Making Smart Choices 1 Decision Making A Fundamental

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Making Smart Choices 1

Making Smart Choices 1

Decision Making A Fundamental Life Skill • Making good decisions is one of the

Decision Making A Fundamental Life Skill • Making good decisions is one of the most important factors that determines how well you meet your responsibilities and achieve your personal and professional goals • Learning how to make good decisions is therefore a fundamental life skill • You can practice and improve this skill by learning a good decision making process (emphasizing how you decide, not what you decide) 2

The Elements of “Smart Choices” • • • Problem Objectives Alternatives Consequences Tradeoffs •

The Elements of “Smart Choices” • • • Problem Objectives Alternatives Consequences Tradeoffs • Uncertainty • Risk Tolerance • Linked Decisions 3

Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions 4

Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions 4

Objectives specify what you hope to achieve Refine with a short phrase of a

Objectives specify what you hope to achieve Refine with a short phrase of a verb and an object Examples: • Minimize environmental damage • Maximize profits • Save money • Make my spouse happy 5

Objectives: The Basics • Objectives play a central role in decision making (“value-focused thinking”)

Objectives: The Basics • Objectives play a central role in decision making (“value-focused thinking”) – If you don’t care, you don’t have a problem – If you don’t know where you’re going, you might end up somewhere else • Objectives guide all phases of the decision making process (including what information to seek and what other people to involve) 6

Let Your Objectives Be Your Guide • The process of thinking through and writing

Let Your Objectives Be Your Guide • The process of thinking through and writing down your objectives goes a long way towards making a smart choice • Objectives help you determine what information to seek • Objectives can help you explain your choice to others • Objectives determine a decision’s importance and, consequently, how much time and effort it deserves 7

Value-Focused Thinking creating alternatives uncovering hidden objectives identifying decision opportunities guiding strategic thinking evaluating

Value-Focused Thinking creating alternatives uncovering hidden objectives identifying decision opportunities guiding strategic thinking evaluating alternatives THINKING ABOUT VALUES interconnecting decisions improving communication Adapted from Keeney, 1992 facilitating involvement in multiplestakeholder decisions guiding information collection 8

The Art of Identifying Objectives • Step 1: Write down all the concerns you

The Art of Identifying Objectives • Step 1: Write down all the concerns you hope to address through your decision • Step 2: Convert your concerns into succinct objectives • Step 3: Separate ends from means to establish your fundamental objectives • Step 4: Clarify what you mean by each objective • Step 5: Test your objectives to see if they capture your interests 9

Techniques to Identify Objectives • • • Use a wish list Think about alternatives

Techniques to Identify Objectives • • • Use a wish list Think about alternatives Imagine possible consequences Describe problems and shortcomings Identify goals, constraints and guidelines Use different perspectives Think about strategic objectives Ask ‘why’ for each objective Do individual thinking first 10

Goals and Constraints • A goal sets a level or a standard with respect

Goals and Constraints • A goal sets a level or a standard with respect to a particular objective Example: make $50 million next year • A constraint is also a standard used to screen out unacceptable alternatives Example: insure per unit cost is less than $900 11

Organize Objectives Means Objective: an objective whose importance stems from its contributions to achieving

Organize Objectives Means Objective: an objective whose importance stems from its contributions to achieving another objective. Fundamental Objective: objective that defines a basic reason for caring about a decision. Example: • Means Objective - arrive home from work early • Fundamental Objective - make my spouse happy 12

Uses of Means and Fundamental Objectives • Only fundamental objectives should be used to

Uses of Means and Fundamental Objectives • Only fundamental objectives should be used to evaluate and compare alternatives • Means objectives can be used to create alternatives • Whether an objective is a means or a fundamental objective depends on the decision context 13

Fundamental Objectives Hierarchy • Fundamental objectives can be structured in a hierarchy • The

Fundamental Objectives Hierarchy • Fundamental objectives can be structured in a hierarchy • The most general objective is at the top • Lower-level objectives explain the meaning of upper-level objectives • Achievement of the lowest-level objectives can be measured using “attributes” to describe and evaluate the various alternatives 14

Guidelines for Structuring a Fundamental Objectives Hierarchy from a List of Objectives • Include

Guidelines for Structuring a Fundamental Objectives Hierarchy from a List of Objectives • Include only fundamental objectives (no means objectives) • Expand meaning of higher-level objectives • May have more than one highest-level objective • Is equivalent to an outline 15

Fundamental Objectives Hierarchy CO Air Quality Standards fatal heart attacks nonfatal health impacts angina

Fundamental Objectives Hierarchy CO Air Quality Standards fatal heart attacks nonfatal health impacts angina attacks peripheral vascular attacks regulation cost capital equipment operations costs enforcement cost health cost direct (e. g. , treatment) indirect (e. g. , lost opportunity) Adapted from Keeney, 1992 16

Means-Ends Objectives Network • Means objectives and fundamental (ends) objectives can be related in

Means-Ends Objectives Network • Means objectives and fundamental (ends) objectives can be related in a means-ends network • The network of means objectives shows how the corresponding fundamental objectives can be achieved • A Means-Ends objectives network can be used to generate alternatives 17

