The Vroom-Yetton-Jago Decision ModelDeciding how to decide

iStockphoto

How you go about making a decision can involve as many choices as the decision itself. Sometimes you have to take charge and decide what to do on your own. Other times its better to make a decision using group consensus. How do you decide which approach to use? Making good decisions is one of the main leadership tasks. Part of doing this is determining the most efficient and effective means of reaching the decision. You don't want to make autocratic decisions when team acceptance is crucial for a successful outcome. Nor do you want be involving your team in every decision you make, because that is an ineffective use of time and resources. What this means is you have to adapt your leadership style to the situation and decision you are facing. Autocratic styles work some of the time, highly participative styles work at other times, and various combinations of the two work best in the times in between. The Vroom-Yetton-Jago Decision Model provides a useful framework for identifying the best leadership style to adopt for the situation you're in.

Note: This model was originally described by Victor Vroom and Philip Yetton in their 1973 book titled Leadership and Decision Making. Later in 1988, Vroom and Arthur Jago, replaced the decision tree system of the original model with an expert system based on mathematics. Hence you will see the model called Vroom-Yetton, Vroom-Jago, and Vroom-Yetton-Jago. The model here is based on the Vroom-Jago version of the model.

Understanding the Model:When you sit down to make a decision, your style, and the degree of participation you need to get from your team, are affected by three main factors:

Decision Quality how important is it to come up with the "right" solution? The higher the quality ofthe decision needed, the more you should involve other people in the decision.

Subordinate Commitment - how important is it that your team and others buy into the decision?When teammates need to embrace the decision you should increase the participation levels.

Time Constraints How much time do you have to make the decision? The more time you have,the more you have the luxury of including others, and of using the decision as an opportunity for teambuilding.

Specific Leadership Styles

The way that these factors impact on you helps you determine the best leadership and decision-making style to use. Vroom-Jago distinguishes three styles of leadership, and five different processes of decision-making that you can consider using: Style: Autocratic you make the decision and inform others of it. There are two separate processes for decision making in an autocratic style: Process: Autocratic 1(A1) you use the information you already have and make the decision Autocratic 2 (A2) you ask team members for specific information and once you have it, you make the decision. Here you don't necessarily tell them what the information is needed for. Style: Process: Consultative you gather information from the team and other and then make the decision. Consultative 1 (C1) you inform team members of what you doing and may individually ask opinions, however, the group is not brought together for discussion. You make the decision. Consultative 2 (C2) you are responsible for making the decision, however, you get together as a group to discuss the situation, hear other perspectives, and solicit suggestions. Style: Process: Collaborative you and your team work together to reach a consensus. Group (G2) The team makes a decision together. Your role is mostly facilitative and you help the team come to a final decision that everyone agrees on.

Tip: This is a useful model, but it's quite complex and long-winded. Use it in new situations, or in ones which have unusual characteristics: Using it, you'll quickly get an feel for the right approach to use in more usual circumstances.

To determine which of these styles and processes is most appropriate, there is a series of yes & no questions that you ask yourself about the situation, and building a decision tree based on the responses. There are seven questions in total. These are: 1. Is the technical quality of the decision very important? Meaning, are the consequences of failure significant? 2. Does a successful outcome depend on your team members' commitment to the decision? Must there be buy-in for the solution to work? 3. Do you have sufficient information to be able to make the decision on your own? 4. Is the problem well-structured so that you can easily understand what needs to be addressed and what defines a good solution? 5. Are you reasonably sure that your team will accept your decision even if you make it yourself? 6. Are the goals of the team consistent with the goals the organization has set to define a successful solution? 7. Will there likely be conflict among the team as to which solution is best?

Use Figure 1 below to follow your answers through on the decision tree and identify the best decision process for your circumstances. Not that in some scenarios, you don't need to answer all of the questions.

In general, a consultative or collaborative style is most appropriate when:

You need information from others to solve a problem. The problem definition isn't clear. Team members' buy-in to the decision is important. You have enough time to manage a group decision.An autocratic style is most efficient when:

You have more expertise on the subject than others. You are confident about acting alone. The team will accept your decision. There is little time available.

Key points:The underlying assumption of the Vroom-Yetton-Jago Decision Models is that no one leadership style or decision making process fits all situations.

By analyzing the situation and evaluating the problem based on time, team buy-in, and decision quality, a conclusion about which style best fits the situation can be made. The model defines a very logical approach to which style to adopt and is useful for managers and leaders who are trying to balance the benefits of participative management with the need to make decisions effectively.

The Kepner-Tregoe MatrixMaking unbiased, risk-assessed decisions

Weigh up your options carefully. iStockphoto/AnthonyRosenberg

No matter what position you hold, from the board room to the mailroom, you make decisions every day. And the end result in business is directly linked to the quality of the decisions made at each point along the way. So not surprisingly, decision-making is a universally important competence in business. Some decisions clearly have a greater impact on the business than others, but the underlying skill is the same: The difference is in the scope and depth of the process you go through to reach your decision. One reason why decision-making can be so problematic is that the most critical decisions tend to have to be made in the least amount of time. You feel pressured and anxious. The time pressure means taking shortcuts, jumping to conclusions, or relying heavily on instinct to guide your way. In your organization, you've probably heard of someone who made it all the way to VP by relying on his gut to make decisions. At the other extreme is the guy who simply can't make a decision because he analyses the situation to death. The bottom line is, you have to make decisions, and you have to make good decisions. Poor decisions are bad for business. Worse still, one poor decision can lead to others, and so the impact can be compounded and lead to more and more problems down the line. Thankfully, decision-making is a skill set that can be learned and improved on. Somewhere between instinct and over-analysis is a logical and practical approach to decision-making that doesn't require endless investigation, but helps you weigh up the options and impacts. One such approach is called the Kepner-Tregoe Matrix. It provides an efficient, systematic framework for gathering, organizing and evaluating decision making information. The approach was developed by Charles H. Kepner and Benjamin B. Tregoe in the 1960's and they first wrote about it in the business classic, The Rational Manager (1965). The approach is well-respected and used by many of the world's top organizations including NASA and General Motors.

