You may need to make several decisions every day in your life, career, business or investment. For example, “What am I wearing today?” “What should I eat tonight?” “Which set of headphones should I buy?” “Which job should I take?”… When faced with so many choices, how do you decide which one to choose?
Usually, you may hesitate to make a decision to choose A or B, as both are good but not perfect.
A Career Decision Case
For example, after graduation, there are two job opportunities in front of you, company A offers a 5,000 USD monthly salary, while company B is 4,000 USD, how would you choose?
Both are ok but not very satisfying. Then you turn to your mother/dad, elder friends, or teachers for advice. They may give you advice and the following may be the dialogue between you and them.
They: ” How about choosing company A?”
You: “But company B is closer to my house, so it can save a lot of transport time every day.”
They: “So choose Company B.”
You: “But Company A is larger in scale and looks more standardized.”
They: “Then choose Company A.”
You: “But I like the leader of Company B better, and the management is also very humane.”
They: “Then choose Company B.”
You: “But Company A’s job looks more promising.”
Your listener may call these two companies and tell them not to hire you so that you won’t hesitate…
The Reason behind the Hard Decision
What do you think is the cause of such a hard choice?
- In fact, as you may know, there may never be a perfect thing in this world, for example, more money but less work and closer to home, higher position but less responsibility.
- There may not be things that are standardized (no difference in whether to choose A or B) that you can choose even if you close your eyes.
- The resources of our society are always limited, whether time, energy or money.
Every time you choose A, it means you have to give up B. This is why making decisions is so important to us, because your decision will help you choose the option with the smallest cost, the largest potential benefit, and the lowest potential risk. Finally, help you live life well.
How to Judge the Decision is Good or Bad?
Many people will judge the decisions from the results, such as:
- Today’s meal was too unpleasant, I shouldn’t have chosen this restaurant.
- This employee is too bad, and I must have not slept well when I chose him that day.
- My decision was too correct as customers placed so many orders this year.
But in fact, these ideas may all be wrong, and the reason is very simple: the future result is unknown, and there is uncertainty in an unknown result, so it is not recommended to use the future unknown things to judge whether the current decision is good or not.
For example, your customers cannot place many orders to you due to your limited production capacity. So you invested 1 million USD to buy new equipment to enlarge your production, and finally received twice as many orders as before.
If you only look at the results, then this is a good decision – bought the new equipment. However, three months later, Covid-19 broke out worldwide, and customer orders fell sharply to half of the beginning. Can we conclude that the investment decision at that time was a bad decision?
If this is the case, then it may not be possible to conclude this decision until after 20 years, because who knows when the economy will recover again?
A good decision may not bring good results, and a bad result may not be caused by a bad decision. Actually, we can measure the quality of a decision before making a decision.
How to Make a Good Decision?
The following are the six basic elements or steps of quality decision-making:
- Set Up an Appropriate Framework: Identify the problem or opportunity
- Creative Alternatives: what you can do
- Clear Values and Tradeoffs: what you want
- Relevant and Reliable Information: what you know
- Sound Reasoning: what you compare with
- Commitment to Action: what you should do
1. Set Up an Appropriate Framework
First of all, what is a framework? It simply means what kind of problems we are trying to solve and what opportunities we should take in this decision.
If you understand the concept of demand, you may have also discovered that the framework of the decision-making field is actually similar to the demand in the sales field. In fact, decision-making is also a process of finding and meeting real needs.
For example, in the case of choosing a job at the beginning, the real need is to choose between company A and company B? Actually, it is not. The real need is what kind of career you want to take in the next 1-3 years. As for the choice of which company is just a vehicle to realize your career planning.
From this perspective, we can find that our decision-making framework is too small if we just fix our eyes on company A and company B. So it may be impossible to solve the current problem even if making a decision.
How to Determine the Appropriate Decision-Making Framework?
Three key factors:
- Purpose: what problem is this decision to solve.
- Perspective: whether the awareness of the decision maker is stable and objective (based on the experience).
- Scope: what should pay attention to, and what should not.
For example: As a fresh graduate, is it appropriate to set the decision-making framework as “which industry should a fresh graduate choose when choosing the company”?
My answer is inappropriate, because the awareness of the decision maker may not be enough to judge. Things at the level of “industry” are beyond the scope. In this case, even if you make a decision, it is generally distorted.
