Five Modes of Decision Making

The Four Components of Decision-Making
There are four components to decision-making: data gathering, information processing, meaning-making, and decision-making, or deciding on a course of action...

The Five Modes of Decision-Making
There are five modes of decision-making. The difference between each mode of decision-making is the amount of emphasis that is given to each of the four components of decision-making. The five modes of decision-making are based on instincts, subconscious beliefs, conscious beliefs, values, and intuition.

Instinct-Based Decision-Making
...The main features of instinct-based decision-making are: a) actions always precede thought – there is no pause between meaning-making and decision-making for reflection, b) the decisions that are made are always based on... instructions... encoded in... our DNA... and c) we are not in control of our actions and behaviours. They are in control of us.

Subconscious Belief-Based Decision-Making
In subconscious belief-based decision-making, we also react to what is happening in our world without reflection but on the basis of personal memories rather than cellular (DNA) memories... the behaviours we are displaying are based on deeply held beliefs...

Conscious Belief-Based Decision-Making
...In conscious belief-based decision-making we have time to think about what decision to make, and we have time to discuss with others and build consensus. However, conscious belief-based decision-making has one thing in common with subconscious belief-based decision-making: it uses information based on past experiences (what we think we know) to make decisions about the future. It creates a future very much like the past. At the best, the future we create is only incrementally different...

Values-Based Decision-Making
If we truly want to create the future we want to experience, we have to shift from conscious belief-based decision-making to values-based decision-making... all critical decisions need to pass the values test...The question we need to ask when making a decision is “Is this decision rational and is it in alignment with our values?” If it isn’t ... think again... When we hold a vision, we consciously make decisions that keep us heading in that direction. When we have a mission, we consciously make decisions that support the attainment of that mission. In every case we are making decisions that help us consciously create the future we want to experience...

Intuition-Based Decision-Making...

Read more in this post from BigBrain.com

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No Decision is Perfect

"People usually make decisions in one of two ways: They analyze the pros and cons, or they go with their gut instincts. In psychology and business journals, writers who you'd think have better things to do use up gallons of ink arguing about which approach is better. [Gary] Klein recommends a combination of these methods, in this order:

"Get in touch with your gut first. Once you start listing pros and cons, your rational mind will drown out your intuition. Klein defines intuition as the accumulation of experience converted to flash-fast thinking...

"To uncover your intuitive point of view, you can even flip a coin—not to make the decision for you, but so you can register your gut reaction to the result. How do you feel when one option drops out? If you're disappointed, ask yourself why.

"Open up the options and visualize each one...Without overdoing it, brainstorm a lot of options. Think creatively about combining the best pieces of each one by compromising or going whole hog: You could buy both the red and the black sweater.

"Banish vague fears, such as 'It may be a mistake,' and instead try to see yourself in a specific scenario. Ask yourself concrete questions about the possible outcome: What's the worst that could happen? What would I do then? Could I live with that? "It's more important to visualize how each option would turn out," says Klein...

"Let go of the idea of the perfect answer. You cannot possibly get all the info, nor can you foretell the future and calculate all the risks. Chill out. 'The harder a decision is to make, the closer the outcomes are to each other, and the less it matters,' says Klein...There is never a guarantee that you're making the right decision. Just accept that."

"Trust yourself. Improve your intuition by examining your decisions after you've made them. Look at whether you would do it the same way again."

Read more in Reinvention StrategiesL: Follow Your Gut

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Strategic Decision Making Traps

"There are a series of traps that people fall into [in making decisions], that lead to incorrect judgements being reached, whatever the quality of the preceding analysis. The incidence of this is high. The cost, given that these are strategic decisions, is commensurately large...

"Pragmatism leads to at least two biases that impact strategic decision making.

1. Fact-based bias... we like to make decisions based on facts,[but]... To make strategic decisions, we need to be guided by a 'theory' that allows us to act before all the facts are in... a causal theory about the future - 'if we do this, then the following will happen' - lies at the heart of strategic decision making. We cannot wait for all the facts.

2. 'Cut-through' bias... The second consequence of a pragmatic mindset is that it drives people to 'cut-through' and jump to a decision, by making a call. It is the other side of the fact-based bias. We wait for the facts, get impatient and cut-through...Unless it is done with great skill, it can lead to wrong decisions.

"Following are the traps that people fall into.

