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Take the test before the course Topic Summary
This topic helps you to:
• Create a context for making successful and ethical business decisions
• Identify common obstacles that stand in the way of effective decision making
• Assess the underlying issues related to the decision
• Generate and evaluate multiple alternatives
• Make a final decision
• Communicate and implement the decision
Topic Map
Topic Overview
What Would You Do?
Topic Map
Topic Summary
About the Mentor
Using the Topic
Core Concepts
What Is Decision Making?
Setting the Stage
Recognizing Obstacles
Framing the Issue
Generating Alternatives
Evaluating Alternatives
Making the Decision
Communicating the Decision
Implementing the Decision
Assessing the Decision-Making Process
Ethics and Decision Making
Steps
Steps for Creating a Prioritization Matrix
Steps for Using the Point-Counterpoint Technique
Steps for Using the Intellectual Watchdog Technique
Tips
Tips for Generating Alternatives
Tips for Keeping Your Group on Track
Tips for Promoting Fair Process
Tools
Worksheet for Setting the Stage
Worksheet for Evaluating Alternatives
Communications Notification Form
Worksheet for Assessing the Decision-Making Process
Test Yourself
Instructions
To Learn More
Online Articles
Articles
Books
eLearning Programs
About the Mentor
David A. Garvin
David A. Garvin is the C. Roland Christensen Professor of Business Administration at Harvard Business School, where he specializes in the field of general management. For over 20 years he has studied and taught the principles of organizational learning, business and management processes, and the design and leadership of large, complex organizations. He is the author or co-author of nine books, including General Management: Processes and Action, Learning in Action, Education for Judgment, and Managing Quality, as well as twenty-five articles and four videotape series. He is a three-time winner of the McKinsey Award, given annually for the best article in Harvard Business Review.
What Would You Do?
Leslie is a technical manager at a fiber-optics company. The products that she and her engineers develop are manufactured internally. Leslie knows the manufacturing department is overburdened and frequently delivers its products late, resulting in delayed shipments to customers. She's noticed that her competition is developing products faster by outsourcing the manufacturing process. In light of this, she's afraid that her company will lose new business. Leslie's boss has asked her to investigate outsourcing options and decide how they should proceed. She thinks the answer is clear—manufacturing the products externally would significantly save time and money. Leslie senses that her boss is in favor of this option as well. She is inclined to personally gather the information that supports outsourcing and submit a proposal to her boss immediately. What would you do?
What Could You Do?
What may seem like a clear answer to Leslie may not be the best approach to improving the manufacturing process. In order for Leslie to make a decision about outsourcing, she needs to assemble a group that will first concentrate on understanding why the manufacturing process is costly and inefficient and then will explore possible alternatives for improving the process. The group should consist of engineers as well as people outside her department, for example, someone from manufacturing and possibly sales. Including people with diverse backgrounds and areas of expertise will help her make a more informed decision. Once the team identifies the underlying reasons for the delayed manufacturing process, they should then generate and evaluate a number of reasonable alternatives for resolving the issue. Because Leslie's inclination is to outsource the manufacturing process, she should look for information and evaluate options that support keeping the manufacturing in-house. By involving others and evaluating a wide range of options, Leslie will increase her chances of making a successful decision.
In this topic, you'll learn how to manage the decision-making process to improve your ability to make effective business decisions.
Using the Topic
Topic Structure
The content for Making Business Decisions is divided into the sections listed below. Links to these sections appear across the top of your screen.
Topic Overview
Click Topic Overview for an introduction to the topic. Review a hypothetical situation, What Would You Do?, followed by a possible solution, What Could You Do? The Topic Map provides a "site map" with links to all the elements within the topic.
Core Concepts
Click Core Concepts for a comprehensive presentation of the main ideas in the topic. You'll find information on how to establish a context for making effective decisions, assess alternatives, choose a course of action, and communicate and implement the decision.
Steps
Click Steps for procedures on how to prioritize and evaluate alternatives.
Tips
Click Tips for quick bits of advice on generating alternatives, keeping your group on track, and promoting fair process.
Tools
Click Tools for interactive worksheets that help you establish a context for making effective business decisions, evaluate alternatives, communicate the decision, and assess the decision-making process.
Test Yourself
Click Test Yourself to see how much you've learned about making business decisions. You will receive immediate feedback on your choices. A summary page provides links to reference material.
To Learn More
Click To Learn More to read two articles related to the topic. You will also find an annotated list of articles and other resources.
Topic Navigation
To navigate through the topic, click the links at the top and on the left of your screen. When you click a link at the top of the screen, the links on the left will change. For a comprehensive, linear path through the topic, follow these steps:
• Visit each section in the topic by clicking the links at the top, from left to right.
• Review the information within each section by clicking the links on the left, from top to bottom.
• In the Tools section, click on an icon to open a tool. You can print a copy of the tool to use offline. Or, you can complete the tool online and save it to your hard drive.
• Finish by taking the quiz in Test Yourself and reading the Online Articles in To Learn More.
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What Is Decision Making?
As a manager, you are faced with decisions every day. Some decisions are straightforward, such as deciding which team member to assign to a specific project. Others are more complex, such as selecting a new vendor or deciding to discontinue a product due to weak sales.
Many managers tend to view decision making as an event—a choice to be made at a single point in time, usually by an individual or a small group. In reality, however, significant decisions are seldom made in the moment by one manager or in one meeting. Important decisions, such as changing the strategic direction of a group or hiring a new manager, typically require time and input from many individuals and sources of information throughout an organization. Hence, decision making can more accurately be viewed as a process.
Managers who recognize decision making as a process increase their likelihood of making more effective decisions. Why? Because by taking time they are able to identify and assess the issues associated with making the decision. By involving others, they weigh different perspectives and deepen the discussion. Perhaps most important, taking a process-driven approach is more likely to lead to broader acceptance of the decision—and to more effective implementation.
Decision making as a process
This topic addresses decisions that are important and far-reaching. It assumes that such decisions cannot be made effectively by one individual operating in a vacuum. Rather, it treats decision making as a process that unfolds over time and involves working with a group.