2. Creative Alternatives: what you can do
Secondly, what are options? Simply means the path to the framework.
For example: As a Sales Director, you need as many customer orders as possible to make sure the company runs normally.
What can you do to achieve this goal besides maintaining relationships with current customers? Such as:
- Ask customers to introduce potential customers
- Participate in exhibitions
- Do Google Ads
- Do Website SEO
When determining the options, please use “I can” instead of “I want”. For example, if your company does not have the ability to do Google Ads, even if you don’t know how to spend money, then it should not be an option, at least not an option within this framework.
In addition, 3 options is better than 2 options, and 4 options is better than 3 options, but 20 options is better than 4 options? Not sure.
When there are too many options, we can easily fall into another state: decision paralysis, which refers to the decision-making difficulties caused by information overload and too many options, which in turn leads to the decision-maker’s inability to choose or even abandon the decision-making process.
Suppose you enter a restaurant and there are a total of 100 dishes on the menu. Would you say “awesome, I can eat for 100 days without repetition”? Obviously not, and most probably you’ll struggle with which dish to choose everyday, and the final result may still be the dish you had eaten yesterday.
If you only have one boyfriend, and he loves you and you love him, then you two will live happily together.
But if two boys love you, and you also love both of them at the same time, then I believe who you should choose to get married will be the hardest choice in the world. Mr. A is rich and handsome, Mr. B is considerate and romantic. You don’t know which one to choose from.
Therefore, the more options may be not the better, and either eliminate similar options or merge them into the existing options.
How to Determine the Options?
The MECE principle is the most commonly used method.
MECE, the full name of Mutually Exclusive Collectively Exhaustive, that means, to classify a whole thing without overlapping and without omission, and decompose the problem layer by layer, and finally analyze the key problem and find out the initial solution.
Let’s take an example: how to make a company profitable?
First of all, let’s do a first-level decomposition. There are two first-level classifications to make the company profitable: increase sales and reduce expenses.
Secondly, let’s do the second-level decomposition, so what are the ways to increase sales? For example, increase the number of sales, increase the sales price, and increase the product category. etc. (You can think as you can when decomposing, you don’t need to consider operability.)
At the same time, what are the ways to reduce expenses? For example, reduce research and development costs, reduce production costs, cancel employee benefits, reduce promotion costs and so on.
After that, we will do a three-level decomposition, such as what are the options for increasing the sales volume, and what are the ways to increase the sales price, and we will decompose it layer by layer until there is no way to subdivide it again.
In the end, let’s look at which is more enforceable, which has greater potential benefits and lower potential risks. If 3 or 4 options are left, that’s our “options.”
3. Clear Values and Tradeoffs: what you want
The goal in making decisions is to get what you really want.
Suppose the same mobile phone, its official website sells 1,000 USD, its Amazon store sells 900 USD, we can easily make the decision to choose its Amazon store.
But two jobs with a monthly salary of 5,000 USD and 4,000 USD, why are they so difficult to choose?
Because work is a multi-dimensional thing, and you haven’t set the value comparison standards of different dimensions. Or in other words, you just don’t know what you want.
In most cases, the same thing means different values to everyone.
Suppose you left for 10 minutes after eating in a restaurant and then suddenly remembered that the waitress charged you 10 USD more. What are you going to do?
A rich and busy man may leave without looking back, because his time is more important than money; but a poor person will rush back to talk to the waitress. So the value is actually a relative value, not an absolute value.
In the case of choosing a job, some people may think that distance is more important, and they can sleep 30 minutes more a day with short distance. Some people may think that salary is more important, saying that the salary represents the dignity of the workplace. Others think that the prospects are more important as the future is the key strategy.
But the question also comes, how important is “more important”? Is the importance as big as a dinosaur head or as big as a toe?
If there is no way to quantify, it is impossible to make comparisons. Therefore, the most critical task is to quantify the “equivalent exchange” of value.
For example, if you think it is more important to get 30 more minutes of sleep a day, how much to add to your monthly salary can make you give up this 30 minutes of sleep?
If you think that the future in a big company is more important, how much monthly salary increase can make you choose a small company?
This is an equivalent exchange, which converts all the values you care about into a standard form, such as salary, which can be used for comparison.
