1 Making Smart Choices

2 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)

3 The Elements of “Smart Choices” Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions

4 Problem Objectives Alternatives Consequences Tradeoffs Uncertainty Risk Tolerance Linked Decisions

5 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

6 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)

7 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

8 Value-Focused Thinking THINKING ABOUT VALUES facilitating involvement in multiple- stakeholder decisions creating alternatives identifying decision opportunities uncovering hidden objectives interconnecting decisions guiding information collection improving communication evaluating alternatives guiding strategic thinking Adapted from Keeney, 1992

9 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

10 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

11 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

12 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

13 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

14 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

15 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

16 Fundamental Objectives Hierarchy CO Air Quality Standards indirect (e.g., lost opportunity) nonfatal heart attacks fatal angina attacks peripheral vascular attacks capital equipment operations regulation cost enforcement cost direct (e.g., treatment) health cost health impacts costs Adapted from Keeney, 1992

17 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

18 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)

19 Means-Ends Objectives Network CO Air Quality Standards CO emissions CO dispersion body activity CO concentrations breathing rate CO doses health impacts costs maintenance requirements construction schedule fines for violators Adapted from Keeney, 1992

20 Summary of How to Construct Objectives Hierarchies and Networks

21 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

22 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

23 Example: Means-Ends Objectives Network for Internet Commerce Product Availability Reliable Delivery Product Variety Better Purchase Choices Impulsive Buying Ease of Use Comparison Shopping Accuracy of Transaction Access to Information Product Information Fraud Misuse of Credit Card System Security Misuse of Personal Information Personal Travel Personal Interaction Fundamental Objectives To Maximize Customer Satisfaction Product Quality Cost Time to Receive Product Convenience Time Spent Privacy Shopping Enjoyment Safety Environmental Impact

24 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.

25 Value-Focused Thinking In Practice Medical decisions today Descriptively Prescriptively You feel sick You visit doctor You get diagnosis You are well again Alternatives: see doctor or not Alternatives: test A, B, or C Alternatives: treatment X, 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, cureprevention Doctor’s decision problem

26 Value-Focused Thinking In Practice Other decisions today Descriptively Prescriptively Your decision problem You lose Your job You apply for jobs You choose a 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 thinking to identify decision opportunities Maybe you won’t lose your job; if so, use value- keep thinking focused thinking to create additional alternatives and/or to convert problem to a decision opportunity time life

27 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

28 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.

29 References Smart Choices, with J.S. Hammond and H. Raiffa, Harvard Business School Press, Value-Focused Thinking, Harvard University Press, Decisions with Multiple Objectives, with A. Raiffa, Cambridge University Press, 1993 (previously with Wiley, 1976).