Features

From crisis to resilience Making better business decisions

20 Jan 2013 - {{hitsCtrl.values.hits}}

Business executives make decisions every day. Some decisions are straightforward and simple: For example - Is this report ready to send to my boss now? Should I allow this customer two weeks’ credit for his purchase? Simple decisions usually need a simple decision-making process.

But difficult decisions typically involve a few issues. There may be:

Alternatives - (Each has its own set of uncertainties and consequences)
Complexity - (You have to consider many interrelated factors)
Uncertainty - (Many facts may not be known)
High-risk consequences - (The impact of the decision may be significant)
Interpersonal issues - (It can be difficult to predict how other people will react)

With these difficulties in mind, the best way to make a complex decision is to use an effective process.

Initial step
The most important but often overlooked step in the decision-making process is the preliminary assessment of the problem. The purpose of this initial step is to consider the decision within the context of all relevant high-level issues.
This big picture perspective provides a platform from which to effectively plan the entire decision-making process. A suitable theme for this step would be ‘a problem well stated is a problem half solved’.
How someone approaches the remaining steps flows from the preliminary assessment. While this concept seems elementary, failing to consciously and adequately focus on this initial step can easily lead to a flawed process and decision.
Let us study a process that will help improve the quality of your decisions. There are six steps to making an effective decision:

Check your decision.
Explore these alternatives.
Create a constructive environment.
Generate good alternatives.
Choose the best alternative.
Communicate your decision and take action.

Now let us study in detail these steps.

Create a constructive environment
To create a constructive environment, make sure you do the following:

Encourage participants to contribute to the discussions, debates and analysis without any fear of rejection from the group. Also, recognize that the objective is to make the best decision under the circumstances: It’s not a game in which people are competing to have their own preferred alternatives adopted.
Know how the final decision will be made, including whether it will be an individual or a team-based decision.
Define what you want to achieve.
Involve the right people - ensure that you’ve consulted stakeholders appropriately even if you’re making an individual decision. The decision-making group should have a good representation of stakeholders.
Ask yourself whether this is really the true issue. The famous 5 Whys technique is a classic tool that helps you identify the real underlying problem that you face.

Generate good alternatives
When you generate alternatives, you force yourself to dig deeper and look at the problem from different angles. Use the mind-set that ‘there must be other solutions out there.’ Then you’re more likely to make the best decision possible. If you don’t have reasonable alternatives, then there’s really not much of a decision to make!
There are a few key tools and techniques to help you.

Consider different perspectives - use 4 Ps (product, planning, potential and people) as the basis for gathering different perspectives. You can also ask outsiders to join the discussion or ask existing participants to adopt different functional perspectives. If you have very few options, approach the problem from a wider perspective. This often helps when the people involved in the decision are too close to the problem.
Generate ideas - Brainstorming is probably the most popular method of generating ideas. There are other advanced techniques available.
Organise ideas - This is especially helpful when you have a large number of ideas. Sometimes separate ideas can be combined into one comprehensive alternative.

Explore 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.

Implications - Another way to look at your options is by considering the potential consequences of each. Impact Analysis is a useful technique for brainstorming the ‘unexpected’ consequences that may arise from a decision.
Risk - 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. Risk analysis helps you look at 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.
Validation - Determine if resources are adequate, if the solution matches your objectives and if the decision is likely to work in the long term. To assess pros and cons of each option, advanced companies use Force Field Analysis, or use the Plus-Minus-Interesting approach.

Choose best alternative
After you have evaluated the alternatives, the next step is to choose between them. The choice may be obvious. However, if it isn’t, Grid Analysis will help. This technique is not difficult.

Step 1 - List all of your options as the row labels on the table and list the factors that you need to consider as the column headings. For example, if you were buying a new laptop computer, factors to consider might be cost, dimensions and hard disk size. Step 2 - Next, work your way down the columns of your table, scoring each option for each of the factors in your decision. Score each option from 0 (poor) to five (very good). Note that you do not have to have a different score for each option – if none of them are good for a particular factor in your decision, then all options should score 0. Step 3 - The next step is to work out the relative importance of the factors in your decision. Show these as numbers from, say, 0 to 5, where 0 means that the factor is absolutely unimportant in the final decision and 5 means that it is very important. (It’s perfectly acceptable to have factors with the same importance.) Step 4 - Now multiply each of your scores from step 2 by the values for relative importance of the factor that you calculated in step 3. This will give you weighted scores for each option/factor combination. Step 5 - Finally, add up these weighted scores for each of your options. The option that scores the highest wins!

Check your decision
This is where you look at the decision you’re about to make dispassionately, to make sure that your process has been thorough and to ensure that common errors haven’t crept into the decision-making process.

The first part of this is an intuitive step, which involves quietly and methodically testing the assumptions and the decisions you’ve made against your own experience and thoroughly reviewing and exploring any doubts you might have.

A second part involves reviewing whether common decision-making problems like overconfidence, escalating commitment, or groupthink may have undermined the decision-making process.
A third part involves using a technique to check through the logical structure of the decision with a view to ensuring that a well-founded and consistent decision emerges at the end of the decision-making process.

Communicate your decision, move to action!
Once you’ve made your decision, it’s important to explain it to those affected by it and involved in implementing it. Talk about why you chose the alternative you did. The more information you provide about risks and projected benefits, the more likely people are to support the decision.
Decisions made during a turnaround situation are often characterized by incredible complexity, pressure and consequence. One must take the time to perform a thorough assessment of the problem at hand, focus on properly framing the decision, consider as many alternatives as possible and then guard against the effects of biases while analyzing options and drawing conclusions.

(The writer, a corporate director with over 25 years’ senior managerial experience can be contacted at [email protected])

Features

From crisis to resilience Making better business decisions

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