very best. How thoroughly optimizing can be done is dependent on

A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values

Note that the collection of complete information and the consideration of
all alternatives is seldom possible for most major decisions, so that
limitations must be placed on alternatives.

2. Satisficing. In this strategy, the first satisfactory alternative
is chosen rather than the best alternative. If you are very hungry, you might
choose to stop at the first decent looking restaurant in the next town rather
than attempting to choose the best restaurant from among all (the optimizing
strategy). The word satisficing
was coined by combining satisfactory
and sufficient. For many small
decisions, such as where to park, what to drink, which pen to use, which tie to
wear, and so on, the satisficing strategy is perfect.

3. Maximax. This stands for "maximize the maximums." This
strategy focuses on evaluating and then choosing the alternatives based on
their maximum possible payoff. This is sometimes described as the strategy of
the optimist, because favorable outcomes and high potentials are the areas of concern.
It is a good strategy for use when risk taking is most acceptable, when the
go-for-broke philosophy is reigning freely.

4. Maximin. This stands for "maximize the minimums." In
this strategy, that of the pessimist, the worst possible outcome of each decision
is considered and the decision with the highest minimum is chosen. The Maximin
orientation is good when the consequences of a failed decision are particularly
harmful or undesirable. Maximin concentrates on the salvage value of a
decision, or of the guaranteed return of the decision. It's the philosophy
behind the saying, "A bird in the hand is worth two in the bush."

Quiz shows exploit the uncertainty many people feel when they are not quite
sure whether to go with a maximax strategy or a maximin one: "Okay, Mrs.
Freen, you can now choose to take what you've already won and go home, or risk
losing it all and find out what's behind door number three."

Example: I could put my $10,000 in
a genetic engineering company, and if it creates and patents a new bacteria
that helps plants resist frost, I could make $50,000. But I could also lose the
whole $10,000. But if I invest in a soap company, I might make only $20,000,
but if the company goes completely broke and gets liquidated, I'll still get
back $7,000 of my investment, based on its book value.

Example: It's fourth down
and ten yards to go on your twenty yard line. Do you go for a long pass or
punt? Maximax would be to pass; Maximin would be to punt

Decision Making Procedure




As you read this procedure, remember our discussion earlier
about the recursive nature of decision making. In a typical decision making
situation, as you move from step to step here, you will probably find yourself
moving back and forth also.

1. Identify the decision to be made together with the goals it should
achieve. Determine the scope and limitations of the decision. Is the new
job to be permanent or temporary or is that not yet known (thus requiring
another decision later)? Is the new package for the product to be put into all
markets or just into a test market? How might the scope of the decision be
changed--that is, what are its possible parameters?

When thinking about the decision, be sure to include a clarification of
goals: We must decide whom to hire for our new secretary, one who will be able to create an efficient
and organized office. Or, We must decide where to go on vacation, where we can relax and get some rest from
the fast pace of society.

2. Get the facts. But remember that you cannot get all the facts. Get
as many facts as possible about a decision
within the limits of time imposed on you and your ability to process them,
but remember that virtually every decision must be made in partial ignorance.
Lack of complete information must not be allowed to paralyze your decision. A
decision based on partial knowledge is usually better than not making the
decision when a decision is really needed. The proverb that "any decision
is better than no decision," while perhaps extreme, shows the importance
of choosing. When you are racing toward a bridge support, you must decide to
turn away to the right or to the left. Which way you turn is less important
than the fact that you do indeed turn.

As part of your collection of facts, list your feelings, hunches, and
intuitive urges. Many decisions must ultimately rely on or be influenced by
intuition because of the remaining degree of uncertainty involved in the
situation.

Also as part of your collection of facts, consult those who will be affected
by and who will have to implement your decision. Input from these people not
only helps supply you with information and help in making the decision but it
begins to produce the acceptance necessary in the implementers because they
feel that they are part of the decision making process. As Russell Ackoff noted
in The Art of Problem Solving,
not consulting people involved in a decision is often perceived as an act of
aggression.

