Decision Modeling - The Basics (1)
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Introduction to decision analysisis a basic discussion of the decision modeling framework we use to engage decision stakeholders and accelerate many different types of group decisions.
There are three types of decisions we model with this process, these include Yes/No decisions, choosing among alternatives, and prioritizing multiple alternatives.
A “Yes/No” decision could be, “Should we purchase company X, or not?” Choosing among alternatives might be selecting three top designs out of a group of five alternatives. A common use of prioritizing alternatives for us involves ranking new product development projects in order to allocate limited R&D resources.
Lets look at the basic structure behind a decision model.
Many times you’re faced with a series of alternatives from which to select.
The question is, “How will you decide which alternative to select?” What is the “criteria” by which you will make your choice? For example, I may want to select the best design alternative that is… a) the most flexible, b) lowest cost, or c) the most esthetically unique. These are called “decision criteria” -- they can also be called the “objectives” you would like to achieve with this set of alternatives. Of course the next question is, “Which design, in this case, best meets my objectives?”
The third element of the model is the “goal.” The goal is the most important part of the model, yet often not much thought is given by groups to a clear goal or problem statement. It’s commonly assumed that everyone knows it, but this is rarely true. In other words, “What is the outcome of your decision?” and “What to you want to achieve with this set of choices?” Many times we have to cycle through these questions as we refine the alternative set and decision criteria.
All three elements tend to be self-correcting when you ask, “What alternative best fulfills my objectives and if these objectives are reached will I have achieved my goal?”
Before we can answer this question we need to weigh or prioritize the criteria. They are rarely equal. This is always the most interesting part of the decision-making process when working with a group. We use a pairwise comparison process to determine what is more important, with respect to the goal, in this case “flexibility” or “cost” for example. This comparison process forces teams to prioritize their objectives or criteria and reach a common agreement. When you can agree on the objectives it is easier to agree on the outcome.
This weighting is important for the next step where we rank each alternative as to how well it meets the decision criteria. For each alternative and criteria pairing we ask, “How well does this alternative fulfill this criteria?” We use a variety of ranking values such as step functions, linear ratings, dollar values, etc.
Finally, we apply constraints to the prioritized list of alternatives to determine which alternative combination generates the greatest benefit. In other words, “Where do we get the biggest bang for the buck?” These constraints include; costs, risks, and resources. Since resources are finite, we want to find out where we can best utilize these limited resources.
Further, “How do the re-prioritized set of alternatives help to achieve each of the prioritized criteria, illustrated here in red?” We often go through scenario planning to determine the right mix of alternatives to maximize benefit with respect to meeting our decision criteria or business objectives.