The decision-making process can be broken into three distinct phases:
• Phase 1: Establishing a context for success
• Phase 2: Assessing the situation and choosing a course of action
• Phase 3: Communicating and implementing the decision
Phase 1: Establishing a context for success
In this phase you create the framework for making an effective decision. This phase includes:
• Setting the stage: First, you select participants and decide where to hold your meetings. Next, you determine the approach you will take to reach a decision—will you aim for consensus or vote by majority? During the meetings, especially the earliest ones, you set the tone for the group by encouraging open dialogue and promoting healthy debate.
• Recognizing obstacles: Certain individual biases and group dynamics can be obstacles in the decision-making process. By predicting and recognizing these tendencies, you can take steps to avoid them.
Phase 2: Assessing the situation and choosing a course of action
Once you have established a context for your meetings, you are ready to manage the decision-making process. This phase includes:
• Framing the issue: A successful decision depends on a clear understanding of the issue at hand and its root cause(s).
• Generating alternatives: After you've clarified the issue, you brainstorm and generate creative conflict to develop alternative courses of action and ways of proceeding.
• Evaluating alternatives: Next, you assess the feasibility, risk, and ethical implications of each possible choice.
• Making a decision: Finally, you choose an alternative.
Phase 3: Communicating and implementing the decision
After you and your team make a decision, the challenge is to put it into action. This phase includes:
• Communicating the decision: You decide who should be notified of your decision and communicate it effectively.
• Implementing the decision: You determine what tasks will be required to put the decision into action, assign resources, and establish deadlines.
The Core Concepts that follow discuss each of the elements of these phases in greater detail. Discussions on assessing your decision-making process and making ethical decisions are also included.
While this topic advocates making important decisions with a group, the learning points conveyed within the different sections can certainly be applied to decisions that, for whatever reasons, need to be made without group input. Read on to learn more about making effective business decisions.
See also the Online Article: "What You Don’t Know About Making Decisions".
Setting the Stage
Creating the right context for the decision-making process is critical to making successful choices. This consists of:
• Selecting the right people to participate in the process
• Identifying a setting, or physical location, that will encourage creative thinking
• Choosing an approach for making the actual decision
• Creating a climate that promotes healthy debate and allows for diverse viewpoints
Participants
A group of people with diverse perspectives is more likely to generate a variety of thoughtful ideas than a group of individuals with the same background. When you choose people for your group, look for individuals who are likely to express differing points of view and who represent different interests. Your group should include:
• Key stakeholders: These are the people most directly affected by the decision or who have a stake in the decision. You need their buy-in to put the decision into effect. Since they are more likely to support a decision they helped make, include them early in the process to ensure an efficient implementation.
• Experts: Experts can educate the group and provide information about the feasibility of various options. Keep in mind that you may need more than one area of expertise represented in your group.
• Opponents: If you are aware of individuals who may oppose the decision and block its implementation, invite them to one or more of your meetings. Involving potential opponents early on can eliminate obstacles down the road.
Ideally, your group should be small in size, preferably between five and seven members. Depending on the complexity of the decision at hand, you may want to involve as many as ten or as few as two people in the decision-making process.
Setting
To help your group generate creative solutions to problems and evaluate them critically, choose diverse settings for your meetings. Such settings might include: conference rooms that you don't typically work in, off-site locations, or a familiar location with the furniture rearranged to facilitate face-to-face discussion. When people are removed from traditional settings, such as a boardroom or a supervisor's office, they tend to speak more freely because they feel less constrained by office hierarchies.
Approach
Once you've selected the participants and chosen a setting for your meetings, the next step is to determine what decision-making approach you will take. The group you assemble needs to understand up front the process it will follow and how the final decision will be made. The spectrum of group decision-making approaches includes the following:
• Consensus: All team members meet together to discuss the proposal openly and strive to reach agreement, with everyone accepting the final decision.
• Majority: The group votes, with a majority ruling. The team leader may elect to break a tie, if necessary.
• Qualified consensus: The team tries to reach a collective agreement, but if it is unable to do so the team agrees that the team leader makes the decision.
• Directive leadership: Because of the nature of the decision or its time frame, the leader makes the decision and then informs the group of the decision that was made. A crisis or sudden unexpected emergency is a classic example of when this approach might be necessary.
These approaches, with the exception of directive leadership, vary in the extent that they empower the participants and create a sense of responsibility within the group. Be aware, however, that regardless of approach, when a group is trying to find areas of agreement it may avoid exploring minority viewpoints. Your job is to encourage exploration of all ideas regardless of the approach you will take to make the decision.
Climate
While the participants, setting, and approach change depending on the decision at hand, you need to create a consistent climate, or tone, for all your meetings. The climate you establish strongly influences how your team interacts with each other.
Consider the following scenario:
A manager at a software development company has been charged with assigning limited resources to the firm's current projects. The manager calls a meeting with all of her project leaders to discuss how the resources will be allocated. The discussion quickly turns into an argument. Each project leader advocates for his or her project. The debate gets heated as the conversation goes around in circles, and each project leader disparages the others' efforts. Ultimately, the manager decides to assign the limited resources to three projects. The project leaders leave the meeting exhausted and frustrated.
What went wrong in this example? The manager did not manage the decision-making process effectively and the meeting deteriorated into an advocacy mode. The project leaders viewed the meeting as a competition. They advocated for their positions without considering the needs of other departments or the company as a whole. In advocacy situations, people tend to offer only the information that supports their case and omit details that might weaken it. As a result, the discussion can quickly deteriorate into personal attacks, giving rise to negative emotions.
In a perfect world, decisions would be made using an inquiry approach—an open process in which individuals ask probing questions, explore different points of view, and identify a wide range of options with the goal of reaching a decision that the group creates and owns collectively. In an inquiry mode, individuals set aside their personal opinions or preferences in order to arrive at a decision that is best for the group or organization.
The following table compares these two different approaches to decision making.