3. Develop alternatives. Make a list of all the possible choices you
have, including the choice of doing nothing. Not choosing one of the candidates
or one of the building sites is in itself a decision. Often a non decision is
harmful as we mentioned above--not choosing to turn either right or left is to
choose to drive into the bridge. But sometimes the decision to do nothing is
useful or at least better than the alternatives, so it should always be
consciously included in the decision making process.

Also be sure to think about not just identifying available alternatives but
creating alternatives that don't yet exist. For example, if you want to choose which major to pursue in college,
think not only of the available ones in the catalog, but of designing your own
course of study.

4. Rate each alternative. This is the evaluation of the value of each
alternative. Consider the negative of each alternative (cost, consequences,
problems created, time needed, etc.) and the positive of each (money saved,
time saved, added creativity or happiness to company or employees, etc.).
Remember here that the alternative that you might like best or that would in
the best of all possible worlds be an obvious choice will, however, not be
functional in the real world because of too much cost, time, or lack of
acceptance by others.

Also don't forget to include indirect factors in the rating. If you are
deciding between machines X, Y, and Z and you already have an employee who
knows how to operate machine Z, that fact should be considered. If you are
choosing an investigative team to send to Japan to look at plant sites and you
have very qualified candidates A, B, and C, the fact that B is a very fast
typist, a superior photographer or has some other side benefit in addition to
being a qualified team member, should be considered. In fact, what you put on
your hobbies and interests line on your resume can be quite important when you
apply for a job just because employers are interested in getting people with a
good collection of additional abilities.

5. Rate the risk of each alternative. In problem solving, you hunt
around for a solution that best solves a particular problem, and by such a hunt
you are pretty sure that the solution will work. In decision making, however,
there is always some degree of uncertainty in any choice. Will Bill really work
out as the new supervisor? If we decide to expand into Canada, will
our sales and profits really increase? If we let Jane date Fred at age fifteen,
will the experience be good? If you decide to marry person X or buy car Y or go
to school Z, will that be the best or at least a successful choice?

Risks can be rated as percentages, ratios, rankings, grades or in any other
form that allows them to be compared. See the section on risk evaluation for
more details on risking.

6. Make the decision. If you are making an individual decision, apply
your preferences (which may take into account the preferences of others).
Choose the path to follow, whether it includes one of the alternatives, more
than one of them (a multiple decision) or the decision to choose none.

And of course, don't forget to implement the decision and then evaluate the
implementation, just as you would in a problem solving experience.

One important item often overlooked in implementation is that when
explaining the decision to those involved in carrying it out or those who will
be affected by it, don't just list the projected benefits: frankly explain the
risks and the drawbacks involved and tell why you believe the proposed benefits
outweigh the negatives. Implementers are much more willing to support decisions
when they (1) understand the risks and (2) believe that they are being treated
with honesty and like adults.

Remember also that very few decisions are irrevocable. Don't cancel a
decision prematurely because many new plans require time to work--it may take
years for your new branch office in Paris to get profitable--but don't hesitate
to change directions if a particular decision clearly is not working out or is
being somehow harmful. You can always make another decision to do something
else.

Risking




Because making decisions involves a degree of risk, it would
be helpful to examine risk and risk analysis in this chapter in order to gain
an understanding of what is involved. Risk and uncertainty create anxiety, yet
they are necessary components of an active life.

General Comments on Risk Taking




1. Only the risk takers are truly free. All decisions
of consequence involve risk. Without taking risks, you cannot grow or improve
or even live.

2. There is really no such thing as permanent security in anything on
earth. Not taking risks is really not more secure than taking them, for your
present state can always be changed without action on your part. If you don't
take the risk of dying by driving to the store, your house could collapse on
you and kill you anyway.

3. You are supposed to be afraid when you risk. Admit your fears--of
loss, of rejection, of failure.

4. Risking normally involves a degree of separation anxiety--the
anxiety you feel whenever you are removed from something that makes you feel
secure. Many children feel this when they first leave their parents for school.
Some college students feel this when they go off to college. Travelers
sometimes feel it when they get homesick. The way to overcome separation
anxiety is to build a bridge between the familiar and secure and the new. Find
out what the new place--school or country--is like and how its elements compare
to familiar and secure things at home. Take familiar things with you--books,
teddy bear, popcorn popper, whatever.