The Kepner-Tregoe ApproachThe Kepner-Tregoe approach is based on the premise that the end goal of any decision is to make the "best possible" choice. This is a critical distinction: The goal is not to make the perfect choice, or the choice that has no

defects. So the decision maker must accept some risk. And an important feature of the Kepner-Tregoe Matrix is to help evaluate and mitigate the risks of your decision. The Kepner-Tregoe Matrix approach guides you through the process of setting objectives, exploring and prioritizing alternatives, exploring the strengths and weaknesses of the top alternatives, and of choosing the final "best" alternative. It then prompts you to generate ways to control the potential problems that will crop up as a consequence of your decision. This type of detailed problem and risk analysis helps you to make an unbiased decision. By skipping this analysis and relying on gut instinct, your evaluation will be influenced by your preconceived beliefs and prior experience it's simply human nature. The structure of the Kepner-Tregoe approach limits these conscious and unconscious biases as much as possible. The Kepner-Tregoe Matrix comprises four basic steps: 1. Situation Appraisal identify concerns and outline the priorities. 2. Problem Analysis describe the exact problem or issue by identifying and evaluating the causes. 3. Decision Analysis identify and evaluate alternatives by performing a risk analysis for each and then make a final decision. 4. Potential Problem Analysis evaluate the final decision for risk and identify the contingencies and preventive actions necessary to minimize that risk. Going through each stage of this process will help you come to the "best possible choice", given your knowledge and understanding of the issues that bear on the decision.

How to Use the ToolThe Kepner-Tregoe Matrix is an in-depth approach that can be supported by detailed instruction and worksheets. As an overview of the approach, the following steps show the general principles of how the KepnerTregoe approach can apply to a decision-making situation: 1. Prepare a decision statement:

This is a general overview of what the decision is expected to achieve (the key objective). The statement should discuss the action that is required and the result that is desired. 2. Establish strategic requirements ("Must Haves"): What "musts" will the final decision provide, allow for, include, etc.? For example: We must have 10% cost saving, we must include four color choices, the rope must hold 200 lbs. These requirements are absolute there is no compromise. What do you "want" the final decision to support. 3. Establish operational objectives ("Want to Haves"): By identifying the wants you can rank the alternatives according to which ones satisfy the most, or most important, wants.

4. Identify the restraints (Limits): What are the things that will limit your ability to do exactly what you want/need? These are typically resource constraints like money, materials, and time.

5. Rank the operational objectives and assign relative weights:For each "want" assign a rating of 1 10 based on the degree of importance. Objective Want 1 Want 2 Want 3 Weight 8 7 9

6.

Want 4 Generate a list of alternatives:

10

Think of as many alternative courses of action as you can. Don't be too concerned that they all meet the "musts" and "wants" you just defined. You will rank these alternatives in the next step. Brainstorming is a good approach for generating your list of alternatives. 7. Assign a relative score for each alternative: First eliminate any alternatives that do not meet the "musts" these are not worth considering any further. For the first alternative, go through each objective (want) and rate how well the alternative satisfies it using a 1 10 scale. Multiply the weight of the objective by the satisfaction rating to come up with a weighted score for each objective. Add the weighted scores to determine the total weighted score. Repeat the process for each alternative. Weight 8 7 9 10 Alternative A Satisfaction Rating 4 8 9 7 Weighted Score 32 56 81 70

Objective Want 1 Want 2 Want 3 Want 4

Total Weighted Score of Alternative A 239 8. From the total weighted score for each alternative, rank the top two or three alternatives:

Remember to make sure that the alternatives you choose meet all the "must" criteria.

9. For the top alternatives, generate a list of potential problems (adverse effects) for each: Rank the potential problems for each alternative according to probability and significance. Obtain a total weighted score for the adverse effect (adversity rating). Probability 5 3 8 Significance 9 10 6 Weighted Score 45 30 48

Adverse Effect Alternative 1 Alternative 2 Alternative 3

10.

Analyze the alternative ranking and the adversity rating and make a final decision Look at each of the adverse effects already identified and generate a list of proactive responses to reduce the probability of each Continuously monitor these probabilities and take action as needed

11. Decide on mitigating actions for the chosen alternative:

Key PointsThe Kepner-Tregoe Matrix is a well-respected and systematic approach for making decisions. The matrix process forces users to be well organized and thorough. By weighting and ranking both the benefits and risks, it helps you choose the very best alternatives. Using the Kepner-Tregoe approach requires patience and a commitment: The payoff for the time invested is good, unbiased decision-making that makes good business sense.