Non-Compensating Decision-Making Rules
However, not all values can be used for equivalent exchange. There is a concept called “non-compensating decision-making rules”, which means that the advantages and disadvantages of the product itself cannot be complementary, and even if the advantages are good, there is no way to make up for the shortcomings. It can better help us determine value.
This results in a situation that cannot be selected by the decision maker, it can be called a “fatal defect”.
A Life Decision Case
For example, when choosing a boyfriend. For some girls, they will not consider a boy no matter how good he is if the height of a boy is below 180cm. Here, 180cm is the non-compensating decision-making factor. In such a case, it is impossible to use the quantification of equivalent exchange.
The non-compensatory decision-making strategy can be used in scenarios where there are many choices. It allows us to quickly narrow the choice to one or a few.
After talking about value, what is “information”?
4. Relevant and Reliable Information: what you know
In the business world, no one will reject low-investment but high-return things. You know what you want, but the key is that you don’t know whether you can get it.
For example, is the 50,000 fund invested in a new product development or an exhibition? Which one is more capable of driving sales?
To solve this problem, all you need is “information”. For example:
- What do competitors do?
- How about historical exhibition sales results?
- What is the attitude of customers towards new product development?
- According to historical sales data, am I currently lacking traffic, conversions, or repeat purchases? etc.
This information will connect options and value, and help us quantify from the value dimension. This is the function of information, and it can also reduce our uncertainty about the future.
However, there will always be various uncertainties in the future. Information can only reduce the uncertainty and increase the probability of our expected results, but it cannot eliminate the uncertainty.
For example, an interviewee said that he used to sell the same type of product from 10 million to 30 million. This is a piece of information, but it only represents the past, and there is no way to prove that he can also do this sales number after he comes to your company.
How to get information?
There are two ways suggest:
- Refine it yourself. We extract data from noise, establish information from data, absorb knowledge from information, and get wisdom from knowledge. The information we refine is easier to transform and apply, but it is more time-consuming and labor-intensive.
- Spend money to buy. Like custom data, industry consulting reports, etc., don’t feel uncomfortable in spending money. If a decision worth 1 million USD, it can increase the probability of correct decision by 10% with information, which means the value of information is 100,000 USD.
5. Sound Reasoning: what you compare with
In simple, rapid and repetitive decision-making, we usually rely on experience and intuition to make judgments. But when we are making complex, long-term and important decisions, we often need to rely on tools to make calculations.
It is recommended to use a tool called “decision tree“.
An Investment Decision Case
Assuming that we now have an investment decision, the framework is “whether to invest 10,000 USD for the promotion of sales leads”, there are three options:
- A: Yes, invest in exhibitions.
- B: Yes, invest in B2B platforms.
- C: No, keep the 10,000.
And you have three results:
1.If you invest in the exhibition channel, suppose within one year:
- You have a 50% opportunity to receive the orders with a profit of 40,000 USD, and finally, there will be 30,000 USD profit left after eliminating the cost of 10,000 USD.
- You have a 40% chance of receiving orders with a profit of 20,000 USD in addition to the cost of 10,000 USD, there is still 10,000 USD.
- There is a 10% chance that the money will be lost, which is equivalent to a loss of 10,000 USD.
2. If you invest in the platform channel, suppose within one year:
- You have a 40% opportunity to receive the orders with a profit of 30,000 USD, and finally, there will be 20,000 USD profit left after eliminating the cost of 10,000 USD.
- There is a 50% chance to get orders with a profit of 20,000 USD besides the cost of 10,000 USD, there is still 10,000 USD profit.
- There is a 10% chance that the money will be lost, which is equivalent to a loss of 10,000.
3. If the money is left in your hands and does nothing, it will still be 10,000 USD after a year.
Based on these data, we can begin to calculate the expected value.
The expected value of exhibition investment = 30,000*0.5 + 10,000*0.4 – 10,000*0.1=18,000.
The expected value of the B2B platform investment= 20,000*0.4 + 10,000*0.5 – 10,000*0.1 = 12,000.
We can conclude that the expectation of investing in the exhibition is the highest, and we should choose to invest the 10,000 USD in the exhibition.
6. Commitment to Action: what you should do
If the first five factors are the thinking mode, then the sixth factor is the action mode, but this step is often the most difficult.
In the Three Kingdoms, Cao Cao said Yuan Shao was more conspiring but less decisive, which means that Yuan Shao can think of a lot of things, but he is going to make a decision, he often said “I’m sorry, it’s a bit late, please wait until I wake up and talk about it”.