Advocacy Inquiry
Concept of decision making A contest Collaborative problem solving
Purpose of discussion Persuasion and lobbying Testing and evaluation
Participants' role Spokespeople Critical thinkers
Patterns of behavior • Strive to persuade others
• Defend your position
• Downplay weaknesses • Present balanced arguments
• Remain open to alternatives
• Accept constructive criticism
Minority views Discouraged or dismissed Cultivated and valued
The outcome Winners and losers Collective ownership
David A. Garvin and Michael A. Roberto, "What You Don't Know About Making Decisions. " Harvard Business Review, August 2001.
While inquiry is an ideal, it is seldom met in practice. It is extremely difficult for individuals to discuss ideas or issues without expressing their opinions. A more realistic and effective technique for arriving at a decision is one that balances advocacy with inquiry. Group members leave their personal agendas behind and enter the meeting with the intention of acting as unbiased participants. They may advocate for a position they feel strongly about, but they also inquire into other viewpoints and consider alternatives. They understand that the goal is to find the best solution for the group as a whole, even if it means that some individuals in the group might be negatively impacted by the decision. Generally, in well-balanced sessions, people share information freely and consider multiple alternatives.
See also Worksheet for Setting the Stage.
Recognizing Obstacles
Decision making is made difficult by common, often unconscious, obstacles that frequently inhibit a decision maker's ability to determine the optimal choice. Such obstacles include individual biases and unproductive group dynamics. While it is almost impossible to eliminate these obstacles, recognizing them in yourself and in the members of your group will help you make more objective decisions.
Individual biases
Here are some common examples of biases—distortions or preconceived notions—that people encounter when making decisions.
• Bias toward the familiar and toward past successes. We tend to base our decisions on events and information that are familiar to us. For example, a manager remembers her launch of a new product in Spain three years ago; it was her first big marketing success. She also vaguely remembers that a similar launch strategy was unsuccessful in a number of other countries. Because her memories of the successful Spanish launch are so vivid, she emphasizes this experience and discounts the evidence of unsuccessful launches elsewhere. When she tries to extend a new brand into Portugal, her efforts fail. While the strategy used for the Spanish launch may have been a good starting point, her reliance on a prior success led to incorrect assumptions about the Portuguese market.
• Bias toward accepting assumptions at face value. We are generally overconfident in our assumptions and therefore generate too few alternatives. For example, a manager purchases a software package offered by the largest vendor without collecting competitive bids. He assumes that because the package works for other users in the same industry, it will work for him. He fails to investigate other software packages that might better meet his needs.
• Bias toward the status quo. We have a tendency to resist major deviations from the status quo. For example, people at a company may be familiar with how to use a particular computer program and resist using an alternative, even though their program is outdated. Their resistance may be driven more by their reluctance to learn something new than by the quality of the system itself.
• Bias toward confirming our opinion. Once we form an opinion, we typically seek out information that supports our viewpoint and ignore facts that may challenge it. For example, a manager searches the Internet to find data supporting her preference for focus groups in market research, but does not stop to read information that supports other approaches.
The most proactive way of preventing these biases from adversely impacting your decision-making ability is to recognize them.
Group dynamics
One of the advantages to treating decision making as a group process is that individual biases can be counteracted by the presence of multiple voices and perspectives.
But while groups offer different viewpoints, they need guidance to be productive. Your challenge is to manage the group decision-making process. Otherwise, you may find yourself confronted with one of the following extremes.
• Excessive group harmony: Excessive group harmony occurs when individuals want to be accepted in a group or they lack interest in the process.
o "Groupthink." This results when participants' desire for agreement overrides their motivation to evaluate alternative options. In this situation, people tend to withhold their opinions, especially if their views differ from those of the group leader. They make little effort to obtain new information from experts, and they selectively filter information to support their initial preferences. They may spend a lot of time inquiring about what others in the group want so that the solution they reach will make everyone happy.
o Lack of interest. Similar results can occur when participants lack interest in the process or do not feel empowered. If the group feels that the leader has already made the decision, they may go along with it, refuse to participate entirely, or accept the first reasonable alternative that is proposed in an effort to end the process.
• Excessive individualism: Excessive individualism is at the opposite end of the spectrum from excessive group harmony. In this situation, individuals engage in aggressive advocacy, placing stakes in the ground, relentlessly arguing their positions. They disregard the opinions of other group members and fail to consider the common good.
Extreme behaviors can lengthen the decision-making process and interfere with making good decisions. Your job as a manager is to keep your decision-making group on track so they do not head toward either of these extremes.
See also Tips for Keeping Your Group on Track.
Framing the Issue
Once you've created the proper context and recognized common obstacles that can stand in the way of decision making, you're ready to frame the issue for your decision-making team. This is the point where many managers make the mistake of seeking out solutions before they understand the nature of the problem.
Consider the following example:
New Age Electronics, a toy manufacturer, has a customer support phone line to answer customer questions about assembling its products. The volume of phone calls has increased so much that the phone support associates cannot keep up with the demand. Customers have complained of waiting half an hour to get help. The manager responsible for the support line puts together a team to help him decide how to address the issue. He begins the first meeting by saying: "We have a serious problem with our customer support line. Customers are waiting too long for service. We need to fix it."
By framing the issue as a problem with the phone line response time, the team will most likely focus on ways to reduce the response time—for example, adding more phone lines, adding more phone representatives, increasing the hours of service. These solutions will address the symptoms of the problem—overloaded phone lines—but may not address the root of the problem.
To get to the root of the problem, the team should be thinking about why customer calls have increased dramatically. Is one product in particular responsible for an inordinate number of calls? Is there a flaw in the design of a product, or in the assembly instructions? Are the phone support associates poorly trained? Suppose the manager had framed the issue by saying: "We have a serious problem with our customer support line. The volume of calls has increased, customers are waiting too long for service, and we need to find out why. Then we need to decide what to do about it." The focus of the team would be quite different.