OODA LoopsUnderstanding the Decision Cycle

Observation is the first step. iStockphoto/DivaNir4a

Has it ever struck you just how many military terms have become everyday terms in business-speak? As well as "fighting off threats" or "engaging in a price war", we talk about "gathering intelligence", "making a pre-emptive strike", and even trying to "out-maneuver" the competition. War and business are often compared and contrasted. And it's fun to read books like The Art of War, written in 6th Century China by Sun Tzu, and to think about how these can be applied to business strategy! So, when former US Air Force Colonel John Boyd developed his model for decision-making in air combat, its potential application to business soon became apparent. Boyd developed his model after analyzing the success of the American F-86 fighter plane compared with that of the Soviet MIG-15. Although the MIG was faster and could turn better, the American plane won more battles because, according to Boyd, the pilot's field of vision was far superior. This improved field of vision gave the pilot a clear competitive advantage, as it meant he could assess the situation better and faster than his opponent. As a result, he could out-maneuver the enemy pilot, who would be put off-balance, wouldn't know what to expect, and would start making mistakes. Success in business often comes from being one step ahead of the competition and, at the same time, being prepared to react to what they do. With global, real-time communication, ongoing rapid improvements in information technology, and economic turbulence, we all need to keep updating and revising our strategies to keep pace with a changing environment. See the similarities with Boyd's observations? Brought together in his model, they can hold a useful lesson for modern business.

Understanding the ToolCalled the OODA Loop, the model outlines a four-point decision loop that supports quick, effective and proactive decision-making. The four stages are:

1. Observe collect current information from as many sources as practically possible. 2. Orient analyze this information, and use it to update your current reality. 3. Decide determine a course of action.

4. Act follow through on your decision.You continue to cycle through the OODA Loop by observing the results of your actions, seeing whether you've achieved the results you intended, reviewing and revising your initial decision, and moving to your next action. Figure 1 below shows the OODA Loop sequence:

Observing and orienting correctly are key to a successful decision. If these steps are flawed, they'll lead you to a flawed decision, and a flawed subsequent action. So while speed is important, so too is improving your analytical skills and being able to see what's really happening.

The OODA Loop model is closely related to Plan Do Check Act. Both highlight the importance of analyzing a situation accurately, checking that your actions are having the intended results, and making changes as needed.

Let's look more closely at what each stage involves:

Stage 1. ObserveAt this initial point in the loop, you should be on the look-out for new information, and need to be aware of unfolding circumstances. The more information you can take in here, the more accurate your perception will be. Like an F-86 pilot with a wide field of vision, you want to capture as much incoming data as possible. The kind of questions you need to be asking are:

What's happening in the environment that directly affects me? What's happening that indirectly affects me? What's happening that may have residual affects later on? Were my predictions accurate? Are there any areas where prediction and reality differ significantly?

Stage 2. OrientOne of the main problems with decision-making comes at the Orient stage: we all view events in a way that's filtered through our own experiences and perceptions. Boyd identified five main influences:

Cultural traditions. Genetic heritage. The ability to analyze and synthesize. Previous experience. New information coming in.Orientation is essentially how you interpret a situation. This then leads directly to your decision.

The argument here is that by becoming more aware of your perceptions, and by speeding up your ability to orient to reality, you can move through the decision loop quickly and effectively. The quicker you understand what's going on, the better. And if you can make sense of the situation and the environment around you faster than your competition, you'll have an advantage. And it's important to remember that you're constantly re-orienting. As new information comes in at the Observe stage, you need to process it quickly and revise your orientation accordingly.

Stage 3. DecideDecisions are really your best guesses, based on the observations you've made and the orientation you're using. As such, they should be considered to be fluid works-in-progress. As you keep on cycling through the OODA Loop, and new suggestions keep arriving, these can trigger changes to your decisions and subsequent actions essentially, you're learning as you continue to cycle through the steps. The results of your learning are brought in during the Orient phase, which in turn influences the rest of the decision making process.

Stage 4. ActThe Act stage is where you implement your decision. You then cycle back to the Observe stage, as you judge the effects of your action. This is where actions influence the rest of the cycle, and it's important to keep learning from what you, and your opponents, are doing.

Using the ModelThe OODA Loop isn't meant to be a static, linear "do this, then this, then this" type model: it needs to be a smoother, more continual process. With this approach, the faster you can move through each stage the better. In fact, if you were to sit down and map out each step, your decisions would likely slow down instead of speed up. The goal of the model is to increase the speed with which you orient and reorient based on new information coming in. You want to be able to make a smooth and direct transition between what you observe, how you interpret it, and what you do about it. When you make these transitions rapidly, you're in a position to be proactive, and you can take advantage of opportunities your competition isn't even aware of yet. Boyd calls this "operating within your opponent's OODA Loop". Here, your competitor is moving too slowly and simply reacting to environmental changes. By contrast, you're working on the offensive, making strikes and forcing them to react to you.

Tip: Be careful with this emphasis on speed. In some situations, you genuinely need it. In others, a more cautious, deliberate approach is appropriate. This is likely to be affected by things like the length of product cycle times, the rate of change in your industry, and the consequences of a poor decision.

Key Points:Whether it's looking out for the next big opportunity, making a move before your competitors do, or assessing the current state of affairs, you often need to be sharp-sighted and decisive. The OODA Loop gives you a great way to maintain this vigilance, and be proactive in a rapidly changing world. By using the OODA Loop, you can be nimble in your decision-making, and make changes to your decisions and strategy quickly and decisively.

Choosing between options

Grid AnalysisMaking a Decision By Weighing Up Different Factors Also known as Decision Matrix Analysis, Pugh Matrix Analysis, and MultiAttribute Utility Theory (MAUT)

Use Grid Analysis to make better decisions. iStockphoto/cogal

Imagine that your boss has put you in charge of taking on a new outsourced IT supplier. You've already identified several different suppliers, and you now need to decide which one to use. You could decide to go with the low-cost option. But you don't want to make your decision on cost alone - factors such as contract length, underlying technology, and service levels need to be taken into consideration. So how can you make sure you make the best decision, while taking all of these different factors into account? Grid Analysis is a useful technique to use for making a decision. It's particularly powerful where you have a number of good alternatives to choose from, and many different factors to take into account. This makes it a great technique to use in almost any important decision where there isn't a clear and obvious preferred option. Being able to use Grid Analysis means that you can take decisions confidently and rationally, at a time when other people might be struggling to make a decision.