Trap one - over-simplification

Trap two - embedded assumptions...Many decisions are based on embedded assumptions that are not discussed, assumptions that often turn out to be wrong.

Trap three - incomplete criteria... Many important decisions are made without an explicit, agreed set of criteria... Strategic decisions will have multiple options, to be tested against multiple criteria... multiple weightings and multiple time periods. The human brain cannot reliably cope with such levels of complexity.

In these circumstances, a formal, explicit process will yield a surer judgement...

To avoid these traps, make the decision process visible. Work hard to consider the whole problem at the same time. This provides a great incentive to expedite the process. Identify important embedded assumptions. And spend real time talking through the decision criteria, weightings and scoring. This way, the decision process will do justice to the hard work done in fact gathering and analysis. Better decisions are the expected result."

Read more in this article from CEO Forum Group

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An Overview of Forecasting Methods

"There are several assumptions about forecasting:

1. There is no way to state what the future will be with complete certainty. Regardless of the methods that we use there will always be an element of uncertainty until the forecast horizon has come to pass.

2. There will always be blind spots in forecasts. We cannot, for example, forecast completely new technologies for which there are no existing paradigms.

3. Providing forecasts to policy-makers will help them formulate social policy. The new social policy, in turn, will affect the future, thus changing the accuracy of the forecast.

Many scholars have proposed a variety of ways to categorize forecasting methodologies. The following classification is a modification of the schema developed by Gordon over two decades ago:

Genius forecasting - This method is based on a combination of intuition, insight, and luck...

Trend extrapolation - These methods examine trends and cycles in historical data, and then use mathematical techniques to extrapolate to the future...

Consensus methods...

Simulation methods - Simulation methods involve using analogs to model complex systems...

Cross-impact matrix method...recognizes that the occurrence of an event can, in turn, affect the likelihoods of other events...

Scenario - The scenario is a narrative forecast that describes a potential course of events...

Decision trees..."

Read more in this comprehensive and fascinating article by David S. Walonick.

Technorati Tags: business, management, entrepreneurship, startup, legal

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Expand the Pie Before Dividing It Up

"Many managers who view themselves as the heroic guardians of shareholder interests—the no-nonsense, tough-as-nails guys who run their businesses by the numbers, who pride themselves on their hypercompetitiveness, and who think that "organizational culture" and "shared values" are irrelevant fantasies concocted by out-of-touch academics—may be inadvertently running their companies into the ground and systematically destroying the wealth of their investors...

"The most successful organizations understand that the purpose of any business is to create value for customers, employees, and investors, and that the interests of these three groups are inextricably linked. Therefore, sustainable value cannot be created for one group unless it is created for all of them. The first focus should be on creating value for the customer, but this cannot be achieved unless the right employees are selected, developed, and rewarded, and unless investors receive consistently attractive returns...

"Why do managers so often choose not to focus on value creation and instead make decisions that systematically decrease the long-term value of their businesses? One reason may be that their training and education lead them to define their organizations' interests too narrowly... If management defines the organization's self-interest (and consequently its goals) too narrowly—for example, to maximize this year's or this quarter's reported earnings—it will view that interest as being at odds with the interests of customers and employees...

"This approach is based on 'win/lose' or 'zero-sum' thinking: The underlying assumption is that there is a fixed pie of value to be divided up among customers, employees, and investors, so the interests of the three groups must be traded off against one another...

"Companies that act on this myopic conception of self-interest may stumble into a downward spiral of poor decision-making that is difficult to reverse. For example, as reduced employee training and compensation lead to low employee morale and poor performance, and as underfunded R&D allows a product line to age, customers can become dissatisfied and begin to defect... When customer do defect, profits shrink, tempting management to cut back even further on training, compensation, and R&D, thus accelerating the spiral of customer dissatisfaction and defection...

"Alternatively, if managers define their company's interests broadly enough to include the interests of customers and employees, an equally powerful spiral of value creation can occur. Highly motivated, well-trained, properly rewarded employees deliver outstanding service, while effective R&D investments lead to products that enjoy a significant value-adding advantage and generate higher margins. Satisfied, loyal customers (and new customers responding to word-of-mouth referrals) drive revenue growth and profitability for investors...

"An 'expanding the pie' approach to management requires that a company alter its thinking along several dimensions...."

Read more in Value Creation and Business Success by Paul O'Malley from which the foregoing was quoted.

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