When confronted with a problem, think about how to frame the issue for your team. Be careful not to assume from the outset that you know what the problem is. Challenge yourself and your team to get at the core of the issue by framing the problem in a variety of different ways and assessing whether the available information supports your theories. Throughout the entire process, ask open-ended questions that encourage exploration rather than closed questions based on predefined assumptions about the problem.
Identify your decision-making objectives
Once you have successfully framed the issue, the next step is to identify your objectives in determining a course of action. Ask your team questions like: "What do you want the decision we make to accomplish?" and "What you would like to see happen as a result of the decision we reach?" Invite your group to describe their vision of the outcome of the decision as vividly and specifically as possible.
For example, if you were the manager at New Age Electronics, you and your team might come up with the following objectives:
• Reduce the average waiting time per customer to two minutes.
• Reduce call volume by 40%.
• Reduce average call duration to three minutes.
During the objective-setting process, you may encounter significant differences in opinion from one person to another. This is a healthy part of the dialogue and should be encouraged. However, if you find your list of objectives spiraling out of control, you may want to revisit your issue. You may find that you have more than one issue to resolve.
Once you have created a list of objectives, it's time to think about the strategy you are going to use to achieve them. At this point, you and your team are ready to enter the next phase in the decision-making process—generating alternatives.
See also the Harvard ManageMentor topic Solving Business Problems.
Generating Alternatives
In order to make an informed decision, you need choices. Generating alternatives creates those choices. After weighing the merits of a variety of options, you are in a better position to make the best decision for the situation.
Consider the following scenario:
A marketing manager at a consumer products company calls a meeting with his team to discuss how to increase laundry detergent sales in Latin America. The meeting begins with silence as everyone waits for someone else to speak. The marketing manager breaks the silence by suggesting they consider changing the current packaging. Following this cue, someone chimes in with supporting statistics about packaging and consumer trends. Another person then describes the packaging of a product that has done well in Latin America. The meeting concludes with the assignment of a task force to research new packaging options.
This meeting seemed to proceed smoothly. What then went wrong? In this scenario, the manager did not successfully engage the team in generating alternatives. He didn't promote healthy debate and constructive conflict. Instead, excessive group harmony resulted in an action step based on the first idea that emerged—to investigate packaging options. There was little creativity or innovative thinking. As a result, no new ideas surfaced and the group settled on the first alternative suggested, which had been the manager's idea!
Your goal at this stage in the decision-making process is to identify as many alternatives as possible. Brainstorming is an effective way to generate different ideas and courses of action.
Brainstorming
How do you brainstorm? Start with a blank flipchart page. At the start of the meeting ask your team members to suggest any ideas that come into their heads, or ask individuals to take a few minutes to develop their own lists of ideas to share publicly. Either way, record the ideas but don't discuss their merits at this point. Be especially careful not to allow criticism in the early stages. Instead, focus on identifying as many alternatives as possible. You can evaluate the ideas after you have a list of possibilities.
Encouraging productive dialogue
Energize your team so that it will work hard to identify creative solutions. Creative conflict is essential to the generation of alternatives, but it should never be personal or divisive. Some suggestions for encouraging team participation during your brainstorming sessions include the following:
• Encourage open, candid dialogue by making it clear at the outset that the final outcome is not predetermined and everyone's input will be valued.
• Suggest that people try to think outside of their individual or departmental roles. They should focus on what is best for the group using all of the available information.
• Provide closure at the end of every meeting by assigning tasks and deadlines so people are accountable for moving the process forward.
• Recognize and thank people who share their ideas and viewpoints in a positive manner—especially those who are willing to take the risk to challenge you.
Promoting fair process
Throughout the decision-making process, it is essential that your participants feel the process was fair. Specifically, they must believe that their ideas were acknowledged and considered, even if their suggestions were not ultimately adopted. This sense of fairness is critical for ensuring cooperation and buy-in when it comes time to implement the decision.
Alternatives provide the choices you will need to make an informed decision. When you encourage team participation, facilitate creative conflict, and listen to ideas, you are likely to generate a full slate of options that will serve you well as you enter the next stage: evaluating alternatives.
Evaluating Alternatives
Once you have identified the alternatives you'll consider, the next step is to evaluate those alternatives and make a final decision.
Variables to consider
You assess the alternatives by seeing how well each one meets the objectives you established at the outset of the process. Here are some variables managers weigh when evaluating an alternative:
• Costs: How much will the alternative cost? Will it result in a cost savings now or over the long-term? Are there any hidden costs? Are there likely to be additional costs down the road? Does this alternative meet budget constraints?
• Benefits: What kind of profits will we realize if we implement this alternative? Will it increase the quality of our product? Will customer satisfaction increase?
• Intangibles: Will our reputation improve if we implement this alternative? Will our customers and/or our employees be more loyal?
• Time: How long will it take to implement this alternative? Could there be delays? If so, what impact will this have on any schedules?
• Feasibility: Can this alternative be implemented realistically? Are there any obstacles that must be overcome? If this alternative is implemented, what resistance might be encountered inside or outside the organization?
• Resources: How many people are needed to implement this alternative? Are they available? What other projects will suffer if individuals focus on this option?
• Risks: What are the risks associated with this alternative? For example, could this option result in loss of profits or competitive advantage? Will competitors respond? If so, how?
• Ethics: Is this alternative legal? Is it in the best interests of the customers, the employees, and the community where we operate? Would I feel comfortable if other people knew about this alternative?
Evaluation techniques
As you and your team assess each alternative, a clear choice may emerge. If further evaluation is necessary, consider using one or more of the following analytical techniques to help you reach a decision:
• Prioritization matrix: A prioritization matrix provides a way for you to compare how well each alternative achieves your objectives. It uses weighted scores to rank each alternative; the alternative with the highest score is most likely your best choice.
To create a prioritization matrix, start by listing your objectives in making the decision and assigning them a value (highest = best). Then, make each of these objectives, along with its corresponding value, a column header for your matrix. Make each of your alternatives a row. Next, for each alternative, rate the objectives on a scale of 1 to 10 (10 = best); then, multiply your ratings by the priority values. Add all the scores for each alternative to determine which has the higher number. This is your best decision, based on your priorities.