Example:A windsurfing enthusiast is about to replace his car. He needs one that not only carries a board and sails, but also one that will be good for business travel. He has always loved open-topped sports cars, but no car he can find is good for all three things. His options are:

An SUV/4x4, hard topped vehicle. A comfortable "'family car." A station wagon/estate car. A convertible sports car.Factors that he wants to consider are:

Cost.

Ability to carry a sail board safely. Ability to store sails and equipment securely. Comfort over long distances. Fun! Look, and build quality.Firstly he draws up the table shown in Figure 1, and scores each option by how well it satisfies each factor: Figure 1: Example Grid Analysis Showing Unweighted Assessment of How Each Type of Car Satisfies Each Factor Factors: Weights: Sports Car SUV/4x4 Family Car Station Wagon 1 0 2 2 0 3 2 3 0 2 1 3 1 2 3 3 3 1 0 0 3 1 0 1 Cost Board Storage Comfort Fun Look Total

Next he decides the relative weights for each of the factors. He multiplies these by the scores already entered, and totals them. This is shown in Figure 2: Figure 2: Example Grid Analysis Showing Weighted Assessment of How Each Type of Car Satisfies Each Factor Factors: Weights: Sports Car SUV/4x4 Family Car Station Wagon Cost 4 4 0 8 8 Board 5 0 15 10 15 Storage Comfort 1 0 2 1 3 2 2 4 6 6 Fun 3 9 3 0 0 Look 4 12 4 0 4 27 28 25 36 Total

This gives an interesting result: Despite its lack of fun, a station wagon is the best choice. Windsurfing really matters to him!

Key PointsGrid Analysis helps you to decide between several options, where you need to take many different factors into account. To use the tool, lay out your options as rows on a table. Set up the columns to show the factors you need to consider. Score each choice for each factor using numbers from 0 (poor) to 5 (very good), and then allocate weights to show the importance of each of these factors. Multiply each score by the weight of the factor, to show its contribution to the overall selection. Finally add up the total scores for each option. The highest scoring option will be the best option.

Note: Grid Analysis is the simplest form of Multiple Criteria Decision Analysis (MCDA), also known as Multiple Criteria

Decision Aid or Multiple Criteria Decision Management (MCDM). Sophisticated MCDA can involve highly complex modelling of different potential scenarios, using advanced mathematics. A lot of business decision making, however, is based on approximate or subjective data. Where this is the case, Grid Analysis may be all thats needed.

Paired Comparison AnalysisWorking out relative importances

Compare two options at a time. iStockphoto/aldomurillo

Paired Comparison Analysis helps you to work out the importance of a number of options relative to each other. It is particularly useful where you do not have objective data to base this on. This makes it easy to choose the most important problem to solve, or select the solution that will give you the greatest advantage. Paired Comparison Analysis helps you to set priorities where there are conflicting demands on your resources. It is also an ideal tool for comparing "apples with oranges" completely different options such as whether to invest in marketing, a new IT system or a new piece of machinery. These decisions are usually much harder than comparing three possible new IT systems, for example.

How to Use the Tool:To use the technique, you can use this to compare each option with each other option, one-by-one. For each comparison, you will decide which of the two options is most important, and then assign a score to show how much more important it is. Follow these steps to use the technique: 1. List the options you will compare. Assign a letter to each option.

2. Mark the options as row and column headings ..3. Note that the cells on the table where you will be comparing an option with itself have been blocked out there will never be a difference in these cells! 4. The cells on the table where you will be duplicating a comparison are also blocked out. 5. Within the remaining cells compare the option in the row with the one in the column. For each cell, decide which of the two options is more important. Write down the letter of the more important option in the cell, and score the difference in importance from 0 (no difference) to 3 (major difference). 6. Finally, consolidate the results by adding up the total of all the values for each of the options. You may want to convert these values into a percentage of the total score.

Example:As a simple example, an entrepreneur is looking at ways in which she can expand her business. She has limited resources, but also has the options she lists below:

Expand into overseas markets Expand in home markets Improve customer service Improve qualityFirstly she draws up the Paired Comparison Analysis table in Figure 1: Figure 1: Example Paired Comparison Analysis Table (not filled in): Overseas Market (A) Overseas Market (A) Home Market (B) Customer Service (C) Quality (D) Blocked Out (Step 3) Blocked Out (Step 4) Blocked Out (Step 4) Blocked Out (Step 4) Blocked Out (Step 3) Blocked Out (Step 4) Blocked Out (Step 4) Blocked Out (Step 3) Blocked Out (Step 4) Blocked Out (Step 3) Home Market (B) Customer Service (C) Quality (D)

Then she compares options, writes down the letter of the most important option, and scores their difference in importance. An example of how she might do this is shown in figure 2: Figure 2: Example Paired Comparison Analysis Table (filled in): Overseas Market (A) Overseas Market (A) Home Market (B) Customer Service (C) Quality (D) Finally she adds up the A, B, C and D values, and converts each into a percentage of the total. This gives these totals: Home Market (B) A,2 Customer Service (C) C,1 C,1 Quality (D) A,1 B,1 C,2

A = 3 (37.5%) B = 1 (12.5%) C = 4 (50%) D = 0.

Here it is most important to improve customer service (C) and then to tackle export markets (A). Quality is not a high priority perhaps it is good already.

Key PointsPaired Comparison Analysis is a good way of weighing up the relative importance of different courses of action. It is useful where priorities are not clear, or are competing in importance. The tool provides a framework for comparing each course of action against all others, and helps to show the difference in importance between factors.

