Decision Making

Decision making is the process used to select from two or more competing options. You make decisions on who you will marry (one open spot, multiple candidates), where to go on vacation (vacation locales competing for your time and money), and how you want to invest the ten grand you got from your Aunt Elizabeth.

You also make decisions in business every day. You have to decide on a configuration for the call center. You have to decide on where to build the next plant. You have to decide which customer gets priority, or if you believe the story about the smart phone already being smashed when the customer received it.

There are many structured approaches for making decisions. Some are fairly simple. You list the options, and the team votes on them. You can also choose a more complicated process. Decision making matrices remove some emotion from decisions. You identify your decision criteria, weight them in terms of importance, and then score them.

Another technique is the use of a decision tree. This method has the added benefit of making assessments about the value of each result, and the likelihood of each event happening. You then get an expected value of different decisions.

The process of decision making is really about assigning values and making assumptions. In the case of deciding between taking a vacation and buying the latest model TV with all the bells and whistles, you are assigning values to the benefits and costs of both. When you are deciding on whether to license a product, or sell it yourself, you are considering the likely results of each outcome.

Even an informal, or “gut” decision making process does the same thing. You are still assigning a value to something, looking at likelihoods, and making a comparison. You just tend to be less accurate when doing this, and more emotional. There is nothing wrong with making decisions based on emotion, if that is a criterion you value. For example, many people buy a car that wins out only because they add in the emotional appeal of the vehicle to their decision-making process. Where you can go wrong is when you add in an emotional factor into the decision-making process where it is not justified.

Decision-making at a corporate level can either be centralized or decentralized. Centralized means that the corporate leadership team goes through the decision-making process to come up with a plan for the entire organization. In decentralized decision making, individuals or subordinate organizations are given more leeway in charting their own course.

Some things, like employee benefits and brand image, are good central decisions. Selecting local vendors, picking retail locations, and managing continuous improvement efforts are good decentralized decisions.