Increase Profits(4) Maintain Low Customer Costs (3) Implement Quickly (2) Use Few Internal Resources (1) Total Score
Alternative A 9 * 4 = 36 2 * 3 = 6 7 * 2 = 14 2 * 1 = 2 58
Alternative B 2 * 4 = 8 9 * 3 = 27 8 * 2 = 16 3 * 1 = 3 54
•
See also Steps for Creating a Prioritization Matrix.
• Trade-Offs: One method that enables you to identify the degree of variation between alternatives is the trade-off technique. With this approach, you identify all of the attributes of each alternative and compare them to each other in a table. In this case, you would use specific data. A trade-off table might look like this:
Profits Customer Costs Time to Implement Internal Resources
Alternative A Profits increase by $100,000 Cost to customer increases by $1 per unit 6 months to implement 20 people required
Alternative B Profits increase by $10,000 Cost to customer increases by $0 4 months to implement 15 people required
•
Once you lay out the alternatives with their associated information, consider how important these factors are to your group and/or the company, and identify the compromises that you are willing to make. For example, would a $90,000 increase in profits be worth the time of five extra people? Be sure to think about the trade-offs in light of the priority you assign to each objective.
• Decision trees: A decision tree is a visual representation of the alternatives and their strengths and weaknesses. It works particularly well for investment decisions such as whether or not to increase manufacturing capacity.
Consider a situation in which you project an increased demand for your product. You and your team need to decide whether to continue manufacturing a component internally or whether to outsource the work. An oversimplified decision tree might present your alternatives as follows:
Based on this simplified decision tree, the best course of action would be to pursue Alternative B (of the two options Alternative B offers the highest risk-adjusted net present value).
Decision trees are typically much more robust than the above illustration in that they evaluate more options and include multiple decision points. In general, the more alternatives you consider, and the more detailed tree you can create, the more likely you are to discover a solution that meets your needs. A decision tree, however, will not automatically indicate the best course of action—you will still need to assess the information in the decision tree to make your choice.
The task of evaluating alternatives is easier when you have a systematic approach to the evaluation. Adapt the guidelines and techniques described above to your situation, always keeping in mind the original objectives you have set out to achieve.
See also Worksheet for Evaluating Alternatives.
Making the Decision
In a perfect world, you would have all of the information you need and an unlimited amount of time to make a decision. Your choices would be clear and company politics would not influence your decision. Often, however, you need to make complex decisions quickly, with only partial information. The techniques for evaluating the alternatives outlined in the previous section should help you compare the pros and cons of each choice—but they don't eliminate subjective, qualitative considerations.
Moving toward closure
If your group is having difficulty reaching a final decision, consider using the following methods to help your team move toward resolution:
• Point-counterpoint: Divide your team into two groups of equal size—Group A and Group B. Wherever possible, spread supporters of opposing ideas between the groups. Ask Group A to develop a proposal for a solution that includes their recommendations and key assumptions, and then present their proposal to Group B. Then ask Group B to identify one or more alternative plans of action, and then present those alternative plans of action to Group A. Have both groups debate the different proposals until they all agree on a set of recommendations.
For example, a finance department has been engaged in a heated debate over which accounting firm to use to audit the books this year. One group favors a big name brand, while the other favors a smaller, yet well-respected firm. Using the point-counterpoint technique, the decision-making team considers each firm and reaches a conclusion.
See also Steps for Using the Point-Counterpoint Technique.
• Intellectual watchdog: Similar to the point-counterpoint technique, the intellectual watchdog technique begins by dividing the team into two groups of equal size. Group A develops a proposal for a solution that includes their recommendations and key assumptions, and presents their proposal to Group B. Instead of having Group B generate an alternative plan of action, ask Group B to critique the proposal and present its analysis to Group A. Ask Group A to revise the proposal based on Group B's feedback and present it again. The two groups continue to critique and revise the proposal until they agree on a set of recommendations.
For example, a manufacturer of office furniture needs to improve the quality of its products. The first group assumes that the problem with quality is due to outdated manufacturing equipment, and recommends investment in better equipment. The second group questions this assumption, critiques the proposal and presents its analysis to the first group. The first group revises its proposal, and the two groups work together in the revision-critique-revision cycle until they arrive at a solution that both groups feel will improve their products' quality.
See also Steps for Using the Intellectual Watchdog Technique.
Other ways to resolve disagreements and move toward closure include:
• Revisiting and retesting assumptions.
• Going back to the original decision-making objectives and ensuring that they remain appropriate.
• Setting a deadline in advance. (For example, "By next Tuesday we will make our decision, no matter how much uncertainty remains.")
• Agreeing up front that if disagreements are unresolved, the choice will be made by qualified consensus.
Ending deliberations
Knowing when to end deliberations is difficult. If you make a decision too early, you might not explore enough possibilities. If you sense that your group is rushing to make a decision, consider adjourning a meeting before making a final choice and reconvening at a later time. Ask each participant to try to find a flaw with the decision to present at the next meeting.
The flip side of deciding too early is deciding too late, which is equally problematic. If you make a decision too late, you may waste valuable time and possibly even miss the opportunity to solve the problem. If your team insists on hearing every viewpoint and resolving every question before reaching a conclusion, the result is the same: your discussions will become a tiring, endless loop. If you find your group is stuck going around in circles, it is your job as a manager to bring the discussion to closure. You may need to simply "force the issue" by establishing a deadline for a decision, using the best information available at that time.
See also Tips for Promoting Fair Process.
Communicating the Decision
Making a decision can be a rigorous process. Your responsibility doesn't end with the decision, however. You need to turn the decision into action. The way you communicate the decision and plan for implementation will determine in large measure your success.
Many managers overlook one of the most important aspects of the decision-making process: communicating the decision to everyone involved in and affected by it.