Pareto AnalysisUsing the 80:20 Rule to Prioritize

Avoid the "law of diminishing returns." iStockphoto/tom_fewster

Imagine that you've just stepped into a new role as head of department. Unsurprisingly, you've inherited a whole host of problems that need your attention. Ideally, you want to focus your attention on fixing the most important problems. But how do you decide which problems you need to deal with first? And are some problems caused by the same underlying issue? Pareto Analysis is a simple technique for prioritizing possible changes by identifying the problems that will be resolved by making these changes. By using this approach, you can prioritize the individual changes that will most improve the situation. Pareto Analysis uses the Pareto Principle also known as the "80/20 Rule" which is the idea that 20 percent of causes generate 80 percent of results. With this tool, we're trying to find the 20 percent of work that will generate 80 percent of the results that doing all of the work would deliver.

Note: The figures 80 and 20 are illustrative the Pareto Principle illustrates the lack of symmetry that often appears between work put in and results achieved. For example, 13 percent of work could generate 87 percent of returns. Or 70 percent of problems could be resolved by dealing with 30 percent of the causes.

How to Use the ToolStep 1: Identify and List ProblemsFirstly, write a list of all of the problems that you need to resolve. Where possible, talk to clients and team members to get their input, and draw on surveys, helpdesk logs and suchlike, where these are available.

Step 2: Identify the Root Cause of Each ProblemFor each problem, identify its fundamental cause. (Techniques such as Brainstorming, the 5 Whys, Cause and Effect Analysis, and Root Cause Analysis will help with this.)

Step 3: Score ProblemsNow you need to score each problem. The scoring method you use depends on the sort of problem you're trying to solve. For example, if you're trying to improve profits, you might score problems on the basis of how much they are costing you. Alternatively, if you're trying to improve customer satisfaction, you might score them on the basis of the number of complaints eliminated by solving the problem.

Step 4: Group Problems Together By Root CauseNext, group problems together by cause. For example, if three of your problems are caused by lack of staff, put these in the same group.

Step 5: Add up the Scores for Each GroupYou can now add up the scores for each cause group. The group with the top score is your highest priority, and the group with the lowest score is your lowest priority.

Step 6: Take ActionNow you need to deal with the causes of your problems, dealing with your top-priority problem, or group of problems, first. Keep in mind that low scoring problems may not even be worth bothering with - solving these problems may cost you more than the solutions are worth.

Note: While this approach is great for identifying the most important root cause to deal with, it doesn't take into account the cost of doing so. Where costs are significant, you'll need to use techniques such as Cost/Benefit Analysis, and use IRRs and NPVs to determine which changes you should implement.

Pareto Analysis ExampleJack has taken over a failing service center, with a host of problems that need resolving. His objective is to increase overall customer satisfaction. He decides to score each problem by the number of complaints that the center has received for each one. (In the table below, the second column shows the problems he has listed in step 1 above, the third column shows the underlying causes identified in step 2, and the fourth column shows the number of complaints about each column identified in step 3.)

# 1 2 3

Problem (Step 1) Phones aren't answered quickly enough. Staff seem distracted and under pressure. Engineers don't appear to be well organized. They need second visits to bring extra parts. Engineers don't know what time they'll arrive. This means that customers may have to be in all day for an engineer to visit. Service center staff don't always seem to know what they're doing. When engineers visit, the customer finds that the problem could have been solved over the phone.

Cause (Step 2) Too few service center staff. Too few service center staff. Poor organization and preparation.

Score (Step 3) 15 6 4

4

Poor organization and preparation.

2

5 6

Lack of training. Lack of training.

30 21

Jack then groups problems together (steps 4 and 5). He scores each group by the number of complaints, and orders the list as follows:

1. Lack of training (items 5 and 6) 51 complaints. 2. Too few service center staff (items 1 and 42) 21 complaints. 3. Poor organization and preparation (items 3 and 4) 6 complaints.

As you can see from figure 1 above, Jack will get the biggest benefits by providing staff with more training. Once

this is done, it may be worth looking at increasing the number of staff in the call center. It's possible, however, that this won't be necessary: the number of complaints may decline, and training should help people to be more productive. By carrying out a Pareto Analysis, Jack is able to focus on training as an issue, rather than spreading his effort over training, taking on new staff members, and possibly installing a new computer system to help engineers be more prepared.

Key Points:Pareto Analysis is a simple technique for prioritizing problem-solving work so that the first piece of work you do resolved the greatest number of problems. It's based on the Pareto Principle (also known as the 80/20 Rule) the idea that 80 percent of problems may be caused by as few as 20 percent of causes. To use Pareto Analysis, identify and list problems and their causes. Then score each problem and group them together by their cause. Then add up the score for each group. Finally, work on finding a solution to the cause of the problems in group with the highest score. Pareto Analysis not only shows you the most important problem to solve, it also gives you a score showing how severe the problem is.

Decision TreesChoosing by projecting "expected outcomes"

Evaluate all of your options. iStockphoto

Decision Trees are excellent tools for helping you to choose between several courses of action. They provide a highly effective structure within which you can lay out options and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risks and rewards associated with each possible course of action.

Drawing a Decision TreeYou start a Decision Tree with a decision that you need to make. Draw a small square to represent this towards the left of a large piece of paper. From this box draw out lines towards the right for each possible solution, and write that solution along the line. Keep the lines apart as far as possible so that you can expand your thoughts.

