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Making Smart Choices

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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)

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The Elements of “Smart Choices”

• Problem• Objectives• Alternatives• Consequences• Tradeoffs

• Uncertainty• Risk Tolerance• Linked Decisions

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Problem

ObjectivesAlternativesConsequencesTradeoffs

UncertaintyRisk ToleranceLinked Decisions

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Objectives

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

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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)

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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

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Value-Focused Thinking

THINKINGABOUTVALUES

facilitatinginvolvement in

multiple-stakeholderdecisions

creatingalternatives identifying

decisionopportunities

uncoveringhidden

objectives

interconnectingdecisions

guidinginformationcollection

improvingcommunication

evaluatingalternatives

guidingstrategicthinking

Adapted from Keeney, 1992

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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

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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

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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

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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

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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

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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

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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

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Fundamental Objectives HierarchyCO Air Quality Standards

indirect(e.g., lost

opportunity)

nonfatal

heartattacks

fatal

anginaattacks

peripheralvascularattacks

capitalequipment

operations

regulationcost

enforcementcost

direct(e.g., treatment)health

cost

health impacts

costs

Adapted from Keeney, 1992

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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

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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)

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Means-Ends Objectives NetworkCO Air Quality Standards

COemissions

COdispersion

body activity

COconcentrations

breathingrate

COdoses

healthimpacts

costsmaintenance requirements

construction schedule

fines for violators

Adapted from Keeney, 1992

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Summary of How to Construct Objectives Hierarchies and Networks

Fundamental Objectives Means ObjectivesTo Move:

Ask:

Downward in the Hierarchy:

"What do you mean by that?"

Away from FundamentalObjectives:

"How could you achieve this?"

To Move:

Ask:

Upward in the Hierarchy:

"Of what more generalobjective is this an aspect?"

Toward FundamentalObjectives:

"Why is this important?"

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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.

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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

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Example: Means-Ends Objectives Network for Internet Commerce

Product Availability

Reliable Delivery

ProductVariety

Better PurchaseChoicesImpulsive

Buying

Ease of Use ComparisonShopping Accuracy of

Transaction

Access toInformation

ProductInformation

Fraud

Misuse ofCredit Card

SystemSecurity

Misuse ofPersonal

Information

PersonalTravel Personal

Interaction

Fundamental Objectives To Maximize Customer Satisfaction

•Product Quality

•Cost

•Time to Receive Product

•Convenience

•Time Spent

•Privacy

•Shopping Enjoyment

•Safety

•Environmental Impact

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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.

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Value-Focused Thinking In Practice

Medical decisions

today

Descriptively

Prescriptively

You feel sick

You visitdoctor

You getdiagnosis

You arewell again

Alternatives:see doctor

or not

Alternatives:test A, B,

or C

Alternatives:treatmentX, Y, or Z time

life

Your decision problem

Another decision problem

life goes on

prevention

Alternative-focused thinking prevails life goes on

Maybe you wouldn’t be sick; if sick, cure prevention

Doctor’s decision problem

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Value-Focused Thinking In Practice

Other decisions

today

Descriptively

Prescriptively

Your decision problem

You lose Your job

You applyfor jobs

You choosea job

You are working again

Alternatives:job

possibilities

Alternatives:hire or not

Alternatives:select offer

Your decision problem

Company’s decision problem

life goes on Alternative-focused thinking prevails life goes on

use value-focused thinkingto identify decision opportunities

Maybe you won’t lose your job; if so, use value- keep thinkingfocused thinking to create additional alternativesand/or to convert problem to a decision opportunity

timelife

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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

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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 decision-making habits. You’ll be rewarded with a fuller, more satisfying life.

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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).