Once a final choice has been made, some group members will have to give up their preferred solution. The fairness of the decision-making process as perceived by the participants and others will determine their willingness to support the final outcome. In communicating the decision and getting buy-in, keep in mind the following principles:
• Consideration and voice: Participants who are encouraged to question and debate each other's ideas are more likely to believe that the leader listened to their viewpoints and gave them serious consideration, especially if the leader demonstrated attentiveness through his or her actions—for example, by taking notes and paraphrasing what was said to show he or she was actively listening. Even if the participants' viewpoints did not prevail, knowing that they were taken seriously will lend credibility to the process and acceptance of the final decision.
• Explanation: The leader needs to explain the thinking behind the final decision. It's important to be clear about why you and your group made this choice, as opposed to a different one. Explaining the reasons for the decision builds trust in the leader's intentions and confidence that it was made for the benefit of the company as a whole.
• Expectation: Once the decision has been made, everyone affected by the decision needs to understand the new rules of the game. New responsibilities need to be spelled out, as do performance measures and penalties for failure. When people clearly understand expectations, they can focus on what needs to be done.
The people you notify will include everyone who is responsible for implementing the decision as well as anyone who is affected by it. Your list might also include the key stakeholders: members of your unit who were not part of the decision-making group, senior management, department supervisors, external constituents, and even customers if they will see a change in the way you do business with them.
Your message should include the following components:
• Statement of the issue that needed to be addressed
• Description of the objectives or decision-making criteria
• The names and roles of the people involved in making the decision and why they were included
• The alternatives considered (and possibly a summary of the analysis in a table form)
• An explanation of the final decision and what it means for the key stakeholders.
• The implementation plan and timeframe
• Recognition of those who participated
• Solicitation of feedback
Be sure to take the time to create a clear, concise message. Providing incomplete or poorly articulated communication about your decision can lead to confusion, disappointment, and an unwillingness to support its implementation.
See also Communications Notification Form and the Online Article: “The Perils of Being the Best and Brightest.”
Implementing the Decision
Now that you have made a choice and communicated your decision to the appropriate people, it is time to identify the tasks that will be required to put the decision into action, assign resources, and establish deadlines. Ideally, your team members will leave your final meeting knowing exactly what they're expected to do. If not, reconvene the group to identify who will be responsible for each task.
You probably have much of the information you need to develop the implementation plan. When you were evaluating alternatives, you probably considered the cost, the number of people required to work on the project, and so forth.
For example, suppose you and your group determine that customer complaints about your telephone support line are due to inadequate training of the support associates taking calls. After analyzing the situation, you may decide that the associates need to have more product knowledge. As part of evaluating this alternative, you probably would have identified the resource requirements from the training department to implement your solution.
Consider the following when implementing your decision:
• Assign reasonable tasks with sufficient resources. For example, the people in the training department may not have extensive product knowledge and may need the help of a content expert. You might need to assign an expert in product knowledge to work with the training department to develop a program.
• Clarify expectations and acknowledge incentives. For example, if an account executive is going to start managing the company's largest client, explain what this client means to the organization and your expectations for managing the relationship. Determine whether the increase in responsibility should result in a pay increase or change in title, and follow up with your Human Resources department to make that happen.
• Provide feedback on the implementation. Give your employees feedback on the progress of the implementation plan. Your input should be constructive and focused on accountability and execution. Set a time for daily or weekly status meetings. This will help you stay informed of your group's progress during implementation.
• Take a look for yourself. Check in with people informally. Ask them how the project is going and if they have any concerns about it. Be interested not only in issues related to implementation, such as schedule and budget, but also whether your employees believe that the project is effectively addressing the problem it is intended to solve.
• Recognize people's contributions. Implementation often goes unnoticed unless it fails. If things are going well, recognize individual contributions and celebrate successes.
Remember that mid-course corrections are sometimes required. Keeping abreast of progress during implementation will enable you to fix problems before they become major crises.
Assessing the Decision-Making Process
Many managers wait to evaluate a decision until the end of the process, after it has been implemented. This is too late. If there is a flaw in the decision itself, or in its implementation, you may learn a useful lesson about how not to make or implement a decision, but it will be too late to repair the damage.
Assessing the decision-making process is an ongoing effort that must occur in real time, throughout all the phases of the process. You need to monitor the tone of your meetings and address problems in group dynamics before they interfere with your goal. Sometimes new information becomes available, or new conditions arise, necessitating a mid-course correction in your objectives.
Have a plan for evaluating the various elements in your process, from gathering your decision-making team to implementing the actual decision. It could be something as simple as a checklist. Take the time after each meeting to think about how it went. Research suggests that decisions that include these five process characteristics have sharply improved odds of being successful:
• Multiple alternatives: Generally, successful decisions result from a review of many alternative solutions. As your process unfolds, make sure that your group considers several alternatives before making its decision. The point-counterpoint approach is a useful method to ensure that at least two alternatives are considered. Remember, a "go/no go" choice involves only one alternative.
• Open debate: In order to generate creative alternatives, you need to facilitate open, constructive debate. Strive to create an environment that supports inquiry-based discussions. Ask open-ended and hypothetical questions to encourage your group to explore a variety of possibilities. Listen attentively to your team's suggestions and emphasize positive group dynamics. Debate should be task-related, not emotional or personal. Make adjustments to your approach if the group is not working well together. Silence and suppressed arguments are both signs that the debate is not sufficiently robust.
• Assumption testing: It is unlikely that you will have complete information at the time you make your decision. Your group will have to make assumptions as it proceeds. Make sure that your team recognizes when it is relying on facts and when it is making assumptions. Further, the team needs to recognize which of those assumptions are closely tied to confirmed data, and which are not. The group may still choose to use untested assumptions in its decision-making process, but should reconsider the plausibility of these assumptions throughout the process.
• Well-defined objectives: Continually review your objectives during your meetings to ensure that your discussions stay on target. If conditions change, you may need to refine your objectives or even your definition of the problem to meet the new conditions.