At the end of each line, consider the results. If the result of taking that decision is uncertain, draw a small circle. If the result is another decision that you need to make, draw another square. Squares represent decisions, and circles represent uncertain outcomes. Write the decision or factor above the square or circle. If you have completed the solution at the end of the line, just leave it blank. Starting from the new decision squares on your diagram, draw out lines representing the options that you could select. From the circles draw lines representing possible outcomes. Again make a brief note on the line saying what it means. Keep on doing this until you have drawn out as many of the possible outcomes and decisions as you can see leading on from the original decisions. An example of the sort of thing you will end up with is shown in Figure 1:

Once you have done this, review your tree diagram. Challenge each square and circle to see if there are any solutions or outcomes you have not considered. If there are, draw them in. If necessary, redraft your tree if parts of it are too congested or untidy. You should now have a good understanding of the range of possible outcomes of your decisions.

Evaluating Your Decision TreeNow you are ready to evaluate the decision tree. This is where you can work out which option has the greatest worth to you. Start by assigning a cash value or score to each possible outcome. Estimate how much you think it would be worth to you if that outcome came about.

Next look at each circle (representing an uncertainty point) and estimate the probability of each outcome. If you use percentages, the total must come to 100% at each circle. If you use fractions, these must add up to 1. If you have data on past events you may be able to make rigorous estimates of the probabilities. Otherwise write down your best guess. This will give you a tree like the one shown in Figure 2:

Calculating Tree ValuesOnce you have worked out the value of the outcomes, and have assessed the probability of the outcomes of uncertainty, it is time to start calculating the values that will help you make your decision. Start on the right hand side of the decision tree, and work back towards the left. As you complete a set of calculations on a node (decision square or uncertainty circle), all you need to do is to record the result. You can ignore all the calculations that lead to that result from then on.

Calculating The Value of Uncertain Outcome NodesWhere you are calculating the value of uncertain outcomes (circles on the diagram), do this by multiplying the value of the outcomes by their probability. The total for that node of the tree is the total of these values.

In the example in Figure 2, the value for 'new product, thorough development' is: 0.4 (probability good outcome) x $1,000,000 (value) = 0.4 (probability moderate outcome) x $50,000 (value) = 0.2 (probability poor outcome) x $2,000 (value) = + Figure 3 shows the calculation of uncertain outcome nodes: $400,000 $20,000 $400 $420,400

Note that the values calculated for each node are shown in the boxes.

Calculating the Value of Decision NodesWhen you are evaluating a decision node, write down the cost of each option along each decision line. Then subtract the cost from the outcome value that you have already calculated. This will give you a value that represents the benefit of that decision. Note that amounts already spent do not count for this analysis these are 'sunk costs' and (despite emotional counter-arguments) should not be factored into the decision.

When you have calculated these decision benefits, choose the option that has the largest benefit, and take that as the decision made. This is the value of that decision node. Figure 4 shows this calculation of decision nodes in our example:

In this example, the benefit we previously calculated for 'new product, thorough development' was $420,400. We estimate the future cost of this approach as $150,000. This gives a net benefit of $270,400. The net benefit of 'new product, rapid development' was $31,400. On this branch we therefore choose the most valuable option, 'new product, thorough development', and allocate this value to the decision node.

ResultBy applying this technique we can see that the best option is to develop a new product. It is worth much more to us to take our time and get the product right, than to rush the product to market. It is better just to improve our existing products than to botch a new product, even though it costs us less.

Key Points:Decision trees provide an effective method of Decision Making because they:

Clearly lay out the problem so that all options can be challenged. Allow us to analyze fully the possible consequences of a decision. Provide a framework to quantify the values of outcomes and the probabilities of achieving them. Help us to make the best decisions on the basis of existing information and best guesses.As with all Decision Making methods, decision tree analysis should be used in conjunction with common sense decision trees are just one important part of your Decision Making tool kit.

Quantitative Strategic Planning Matrix (QSPM)Choosing the Best Strategic Way Forward

iStockphotoNikada

Organizations spend a lot of time and effort on strategy formulation. Often, there are several different approaches or strategies that the organization could follow. But how do you decide which option is best? Do you rely on intuition, or take a more objective approach? Not surprisingly, you need to base your decision on facts, not gut feelings. But how do you do this, particularly when the effects of different strategies can be so different? The Quantitative Strategic Planning Matrix (QSPM) helps you address this question. It gives you a systematic approach for evaluating alternate strategies, and helps you decide which strategy is best suited to your organization.

Understanding the Matrix:QSPM is based on three primary inputs:

The critical success factors of your business unit. The relative importance of each of these critical success factors. How you rate a particular strategy by each success factor.These inputs are used to evaluate the relative attractiveness of different strategies. This relative attractiveness is expressed in terms of a number, the "Sum Total Attractiveness Score". The higher this score is, the more attractive the strategy is.

Step 1: List the Critical Success Factors

Make a comprehensive list of the critical success factors that apply to your business unit. These can be divided into two groups: internal factors and external factors. Internal factors can relate to your company's inherent strengths and weaknesses, whereas external factors can relate to the opportunities and threats in the market environment. Internal factors could includemaintenance of sufficient production capacity; a strong flow of new technologies from R&D; efficient treasury management; and so on. Examples of external success factors include the rapid adaptation to new government policies; effective competitive analysis; and quick understanding of the implications of demographic trends. At this stage it's important that you try to generate a comprehensive list of the most important critical success factors. This helps to ensure that the key issues are addressed in the comparative analysis process. Now use this list to fill the first column of your matrix. Make sure that each critical success factor is listed under the appropriate internal or external category.

Tip: QSPM uses Critical Success Factors as the basis of analysis. This can be a good starting point for an existing organization. However, these will not yet exist for a start-up organization, and approaches like use of core competences may be more appropriate for some organizations. Challenge the criteria you're using to make sure that you're using appropriate ones.

