The Usefulness of Different Decision Making Techniques for Operational Planning Decisions

If we are certain of an outcome we may make an instant decision, based on our prior experience, expertise and the predictable outcome, without using any decision-making technique.  

However, when a manager lacks perfect information or whenever an information asymmetry exists, risk or uncertainty arises. Under a state of risk, the decision maker has incomplete information about available alternatives but has a good idea of the probability of outcomes for each alternative.5 It is at this point that a manage would need to decide on the likelihood of an outcome based in his or her experience. This can be a perilous road if the manager lacks experience or fails to recognise a factor which could affect the decision and is a position that the majority of managers are uncomfortable with. Making decisions under risk should be avoided wherever possible and a proven decision making technique employed if possible. 

We all make decisions on a daily basis. What cereal should I have for breakfast? Should I walk to work or take the car? Do I want pasta for dinner or a baked potato? So what do we do when decisions are much more serious and need to be based on facts and analysis? Or perhaps when we can’t see the wood for the trees? 

Decision Trees are a popular method for making decisions and are used for weighing up to advantages and disadvantages (pros and cons) of a decision based in a number of inputs or factors. Carried our correctly, decision trees cover all options available and result in a range of outcomes. Using this information, managers can better understand the most likely outcome of a decision by evaluating the value of each possible outcome. 

Cost benefit analysis can also be employed to assist in making decisions. For example, one of my employees may come up with a great new idea to bring in extra business. However, to do this, he will require a new van at a cost of £20,000. Using cost benefit, we can decide whether the investment of £20,000 is likely to result in a beneficial profit over a reasonable amount of time. 

Cost benefit analysis is a quick and simple technique that you can use for non-critical financial decisions. Where decisions are mission-critical, or large sums of money are involved, other approaches – such as use of Net Present Values and Internal Rates of Return are often more appropriate. 

These techniques aside, my experience in business has shown me that whatever decision making technique we may decide to use, we can rarely be 100 per cent certain that we are making the right decision. Occasionally variables occur we simply could have expected or predicted. Nevertheless, by utilising the above techniques, we can certainly increase our chances of making the right decision at the time.

 

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