• Perceived fairness: Keeping people involved throughout the process is critical to the success of your decision. Your team members must feel that their ideas are being considered during the process in order to feel ownership of the final decision. Periodically evaluate the level of participation of your team members, such as after a milestone. If people have stopped participating in conversations or are doing so reluctantly, they may be dissatisfied with the process. Your job is to keep people engaged by acknowledging your team members' suggestions, and helping them understand why another alternative may be a better decision.
Paying careful attention to these characteristics throughout the decision-making process can be difficult and time-consuming. Making the effort to include them, however, gives your decision a much better chance of success.
See also Worksheet for Assessing the Decision-Making Process.
Ethics and Decision Making
Whenever you make a decision, particularly a complex one, it will almost certainly impact other people. The consequences will be social as well as economic. Ethics and company values will often be at stake. For example, a manager of a customer service phone line at a company that manufactures a new medical monitoring device has been told that he needs to cut costs. The company is in financial trouble and has to cut costs across the board to stay afloat. Your team decides that the alternative that will result in the most savings is to charge customers for phone calls and to reduce the number of hours the line is open. Before making the final decision, however, the group should consider whether that option is a good balance between the interests of the company and those of the customer who may need help using the monitor.
Very few complex decisions can be made based on cost alone. Most decisions involve considering a variety of factors, and require sound judgment on your part in weighing those factors. As a manager, you need to assess the consequences of your alternatives as best you can and then make a decision.
Making ethical decisions
Ethics should play an important part in your team's deliberations before making a decision. Ask your group to explicitly consider ethical issues based on their own values—and not dismiss them as "soft" and therefore unworthy of discussion. For example, if a team member feels uncomfortable because she heard rumors that the highly successful company you are considering working with overseas has been polluting the environment, she should be encouraged to bring her concerns to the table for deliberation.
One technique to ensure that ethics are considered during your discussions is to appoint an "ethical watchdog," or ombudsman. The person who fills this role would be responsible for ensuring that ethical issues surface during discussions. During the course of the decision-making process, the role of "ethical watchdog" should rotate periodically.
Questioning your decisions
There is no set of universal guidelines for making ethical decisions. However, a starting point might include asking yourself questions. The questions could be broad and far-reaching in scope, such as: "Which option will produce the greatest good and do the least harm?"
At a minimum, to ensure ethical decision making you should make sure that your decision passes the following two tests:
• The legal test. Ask yourself: "Is the decision against the law or against company regulations?" If the answer is yes, you clearly do not want to do it. For example, a decision that discriminates based on race, gender, age, or religion would not be acceptable. You may also want to consider whether something that is technically legal goes against your company's regulations. For example, your company may have a policy that its facilities must comply with all U.S. environmental regulations, even if the facility is located in a country or region where the environmental standards are more relaxed than in the United States.
• The stakeholder test. Ask yourself: "Is the decision in the best interest of our employees, customers, community, and other key stakeholders such as federal or state regulators?" Sometimes a decision that doesn't directly increase profits is actually in the company's best interest. For example, a pharmaceutical company's decision to provide low-cost prescriptions to elderly and low-income customers may cost money up front, but significantly improve corporate image, potentially leading to increased profits in the future.
If your decision passes the two tests above, as a final check, you might want to consider what someone you respect would say if you told them you chose a particular option.
Another key to evaluating the ethics of an option is to consider whether the decision-making and implementation process is open and direct. If you do not want other people to know about the decision, you may not be making the ethical choice.
Ethics statements and personal judgment
Some companies develop statements about their values and sense of social responsibility. These statements may include goals such as providing top-quality products, reducing waste to the environment, and fostering an open, honest, and direct corporate culture. While managers can refer to their company's value statement for guidance, it is unlikely that the company value statement will be enough.
You will probably have to use your personal judgment as well. For example, in the case of dealing with an employee who has a drug problem, you may decide that the cost of getting help for this person (e.g., lost time on the job) is outweighed by the value of this person's skills or expertise to your group and your company.
In sum, important decisions cannot be based on financial considerations alone. As a manager, you need to consider the consequences of a decision in the broader context of the law, as well as the individuals and community it will affect.
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Steps for Creating a Prioritization Matrix
1. Prioritize your objectives.
List your objectives, in order of priority. For example:
o increase profits
o keep costs low to the customer
o implement the change quickly
o use few internal resources
2. Assign a value to each objective.
Because there are four objectives in our example, the most important one, "increase profits," will receive a value of four. The next most important one, "keep costs low to customer," will receive a value of three, and so on.
3. Create a matrix.
Make each objective with its value a column header along the top of the matrix. Make each of your alternatives a row. Your matrix would look something like this:
Increase Profits (4) Maintain Low Customer Costs (3) Implement Quickly (2) Use Few Internal Resources (1)
Alternative A
Alternative B
4. Rate the alternatives.
Now decide how well each alternative will meet each objective. For example, ask yourself, "How well will Alternative A achieve the objective of increasing profits?" Give it a score from 1 to 10. If you think it will contribute significantly to increasing profits, you might give it a score of 9 for that objective. Next ask, "How well will Alternative A keep costs to the customer low?" If you anticipate that it may result in a substantial cost increase, you might give it a score of 2. Continue rating each alternative on every objective. If Alternative B will only increase your profits by a small amount, but will not increase the cost to the customer, and can be achieved quickly with not many more resources than Alternative A, you might rate it as shown below:
Increase Profits (4) Maintain Low Customer Costs (3) Implement Quickly (2) Use Few Internal Resources (1)
Alternative A 9 2 7 2
Alternative B 2 9 8 3
Another way to approach the prioritization matrix is to complete each column, one at a time. In our example, Alternative A may result in large profits, so you rate it 9. Alternative B may have little impact on profits, so you rate it 2. Then you proceed to the next column (objective), compare the alternatives and assign ratings. With both approaches, the results will be the same.
5. Calculate the total scores.
Multiply the score on an objective by the value of the objective. For example, Alternative A has a score of 9 on Increase Profits. The value of Increase Profits is 4. Therefore, Alternative A scores 36 on Increase Profits.