Step 2: Assign WeightsAssign a weight to each of these critical success factors, depending on how important it is to the success of your work unit. The higher the importance, the higher weight it will carry. The sum of all weights attached to internal factors should equal 1.0, as should the sum of factors attached to external factors. Note down the weight you have assigned to each factor in the second column, adjacent to the name of that factor.

Tip 1: Giving internal and external factors the same weight in the decision can seem arbitrary. Decide for yourself whether this is appropriate. Tip 2: If youre struggling to assign weights, techniques like Paired Comparison Analysis can help.

Step 3: List the StrategiesNow record the different strategies and approaches that you want to compare as column headings in the top row of your QSPM. The best part about QSPM is that you can compare as many strategies you like simultaneously.

Step 4: Assign Attractiveness ScoresFor each strategy, work your way through the rows of your QSPM, assessing the attractiveness of the strategy as it affects each critical success factor. Score each CSF on a scale of 1 4, where the strategy is: 1 = Not attractive at all 2 = Slightly attractive 3 = Attractive 4 = Very attractive

Record this score in the Attractiveness Score (AS) column. This score represents how attractive the strategy is when looked at from the perspective of the listed critical success factor. If a strategy does not impact one or more of the Critical Success factors, then no AS is assigned for that factor for any strategy. In this situation simply put a dash instead of a score for all the strategies.

Tip: QSPM uses the 1 4 scale above. You may prefer to rank using a different scale, for example -4 to +4, where -4 applies to a strategic approach that seriously harms progress towards a Critical Success Factor.

Step 5: Calculate the Weighted Attractiveness ScoresFor each Attractiveness Score/Weight combination on your QSPM table, calculate the Weighted Attractiveness Score (WAS) by multiplying the weight by the AS you have assigned for that factor.

Step 6: Sum the Total Attractiveness ScoresSum all the WASs for each column and arrive at the Sum Total Attractiveness Score for each strategy. Record it in the bottom row. This represents the desirability of that particular strategy.

Example:Company A is a small but a growing business and is looking to expand. Based on external and internal factors it has come up with two mutually exclusive strategies: 1. Expand using franchises. 2. Expand the current facility. It has drafted this QPSM to identify which is the better option. A QSPM for New and Growing Business Alternative Strategies Expand through franchises Key External Factors Opportunities 1. Taking full advantage of "first mover advantage". 2. Taking advantage of projected market growth of 30% per annum. 3. Building awareness of product category. 4. Tapping a new customer base. Threats 1. Minimizing sharing of profit with "middle-men" 2. Possible IP Infringement by franchisees 3. Minimizing entry of new 0.15 0.10 0.10 1 1 0.15 0.10 4 4 0.60 0.40 0.10 0.20 0.10 0.25 4 4 4 4 0.40 0.80 0.40 1.00 2 2 2 1 0.20 0.40 0.20 0.25 Weight AS WAS Expand current facility AS WAS

competitors into market Total Key Internal Factors Strengths 1. Developing highly experienced staff 2. Building R&D strength in product development 3. Refining an enhancing our new IT system 4. Building a strong management team Weaknesses 1. Enhancing our limited ability to borrow capital 2. Improving weak customer feedback mechanisms 3. Increasing limited manpower Total Sum Total Attractiveness Score 0.25 0.10 0.20 1.00 5.80 4.35 4 3 4 1.00 0.30 0.80 2 2 1 0.50 0.20 0.20 0.10 0.10 0.10 0.15 2 2 3 0.20 0.20 0.45 4 4 4 0.40 0.40 0.60 1.00

Looking at the Sum Total Attractiveness Scores on the QSPM, the better option is to expand using franchises.

Tip 1: Many business decisions are made using financial models that take into account investment and expected outcomes, with options offering the greatest Return on Investment being chosen as the way forward. While this is correct from one point of view, it excludes non-financial factors from the decision-making process. For example, it can cause the business to lose strategic focus, as the company follows financially attractive projects that may go against the long-term interest of the organization. This is where it can be useful to bring a technique like QSPM into the decision-making process, to act as a "sanity check" on decisions made. Tip 2: If you're considering using this approach, also take a look at Grid Analysis, which does a similar thing in a more streamlined way.

Key Points:QSPM is a useful analytical tool that helps you determine the relative attractiveness of different strategies. It asks you to identify the important external and internal critical success factors for your business unit, and then helps you assess these strategies in the light of these critical success factors. This effect is evaluated in numerical terms. The strategy that scores the highest is usually your best choice.

Improving decision making

Blindspot AnalysisAvoiding common fatal flaws in decision making

Avoiding decision making blindspots. iStockphoto

Why is it that so many carefully researched decisions go wrong? One reason is that the decision-maker failed to consider key factors with often disastrous consequences. We often say things like, "I've got a bit of a blindspot when it comes to Anna's designs", acknowledging that there's an area of our decision-making where we're not quite as rigorous as we'd like to be. However, even if we're aware of one personal blindspot, we may not realize how many others we have. But how can we identify this sporadic failure in our decision making, given that it is, by nature, "hidden" in a blindspot? The answer is to use Blind Spot Analysis. This technique leads you through a systematic audit of your decision making. One way of doing this is to check your decision-making against a list of common blindspots. One such list was first drawn up by Michael Porter in his 1980 book "Competitive Strategy", and further developed by Gilad, Gordon and Sudit in their 1993 article "Identifying Gaps and Blindspots in Competitive Intelligence".

Blindspot Analysis isn't a decision making tool in itself. Rather, it is a safety net that you can use to check the quality of your decisions.

Common Types of BlindspotThe original work on categorizing blindspots focused on blindspots in strategy formulation. However, many of the blindspots that are found in strategic decision-making can occur in other types of decision-making, and this is what we focus on here.

