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Making rational decisions.

Introduction

This checklist provides an outline framework for making rational decisions. It is therefore relevant to all managers.

National Occupational Standards for Management and Leadership

This checklist has relevance to the following standards: B: Providing direction; C: Facilitating change; E: Using resources; F: Achieving results.

Definition

Decision making is the process of choosing between alternative courses of action. It may take place at an individual or organisational level. The nature of the decision-making process within an organisation is influenced by its culture and structure and a number of theoretical models have been developed. One well-known method for individual decision making was developed by Charles Kepner and Benjamin Tregoe in their book "The New Rational Manager" published in 1981. Specific techniques used in decision-making include heuristics and decision trees. Computer systems designed to assist managerial decision making are known as decision support systems.

The rational model for decision-making:

* will provide evidence and support for how the decision was made

* is particularly suitable for complex or fuzzy situations

* is thorough and systematic

* relies on effective information-gathering, rather than preconceived ideas

* is an effective technique for determining a course of action and securing commitment to it.

There can, however be drawbacks, because the method:

* can be very time-consuming and resource-intensive especially in fast-moving situations

* relies heavily on information which may prove difficult to gather

* requires fairly strict adherence if the outcome is to be a rational decision

* highlights the possibility that a rational decision may not be the right one!

Action checklist

1. Define the decision to be made

Be clear on the exact decision to make. This first step helps to clarify thinking, aids communications and provides a record for the future. It may lead to the discovery that assumptions have been made previously which have muddied the water.

For example--Decision: Which computer to buy?

2. Establish the objectives

These are things that are desired from the decision and should be measurable wherever possible. It is not necessary to worry at this stage if there are apparent incompatibilities between the objectives. This stage involves consultation, information searching and checking.

Your objectives may be: a computer which can communicate to others, run CD-ROMs, do word-processing, spreadsheets and graphics, not run out of hard-disc space too quickly, and be affordable. The computer must have a modem, an expandable memory slot, CD-ROM drive, large hard disc, standard software packages and be within budget.

3. Classify the objectives

Differentiate between the essential requirements (the "musts") and the desirable (the "wants"). The fundamental difference between musts and wants is that if one of the decision alternatives does not meet a "must", then that option should be rejected. Failure to meet a "want" should not mean automatic rejection. The process for considering "wants" is dealt with at point 5.

Musts: Maximum price / Minimum processor capability / Minimum hard disc capacity.

Wants: Modem, CD-ROM drive, extra memory slot, software packages.

4. Define the "musts"

To be a valid "must", an objective should have a quantitative measure or an objective standard. Assign quantitative measures to the "musts"; maximum price 1,000 [pounds sterling], minimum 1.5 Ghz processor, minimum 40 gigabyte hard disc. This means that if an option presented for purchase is either over 1,000[pounds sterling] or less than 1.5 Ghz processor or with less than a 40 gigabyte hard disc, then it should be rejected.

5. Define the "wants"

Examine the "wants" for importance and give a numerical weighting out of 10 (10 for the most important, less than 10 for something less important). For example if the software packages are the most important feature after the "musts", then software would be weighted 10. If an option includes all of spreadsheet, database, graphics and word processing then it may well score 10 out of 10; if one is missing, it might only score 8. An extremely fast modem with built-in error correction may have a weight of 10; an option with a modem not so fast or sophisticated may only score 6 out of 10.
 Fast modem 10
 Complete software package 10
 Inbuilt CDROM 9
 Extra memory slots 8


6. Generate the alternatives

With information requirements established, next seek and obtain the appropriate information. In this case sources may include PC suppliers the trade press and "informed" colleagues.

7. Apply the alternatives to the requirements

The information--or options obtained--should be recorded for each alternative against each "must" objective.

8. Test the alternatives against the "musts"

Reject those options that do not meet the "musts". Do any of the alternatives not match against the "musts" on price, storage or processor? If negative, it is logical to reject that alternative.

If either you do not wish, or something else prevents rejection of an alternative which has failed on "musts", then the "musts" are either proving unsatisfactory, or you are not adhering to the rational process. In either case, re-start at Step 3.

9. Score the remaining alternatives against the "wants"

Score the remaining options against each of the "wants" in turn. The alternative that meets the "want" best should be scored highest and others allocated proportionate scores. For example:
 Slower modem 6
 2 out 4 software elements missing 5
 No CDROM drive 0
 2 extra memory slots 8


10. Multiply the weights by the scores

Weights should be multiplied by scores and the results added for each alternative. For example, as in Steps 5 and 9 above:
 Slower modem 10 x 6 = 60
 2 out 4 software elements missing 10 x 5 = 50
 No CDROM 9 x 0 = 0
 2 extra memory slots 8 x 8 = 64
 Total = 174


11. Come to a provisional decision

The totals will enable you to come to a provisional decision. With the totals compared it is usually possible to make statements such as:

* alternative A is clearly the best

* alternatives D and E are not worth considering

* there is little to choose between alternatives B and C.

12. The final decision

The analysis will not provide an automatic decision, unless all alternatives but one fail the "musts". Where several alternatives have similar totals, it is particularly important to re-examine scores and weights and the evidence on which they have been based. The analysis will provide a sound framework for clear examination. It is not always necessary to use the entire process described above, especially for simple binary (yes/no) decisions. However, each element in the process can be used separately to improve the efficiency of a decision.

Managers should avoid

* jumping too quickly to an "apparently" obvious decision.

* letting a preconceived conclusion influence the process.

* cutting corners especially if the decision has far-reaching implications.

* letting personal preferences cloud the process.

* taking the provisional decision as final

* using this approach for solving problems!

Additional resources

Books

Business strategy: a guide to effective decision making, ed Michael J Hicks

London: Thomson Learning, 2004

Decision making, Jeremy Kourdi

London: Economist Books in association with Profile Books, 2003

The new rational manager, Charles H Kepner and Benjamin B Tregoe

London: John Martin, 1981

This is a selection of books available for loan to members from the Management Information Centre. More information at: www.managers.org.uk/mic

Related checklist

Solving problems (012)
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Title Annotation:Checklist 015
Publication:Chartered Management Institute: Checklists: Managing Information and Finance
Geographic Code:4EUUK
Date:Jun 1, 2006
Words:1196
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