Increase Profits (4) Maintain Low Customer Costs (3) Implement Quickly (2) Use Few Internal Resources (1) Total Score
Alternative A 9 * 4 = 36 2 * 3 = 6 7 * 2 = 14 2 * 1 = 2 58
Alternative B 2 * 4 = 8 9 * 3 = 27 8 * 2 = 16 3 * 1 = 3 54
Add all the scores for each alternative. In this case, Alternative A is the best decision based on your priorities.
When you use a prioritization matrix, keep in mind the degree of variation between the different alternatives you are exploring. For example, if the difference in the amount of profits between alternatives is $5,000, you might think differently than if the difference were $100,000—especially if it also had a negative impact on the company, such as loss of jobs. So, while prioritizing your alternatives can be useful, keep in mind that you should look at all the facts before you make your final decision.
Steps for Using the Point-Counterpoint Technique
1. Divide your team into two groups of equal size—Group A and Group B. Be sure to spread supporters of opposing ideas between the two groups.
2. Ask Group A to develop a proposed course of action for the decision at hand. Group A should include its recommendations, key assumptions, and supporting data in a written proposal.
3. Ask Group A to present its proposal to Group B in a meeting.
4. Ask Group B to identify one or more alternative courses of action. Group B should document its key assumptions and gather supporting data.
5. Ask Group B to present its ideas to Group A in a second meeting.
6. Hold a third meeting in which both groups come together to debate the proposals and identify a common set of assumptions.
7. Manage the meetings so that the two groups continue to debate a variety of options based on common assumptions. The ultimate goal is to get the whole group to agree on a recommendation.
Steps for Using the Intellectual Watchdog Technique
1. Divide your team into two groups of equal size—Group A and Group B.
2. Ask Group A to develop a proposed course of action for the decision at hand. Group A should include its recommendations, key assumptions, and supporting data in a written proposal.
3. Ask Group A to present its proposal to Group B in a meeting.
4. Ask Group B to develop a detailed written critique of Group A's assumptions and recommendations.
5. Ask Group B to present its critique to Group A in a second meeting.
6. Ask Group A to revise its proposal based on Group B's feedback.
7. Ask Group B to present its revised proposal in a third meeting.
8. Manage subsequent meetings so that the two groups continue to critique and revise the proposal until they agree on a recommendation.
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Tips for Generating Alternatives
Invite outsiders, both experts and novices, to participate in your meeting on occasion to provide fresh ideas and critiques. Periodically bring in new people.
Encourage team members to step out of their traditional roles when generating alternatives. For example, if you're trying to brainstorm new product ideas, invite someone from your marketing group to join your team, but ask that person to think about ideas from a sales or financial perspective. You will probably find that more creative ideas surface when people think without their functional hats on.
Ask probing questions such as "What alternatives might we consider?" and "How would we respond to concerns about ____?" to avoid deciding too early on a solution that may not be the best one. Among the most important probing questions are those that test the validity of the group's assumptions. Those assumptions should be made explicit and discussed openly.
Ask team members to play "devil's advocate" by researching and making a case against their preferred proposal. Ask them to explain in detail why the preferred option should not be adopted.
Acknowledge and discuss minority points of view whenever possible. Try to include more than one person in your group who is likely to express a minority opinion. A single person that disagrees with the majority is far less effective than multiple dissenting voices.
Be willing to consider and discuss views that are different from your own.
Revisit abandoned alternatives from time to time to ensure that they were discarded using sound judgment.
Tips for Keeping Your Group on Track
Structure your meetings informally. Start with a clean whiteboard or easel instead of a formal presentation. Keep your introductory comments brief. Encourage people to generate ideas and ask each other questions.
At the outset, try to keep your opinions to yourself to avoid influencing the team in a particular direction. You want people to express their honest opinions, not what they think you want to hear.
Clarify your objectives in the decision-making process and make sure that the group shares them. Ask team members to define their priorities about the situation and list what has already been done to achieve them. Revisit these objectives regularly to ensure that they are still valid and are still guiding your process.
Once the ground rules have been established, urge the team meet without you for one or more meetings so that they can explore their own ideas. This will ensure that they are not overly influenced by your opinions, preferences, or priorities.
Urge people to participate in discussions as "skeptical generalists." In other words, encourage them to act as unbiased critical thinkers rather than as advocates of particular interests. Emphasize that participants should be critical of ideas, not people.
Encourage constructive contention by inviting others to challenge your opinions and ideas: "My perspective on this is _____; however, I may be wrong. Could you identify any gaps in my logic so we can come up with the most effective decision?"
Signal unacceptable behavior by providing direct and immediate feedback to individuals who engage in unproductive conduct (e.g., going off on tangents, engaging in personal attacks, seeking support outside of the meetings, or ignoring other points of view).
Watch for signs of discontent such as furrowed brows or crossed arms. If you notice that someone is clearly upset, you may want to call for a break in the meeting. Approach the person in private to explore her concerns, encourage participation in the group, and then reconvene the meeting.
Tips for Promoting Fair Process
Listen attentively to your group and be patient when people explain their ideas. Try not to interrupt.
Make eye contact with your team members and nod your head to indicate that you hear what they are saying.
Either take notes yourself or appoint a note taker to show that you are considering everyone's ideas and that their input is valued and respected.
Clarify that while not all of your group's suggestions will be adopted, they will all be considered fairly.
Ask targeted questions to promote understanding, debate, and the creation of new ideas.
Repeat the main idea of an individual's comments when asking a question or moving the conversation in a different direction. For example, "You make a good point. Vendor A does have excellent references. Do others share these views of Vendor A? Has anyone identified any flaws with Vendor A's proposal?"
If you are responsible for making the final decision (instead of having a consensus or majority vote), explain your reasons to the group. Let the group know how their ideas affected the final decision or explain why you chose to differ with them.
Once a decision has been made, be sure to spell out any new roles and responsibilities as well as performance measures so people have a clear idea of what is expected of them. Take the test after the course
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