1. Invalid AssumptionsMany decisions involve making assumptions. But it's important that assumptions are based on facts, and are subject to sufficient scrutiny.

Invalid assumptions are often accepted because they are unchallenged. Sometimes this is because they have been assumed for so long that they've gained the status of a "non-negotiable" corporate myth or taboo: "Customers always go for the lowest price" or "Pink has to be one of the colors available in our blouse range." To avoid the blindspot of invalid assumptions:

List all of the assumptions used in your decision. Check, as far as you sensibly can, whether each one is valid, and see if you can find good data thatwill support or knock down the assumption. The 5 Whys technique can be useful in getting to the root of an assumption. If you're part of a group involved in taking a decision, don't be afraid to speak out if you want to check the assumptions used. It is common for groupthink to occur, where other people may be avoiding challenging an assumption, even if they realize that that assumption may be invalid.

2. "Escalating Commitment"This blindspot involves refusing to recognize that something you've been doing just isn't working, and you could better use your money or time doing something else, even if this means abandoning a project you've been pursuing. Logically, the options you have in this situation are:

Abandoning the initiative altogether; Switching your money, effort or time to another initiative; or Investing more in the existing project to try and make it work.People choose the third option, in which they "escalate" their commitment, far more often than rational decisionmaking would dictate. This is partly largely because they tend to cling to an over-optimistic view of the future in the hope that their original decision will eventually be proved right. It can also occur because they already have a strong emotional investment in the hard work that's gone into the project so far. In addition, they may consciously or subconsciously feel that "cutting their losses" is an admission of personal incompetence. As a result, this blindspot is more commonly found when an individual, rather than a team, is responsible for making the decision.

3. Tunnel VisionWhen you're in a tunnel, you can see what's directly ahead of you, but you have no idea what's happening outside your area of focus. When you're suffering from this blindspot, (which the creators of blindspot analysis referred as "constrained perspective") you tend to weigh up your decision considering many fewer factors than you really should consider. A typical example of suffering from the tunnel vision blindspot would be to assume that everything else will stay the same while you change. To avoid this, it's important to analyze the wider environment in which you're operating. Useful tools for doing this include SWOT Analysis, PEST Analysis and Value Chain Analysis.

4. Over-ConfidenceBlindspots caused by over confidence often involve underestimating risks arising from "unknown unknowns" issues people are not even aware of. Typical blindspots which over-confident decision makers suffer from include:

Treating guesstimates as facts (this can also be regarded as a particular type of unchallengedassumption, and should be avoided in the same way).

Only considering the most likely external situations, and ignoring less likely ones which couldnevertheless totally derail the situation if they were to occur.

Giving more weight to evidence that supports their gut instinct. Assuming that, if they've made a decision in the past that turned out well, they have a good enough"gut instinct" not to need to analyze the situation in detail.

Assuming that, if one option has a larger amount of data supporting it than do other options, that thatinformation is of higher quality than the data supporting other options. You can try to reduce the risk of over-confidence blindspots by guarding against the negative effect of overconfidence in decision making, by involving others in your decision-making process, and by encouraging people to challenge your reasoning.

5. Leaping to ConclusionsWhen decision makers suffer from this blindspot, they make decisions that are backed up by faulty logic, or by inadequate data. One common example of this is to confuse "correlations" and "causality". Correlations involve two things happening at the same time. For example, a survey might show that children raised by single parents do less well at school than the children of married parents. This may be a good example of a correlation, however it may not be a good example of causation if single parents are, on average, poorer or have less time than married parents, this could be the underlying cause. Another very common example of this blindspot is basing decisions on engaging or emotionally significant anecdotal evidence rather than on data from a representative sample. This tendency to give inappropriate weight to some observed data is, in fact, yet another form of invalid assumption and can be avoided in the same way.

Avoiding BlindspotsThe first step in avoiding decision making blindspots is to acknowledge that they occur: you mustn't have a blindspot for blindspots! In addition to the steps given for each specific blindspot, there are other, practical things you can do to avoid developing blindspots. Some of these would clearly take a lot of implementing, and so are more appropriate if you're involved in far-reaching strategic decision making; others are worth using for much smaller choices.

Blindspots can easily multiply as research and short-lists of options pass up a corporate hierarchy. Ifthis is likely to be a problem, consider decentralizing decision-making as much as possible.

If someone has made a poor decision because of sloppy decision-making, give feedback as soonas possible. Work to make sure that decision making is well-considered, and based on thorough analysis.

For particularly important decision, try to involve someone from outside your team who has no

vested interest in the decision, and get them to challenge your assumptions and review your reasoning (this is where a technique like the Ladder of Inference can be useful.)

Map out how your proposed course of action could go wrong. Doing this will help you identify gapsin your data and reduce over-confidence. Also, download our free Blind Spot Busting Checklist and use it to audit your decision-making at regular stages during the decision-making process each time you make a decision. (It's important not just to wait until the final stage to do this; if you do, you risk wasting time analyzing options suffering from blindspots such as invalid assumptions.)

In rapidly changing environments, you can spot your blindspots quickly, simply because their consequences quickly become obvious. In more stable environments, you need to be particularly diligent about blindspots. Their consequences may take a long time to emerge, by which time a great deal of damage may have been done.

Key Points:By our nature, we can all be prone to blindspots in our decision making. Sometimes these can lead us to draw the wrong conclusions and make the wrong decisions. By being aware of common blindspots, by being thorough and professional in your decision-making, and by auditing your decision making process to look out for the most common errors, you can improve the quality of your decisions, thereby making your projects more successful.