Guidelines for Structuring a Means-Ends Objective Network from a list of Objectives • Has

Guidelines for Structuring a Means-Ends Objective Network from a list of Objectives • Has highest-level fundamental objectives as ends • Include all objectives except lower-level fundamental objectives • Use all direct means-ends relationships (ask why this objective is important) • May identify and add new objectives (when asking why) 18

Means-Ends Objectives Network CO Air Quality Standards CO concentrations health impacts CO doses breathing

Means-Ends Objectives Network CO Air Quality Standards CO concentrations health impacts CO doses breathing rate CO emissions CO dispersion body activity construction schedule costs maintenance requirements fines for violators Adapted from Keeney, 1992 19

Summary of How to Construct Objectives Hierarchies and Networks 20

Summary of How to Construct Objectives Hierarchies and Networks 20

Example: Fundamental Objectives Related to Internet Commerce • • • Maximize product quality Minimize

Example: Fundamental Objectives Related to Internet Commerce • • • Maximize product quality Minimize cost Minimize time to receive product Minimize time spent Maximize shopping enjoyment Maximize privacy Maximize safety Minimize environmental impact Maximize convenience From Keeney, “The Value of Internet Commerce to the Customer, ” Management Science, 45, 1999, pp 533 -542. 21

Example: Means Objectives Related to Internet Commerce • • • • Minimize fraud Assure

Example: Means Objectives Related to Internet Commerce • • • • Minimize fraud Assure system security Maximize access to information Maximize product information Minimize misuse of credit card Minimize misuse of personal information Assure reliable delivery Limit impulsive buying Maximize accuracy of transaction Enhance comparison shopping Making better purchase choices Maximize product variety Maximize product availability Minimize personal travel Maximize ease of use Offer personal interaction 22

Example: Means-Ends Objectives Network for Internet Commerce Product Availability Reliable Delivery Product Variety Ease

Example: Means-Ends Objectives Network for Internet Commerce Product Availability Reliable Delivery Product Variety Ease of Use Access to Information Impulsive Buying Comparison Shopping Better Purchase Choices • Product Quality • Cost Accuracy of Transaction • Time to Receive Product Information • Convenience Misuse of Credit Card Fraud • Time Spent • Privacy System Security Personal Travel Fundamental Objectives To Maximize Customer Satisfaction Misuse of Personal Information • Shopping Enjoyment Personal Interaction • Environmental Impact • Safety 23

Take Charge of Your Decision Making Who should make your decisions? Who should choose

Take Charge of Your Decision Making Who should make your decisions? Who should choose the decision problems you face? Decision problems are typically brought about by: • Others (competitors, bosses, family) • Circumstances (nature, accidents, markets) Proactively create your own decision problems. • These problems are really decision opportunities. • Facing (appealing) decision opportunities may negate the need to face (unappealing) decision problems. • Value-focused thinking helps you be systematic about creating decision opportunities. 24

Value-Focused Thinking In Practice Medical decisions today You feel You visit You get You

Value-Focused Thinking In Practice Medical decisions today You feel You visit You get You are sick doctor diagnosis well again Alternatives: see doctor test A, B, treatment or not or C X, Y, or Z Your decision problem Doctor’s decision problem time life Another decision problem Descriptively life goes on Alternative-focused thinking prevails life goes on prevention Maybe you wouldn’t be sick; if sick, cure prevention Prescriptively 25

Value-Focused Thinking In Practice Other decisions today You lose You apply You choose You

Value-Focused Thinking In Practice Other decisions today You lose You apply You choose You are Your job for jobs a job working again Alternatives: job hire or not select offer possibilities Your decision problem Company’s decision problem time life Your decision problem Descriptively life goes on Alternative-focused thinking prevails life goes on use value-focused thinking to identify decision opportunities Maybe you won’t lose your job; if so, use valuefocused thinking to create additional alternatives and/or to convert problem to a decision opportunity keep thinking Prescriptively 26

Value Focused Thinking and You • • • Value focused thinking can help you

Value Focused Thinking and You • • • Value focused thinking can help you Clarify your strategic objectives – Guide your decisions – Help create decision opportunities Articulate fundamental objectives for specific decisions – Better understand the decision – Create fruitful alternatives Thinking about objectives is hard, but it gets easier – Practice makes perfect (better at least) – You learn more about yourself – You begin to see a coherent pattern Why bother? – To recognize and identify decision opportunities – To create better alternatives for yourself – To have an enduring set of guiding principles for your life 27

The Most Important Point The only way to exert control over your life is

The Most Important Point The only way to exert control over your life is through your decision-making. The rest just happens to you. Be proactive, take charge of your decision-making, strive to make good decisions and to develop good decisionmaking habits. You’ll be rewarded with a fuller, more satisfying life. 28

References Smart Choices, with J. S. Hammond and H. Raiffa, Harvard Business School Press,

References Smart Choices, with J. S. Hammond and H. Raiffa, Harvard Business School Press, 1999. Value-Focused Thinking, Harvard University Press, 1992. Decisions with Multiple Objectives, with A. Raiffa, Cambridge University Press, 1993 (previously with Wiley, 1976). 29