How to Make Difficult Decisions about Anything
In the second article in this series on decision making, I show how to make difficult decisions when faced with a set of choices. These choices might be in your personal or professional life – the system works in either circumstance. So whether you are trying to choose between developing two different products to develop, three growth strategies or four marketing tactics, this simple approach will clarify your thinking. It allows you to combine both quantitative and qualitative factors in your comparisons.
For clarity, I am going to use the example of a caterer reviewing her business plans for the next year. But you can substitute your business or personal decisions.
Here is the 10 step process.
Tip 1 - Keep the number of choices or alternatives to four or less
The more choices you have, the more decisions you have to make. In Part 1 of this series, I introduced the Paradox of Choice Model which demonstrated that the more choice we have the more likely it is we'll end up making no changes at all!
As the number of choices increases, so the number of comparisons we have to make goes up at an increasing rate.
Two alternatives means simply comparing A with B, three choices requires three comparisons – A versus B, A versus C and B versus C. When it comes to 5 alternatives this rises to 10 separate comparisons.
So, streamline your potential courses of action to a maximum of four.
In the example of the caterer she started out with five options shown in the image below:
She streamlined this list to just three by removing two which would take her off in two different directions. The cookery clubs in schools and the book still remain on the ‘long-term list' but the objective of this exercise was to set goals for the next year.
The three alternatives remaining are shown below:
Tip 2 - Avoid Decision Fatigue
Human beings make about 35,000 decisions every day! Our brains are constantly evaluating, consciously and subconsciously, our environment. Am I hot or cold, hungry or thirsty, sleepy or wakeful, risk averse or risk taking, decisive or muddled?
Making decisions is tiring!
Avoid decision fatigue and start this process early in the day. there have been many studies into the impact of the time of day and decision-making behaviour.
Tip 3 - Avoid Optimism bias
Optimism bias is the situation where we over-estimate the positive and under-estimate the negative. This is a natural tendency and can throw out forecasts wildly. When business forecasting it's important not to over-estimate sales and under-estimate costs. Bear this in mind when comparing your different courses of action.
Optimism bias is one of the causes of ‘planning fallacy‘ which results in projects exceeding their budget and time-scale.
Tip 4 - Know what matters to you
We've probably all been in the situation where we've thought about moving house and written a pros and cons list for selecting one home over staying put.
The factors we consider are personal and their weight will differ from someone else.
For example I might favour a house near a train station, with a large garden and a garage. My friend might put more weight on investment potential, price, local crime rate.
There is no right or wrong answer when it comes to the factors which underpins your goals. all you have to know is what they are and how they rank.
Going back to the example of the caterer. Here are her factors
Tip 5 - Rank your factors and assign an Importance Quotient
Having decided on which factors to take into account, it's time to put them in order.
Assign an Important Quotient to each – the highest number to the most important and the lowest to the least important. Some factors will have equal weighting as shown in the example below. The time involved in a particular course of action held greater weight that the revenue as the caterer is very time poor. She also likes a challenge and ranked this higher than whether the job involved working alone.
Clearly being happy is high up on the list.
Tip 6 - Build your Decision Table
The next step is to consider each choice factor by factor and to rank them
For example: our caterer considered that Corporate Catering is the most time efficient course of action and gave it a rank of 3. Whereas At-Home Fine Dining, which requires evening and weekend work only scored 1.
Work your way down each factor, assigning a rank of 3, 2 or 1 to your alternatives.
Tip 7 - Multiply each Rank by the Importance Quotient
For each Factor multiply the Importance Quotient by each Rank for all the choices.
For example in the table below Corporate Catering has a Rank of 3 for ‘time involved' which has an IQ of 7. Therefore the final weight is 3 x 7 = 21.
Complete the whole table. It doesn't take long!
Add up the columns.
In this example the Corporate Catering option came out on top by a long way. The other two courses of action, teaching adults and at-home fine dining were equal but had very different weightings. Teaching adults ticked the ‘happiness' box whereas the fine dining strategy ranked lowest for 3 out of the 7 factors.
Tip 8 - Download you Decision Table Calculator
Tip 9 - Review and Revise
At this point it is a good idea to go back over the numbers and the rankings and to question your initial rankings.
It is a simple process you can repeat as frequently as necessary and for different areas of your business and personal life.
Tip 10 - Choose the optimium course of action
And there you have it. Decision made.
1. Keep the number of choices to four or fewer.
2. Start early to avoid decision fatigue
3. Avoid optimism bias
4. Know what matters to you
5. Rank your factors and assign an Importance Quotient to each
6. Build your Decision Table and rank each option from best to worst.
7. For each choice, multiply the rank by the Importance Quotient.
8. Download your Decision Table Calculator
9. Review and revise – are your sure?
10. Choose the optimum course of action.
If you are looking for help with your Business Planning please get in touch: