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DECISION MAKING TOOLS AND TECHNIQUES

Eight Steps To Decision Making

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8 Steps To DM

 1. Recognition of a Problem
 
     The starting point in any conscious attempt at rational decision-making must be the recognition that a problem exists. Only when a problem is recognized can the work toward its solution begin in a logical manner. In the early 1970's, for example, it was discovered that a number of species of ocean fish contained substantial concentrations of mercury. The decision-making process began with this recognition of a problem, and the rush was on to determine what should be done. Research into the problem revealed that fish taken from the ocean decades before, also contained similar concentrations of mercury. Thus, the problem had existed for a long time; yet, it was not until recently that the problem was recognized. In typical situations, recognition is obvious and immediate. An auto accident, an overdrawn check, a burned out motor, an exhausted supply of parts or whatever, produces the recognition of the problem. Once we are aware of the problem, we can take action to solve it as best we can.

2. Define the Goal or Objective


In a sense, every problem is a situation that prevents us from achieving previously determined goals. If a personal goal is to lead a pleasant and meaningful life, then any situation that would prevent it is viewed as a problem. Similarly, in a business situation, if a company objective is to operate profitably, then problems are those occurrences which prevent the company from achieving its previously defined profit objective. But an objective need not be a grand, overall goal of a business or an individual. It may be quite narrow and specific. "I want to pay off the loan on my car by May," or "The plant must produce 300 golf carts in the next two weeks," are more limited objectives. Thus, defining the objective is the act of exactly describing the task or goal.

3. Assembly of Relevant Data

4. Identification of Feasible Alternatives

For decision-making to take place, there must be alternative courses of action available. We can usually devise a variety of ways of achieving an objective after some thought. But there is an ever present danger that in devising alternatives, we may overlook the best alternative of all. lf this happens, we are left with the situation where the best of the identified alternatives will be selected, but the result will not be the best possible solution.* There is no way to ensure that the best alternative is among the alternatives considered. Probably, one should be certain that all conventional alternatives are enumerated, and that a serious effort is made suggest innovative solutions. Sometimes a group of people considering alternatives in an innovative atmosphere ("brainstorming') can be helpful.
Any listing of alternatives will produce both practical and impractical alternatives. It would be of little use to seriously consider an alternative that cannot be adopted. An alternative may be infeasible for a variety of reasons, such as, it violates fundamental laws of science, or it requires resources or materials that cannot be obtained, or it cannot be available in time specified in the problem objective. After elimination, only feasible alternatives remain, and these become an input for further analysis.

*A group of techniques called "value analysis" are sometimes used to examine decisions. Where the previously made decision is not the best solution, value analysis (which is a re-examination of the decision process) may help identify a better solution, and hence improve decision-making.

5. Selction Criteria for Judging Alternatives

The central task of decision-making is the choice from among alternatives. How is the choice made? Logically, one wants to choose the best alternative. This can only be done, however, if we can define what we mean by "best." There must be a criterion for judging which alternative is best. Now we recognize that best is a relative adjective. It is on one end of the
  • poorest
  • poorer
  • poor
  • good
  • better
  • best
spectrum. Since we are dealing in relative terms, rather than absolute values, the selection will be the alternative that is relatively the most desirable. Consider a person found guilty of speeding by a judge and given the alternatives of a $90 fine or three days in jail. On an absolute criterion, neither alternative is desirable. On a relative basis, one would choose the better of the undesirable alternatives. In this case we would be following the old adage to "make the best of a poor situation." There must be an almost unlimited number of ways in which one may judge the results of decision-making. Several possible criteria are listed.
  1. Create the least disturbance to the ecology.
  2. Improve the distribution of wealth among people.
  3. Use money in ways that are economically efficient.
  4. Minimize the expenditure of money.
  5. Ensure that the benefits to those who gain from the decision are greater than the losses of those who are harmed by the decision.*
  6. Minimize the time to accomplish the goal or objective.
  7. Minimize unemployment.
The selection of the criterion for choosing the best alternative may not be easy. If one were to apply the seven criteria above to some situation in which there were a number of alternatives, it seems likely that the different criteria would result in different decisions. It may be impossible for example, to minimize unemployment without at the same time increasing the expenditure of money. The disagreement between management and labor in collective bargaining concerning wages and conditions of employment reflect a disagreement over the criterion for selecting the best alternative. Management's idea of the best alternative, based on its criterion~ is seldom the best alternative, using organized labor's criterion.

6. Modeling the Interrelationships

At some point in the decision-making process the various elements must be brought together. The objective, the relevant data, the feasible alternatives and the selection criterion must be merged. The relationships may be obscure and complex, as in trying to measure the impact of a domestic decision on world peace. They may be impossible to define on paper in any meaningful way. On the other hand, if one were considering borrowing money to pay for an automobile, for example, there is a readily defined mathematical relationship between the following variables: amount of the loan, loan interest rate, duration of the loan, and monthly payment. The construction of the interrelationships between the decision-making elements is frequently called model building or construction of the model. To an engineer, modeling may be of two forms: a scaled physical representation of the real thing or system; or a mathematical equation, or set of equations, that describe the desired interrelationships. In a laboratory there may be a physical model, but in decision-making the model is mathematical. In modeling it is usual to represent only that part of the real system that is important to the problem at hand. Thus, the mathematical model of the student capacity of a classroom might be

Capacity = lw/k; where l = length of classroom in meters, w = width of classroom in meters, and K = classroom arrangement factor.

    K factor:
  • 0.6 Auditorium seating
  • 1.7 Classroom
  • 3.2 Design/drafting room
  • 10.0 Electronics laboratory

The equation for student capacity of a classroom is a very simple model; yet it may be adequate for the problem being solved. Other situations might have much more elaborate mathematical models.

7. Prediction of the Outcome for Each Alternative

A model is used to predict the outcome for each of the feasible alternatives. As was suggested earlier, each alternative produces a variety of outcomes. Selecting a motorcycle, rather than a bicycle, for example, may make the fuel supplier happy, the neighbors unhappy, the environment more polluted, and one's savings account smaller. But to avoid unnecessary complications we assume that decision-making is based on a single criterion for measuring the relative attractiveness of the various alternatives. The other outcomes or consequences are ignored and this single criterion* is used to judge the alternatives. Using the model, the magnitude of the selected criterion is computed and recorded for each alternative.

8. Choice of the Best Alternative

When the prior elements of the rational decision-making process have been completed, the final step is choosing the best alternative. If the other elements of decision-making have been carefully done, the choice of the best alternative is simply accomplished by selecting the alternative which best meets the chosen criterion.