Message of the Week 01 - 05 November 2021
Week 44 | 2021
How to make rational decisions
The role of a manager comprises a vast array of activities involving hard and soft skills orchestrated daily. At the heart of all of these, is the ability to make decisions.
Consistently effective decision making around strategy, goal-setting or even responses to a problem is the difference between a successful business trajectory or one that limps behind. Given the dynamic nature of business and the pace at which we make decisions, it’s challenging to ensure that high-quality decisions back every action.
However, help is at hand. For one, Charlie Munger’s two-step process offers a framework that promises to improve your decision-making skills and reduce misjudgement. It’s a simple approach that asks us to:
- Understand the forces at play. Knowing what you know and what you don’t know. You need to understand your circle of competence. It’s just as important to know what you don’t know as it is to know what you know.
- Understand how your subconscious might be leading you astray.
For approach number two, Kazuo Inamori Management Philosophy No. 3 says: “Make Decisions with an Altruistic Mind.” Our founder, says, “In order to do good work, we need to make decisions based on the part of our heart that cares for others, not based on our own selfish interests.”
The logical approach suggested in this article is to consider the following six steps when applying a “rational” decision-making process.
1. Define the problem. Diagnose the problem in terms of the “symptoms”. Make sure you get to the root of the problem and don’t simply seek a quick fix to eliminate temporary symptoms.
2. Identify the criteria. Identify all relevant criteria in the decision-making process.
3. Weight the criteria. Understand the relative value you place on each criterion and specify the value according to a scoring system that makes sense (cost, points, etc).
4. Generate alternatives. Identify the potential courses of action.
5. Rate the alternatives. Carefully assess the potential consequences of the identified criteria when considering alternative solutions.
6. Calculate the optimal decision. After completing the first five steps, calculate the optimal decision by (a) multiplying the ratings in step 5 by the weight of each criterion, (b) adding up the weighted ratings across all of the criteria for each alternative.
Decision making is the most important, of all management activities, so by remaining calm and applying a framework to your decision-making process, you’ll ensure that your decisions will always be rational, considered, and fair – no matter the issue.