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We are continuing with the detailed exploration of the six steps to making effective decisions. Last week we examined in depth the second step. How to generate good alternatives. Today, we go one step ahead.

Step 3: Explore the alternatives
When you’re satisfied that you have a good selection of realistic alternatives, then you’ll need to evaluate the feasibility, risks, and implications of each choice. Here, we discuss some of the most popular and effective analytical tools.

In decision making, there’s usually some degree of uncertainty, which inevitably leads to risk. By evaluating the risk involved with various options, you can determine whether the risk is manageable.

Analysing the risk helps you look at all risks objectively. It uses a structured approach for assessing threats, and for evaluating the probability of events occurring – and what they might cost to manage. Risk Analysis is a process that helps you identify and manage potential problems that could undermine key business initiatives or projects.

To carry out a Risk Analysis, you must first identify the possible threats that you face, and then estimate the likelihood that these threats will materialize. Risk Analysis can be complex, as you’ll need to draw on detailed information such as project plans, financial data, security protocols, marketing forecasts, and other relevant information. However, it’s an essential planning tool, and one that could save time, money, and reputations

Another way to look at your options is by considering the potential consequences of each.

“Six Thinking Hats” is a technique which   helps you evaluate the consequences of a decision by looking at the alternatives from six different perspectives. If you look at a problem with the ‘Six Thinking Hats’ technique, then you will solve it using all approaches. Your decisions and plans will mix ambition, skill in execution, public sensitivity, creativity and good contingency planning.

Each ‘Thinking Hat’ is a different style of thinking. White Hat: (With this thinking-hat you focus on the data available. Look at the information you have, and see what you can learn from it. Look for gaps in your knowledge, and either try to fill them or take account of them. This is where you analyse past trends, and try to generalize from historical data).

Red Hat: (‘Wearing’ the red hat, you look at problems using intuition, gut reaction, and emotion. Also try to think how other people will react emotionally. Try to understand the responses of people who do not fully know your reasoning).

Black Hat: (Using black hat thinking, look at all the bad points of the decision. Look at it cautiously and defensively. Try to see why it might not work. This is important because it highlights the weak points in a plan. It allows you to eliminate them, alter them, or prepare contingency plans to counter them. Black Hat thinking helps to make your plans ‘tougher’ and more resilient. It can also help you to spot fatal flaws and risks before you embark on a course of action. Black Hat thinking is one of the real benefits of this technique, as many successful people get so used to thinking positively that often they cannot see problems in advance. This leaves them under-prepared for difficulties).

Yellow Hat: (The yellow-hat helps you to think positively. It is the optimistic viewpoint that helps you to see all the benefits of the decision and the value in it. Yellow Hat thinking helps you to keep going when everything looks gloomy and difficult).

Green Hat: (The Green Hat stands for creativity. This is where you can develop creative solutions to a problem. It is a freewheeling way of thinking, in which there is little criticism of ideas. A whole range of creativity tools can help you here).

Blue Hat: (The Blue Hat stands for process control. This is the hat worn by people chairing meetings. When running into difficulties because ideas are running dry, they may direct activity into Green Hat thinking. When contingency plans are needed, they will ask for Black Hat thinking, etc. A variant of this technique is to look at problems from the point of view of different professionals (e.g. doctors, architects ales directors, etc.) or different customer)

Impact Analysis  is a useful technique for brainstorming the ‘unexpected’ consequences that may arise from a decision. Impact Analysis is a technique designed to unearth the “unexpected” negative effects of a change on an organization. It provides a structured approach for looking at a proposed change, so that you can identify as many of the negative impacts or consequences of the change as possible. Firstly, this makes it an important tool for evaluating whether you want to run a project. Secondly, and once the decision to go ahead has been made, it helps you prepare for and manage any serious issues that may arise.

For validation purposes you should determine if resources are adequate, if the solution matches your objectives, and if the decision is likely to work in the long term.

Starbursting is a technique which   helps you think about the questions you should ask to evaluate an alternative properly. This is a form of brainstorming that focuses on generating questions rather than answers. It can be used looped, with further layers of questioning about the answers to the initial set of questions. For example, a colleague suggests a new design of sports shoes. One question you ask might be “Who is the customer?” Answer: “sportsmen”. But you need to go further than this to ensure that you target your promotions accurately: “What kind of sportsmen?” Answer: “Those who do a lot of running and jumping, who need extra support”, and so on. This would help focus on the type of market targeted, rather than general sportsmen.

To assess pros and cons of each option, you can use another technique Force Field Analysis. To carry out a Force Field Analysis, use a blank sheet of paper or whiteboard and describe your plan or proposal for change in a box in the middle of the paper. List the forces for change in a column on the left-hand side, and the forces against change in a column on the right-hand side. As you do this, consider some questions: What business benefit will the change deliver? Who supports the change? Who is against it? Why? How easy will it be to make the change? Do you have enough time and resources to make it work? What costs are involved? What other business processes will be affected by the change? What are the risks?

Finally, you have to make a study of Cost-Benefit Analysis which looks at the financial feasibility of an alternative. As its name suggests, Cost-Benefit Analysis involves adding up the benefits of a course of action, and then comparing these with the costs associated with it. The results of the analysis are often expressed as a payback period – this is the time it takes for benefits to repay costs. Many people who use it look for payback in less than a specific period – for example, three years.

You can use the technique in a wide variety of situations. For example, when you are: deciding whether to hire new team members.
More robust approaches are commonly used for more complex, business-critical or high cost decisions.
(Next week: How to choose the best alternative and check your decision)
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