The thinking mode cannot be switched to the action mode, just like when we’re falling in love with a girl, we know how to date, how to hold hands, how to make the goddess say yes, but when we actually do it, we often get confused. Do you have such experience?
Decision and Action
What you need to think is wisdom, but what you need to do is courage. We calculated the expected value of 18,000 USD profit after investing 10,000 USD in the exhibition channel for one year, but what if you lose your money?
We have said that the result should not be a criterion for judging decision-making. The reward is often a reward for good results, not a reward for good decisions.
It is not suggested to fight with your back to the river, because you can’t afford to lose. Once you can’t afford to lose, you will suffer from gains and losses. Even a good decision may not be implemented.
In addition, when switching from thinking to action, we may often make a mistake, that is, the person in charge of execution does not participate until the execution stage. What does that mean?
In the traditional view, we always think that decision-making is a matter of high-level management. You close the door and hold a three-day and three-night meeting, and then hand over the work to the executives to implement.
This process often brings a consequence, that is, the decision makers will question the lack of implementation of the executives, and at the same time, the executives will say what bad of the decision was made. Why does this happen?
Commitment through Participation
There is a cognitive difference between the decision-making level and the executive level. Depending on the cognitive level of different people, the views on the same thing may be completely different.
For example, you think it is very important that something must be done immediately, but your friend may think it is irrelevant and so that it is delayed two or three days.
Therefore, if we separate decision-making and execution, it is easy for the decision maker to think that this thing can be done, but the executor does not understand the decision maker’s intention. The best way is that the executor participates in the decision-making process from the beginning to the end.
When we have completed the above six basic elements of decision-making: framework (what I need), options (what I can want), value (what I want), information (what I know), argument (what I compare), and action (what I should do), we can judge the quality of decision-making.
But the judgment of the quality of decision-making is not the score of “framework”, score of “options”…etc, and then add up and divide by six. The quality of decision-making is determined by the lowest score among these six items.
So, do you think that decision-making is doing multiple-choice questions? Maybe we are actually doing calculation questions.
But can the decision really be made entirely by calculation?
Almost no, under such circumstances, there will only be emotions.
This is normal, because we human beings think with rationality, and make decisions with emotion.
How to Avoid Emotional Decision?
The answer is team decision-making. Just like in the B2B buying process, there are executives, influencers, decision makers and approvers. These people together form a decision-making team, which can reduce the influence of emotions in decision-making as much as possible.
But at this time, it is easy to bring new problems:
1. Consistency trap
To put it simple, it means “Everyone agrees, it must be good.”
For example, you announced that the salary of everyone will rise by 10% in the company. How do you think employers react?
Surely, everyone is happy! Is this a good decision? We don’t know as there is no relationship between everyone agreeing and good decisions.
However, actually in many cases, we will change from the pursuit of high-quality decision-making to the pursuit of consensus.
This is actually part of human nature. You always want to be recognized by others, and you are always afraid to be different from others. Even if you really have different opinions, when you see so many people raising their hands in agreement, you will doubt yourself. Is it wrong?
How to crack the consistency trap?
Always set up a “brick” role in the team, who will not say yes easily, and is good at giving opinions from different dimensions.
Here, a concept called six thinking hats, which represents six thinking modes. For example:
- Blue hat (Control). “Let’s discuss whether to increase labor.”
- White hat: Information. “According to the data, 70% of employees complain about too much work”
- Red hat: Emotions. “I don’t like too many people, too many people are not easy to manage”
- Yellow hat: Value. “If you add two people, you can really increase your work efficiency by 20%.”
- Black hat: Difficult. “Adding two people will increase labor expenses by 20% each month.”
- Green hat: Creation. “Perhaps we should also discuss how to improve the existing workflow”
When making a team decision, either set up one or two roles to wear one or two hats, or everyone switches their hats from time to time to avoid consistency traps.
2. Advocacy/approval myth
The opposite of the consistency trap is the myth of advocacy /approval. Like a debate contest, “I’m right if I knock you down.”
The party that puts forward the decision will look for a variety of evidence to convince the approving party to prove that the decision is right. And the party in charge of approval will look for various tricky questions to refute the claim, as if the other party can answer these questions, it proves that this is a good decision.
For example, you, as a sales manager, invested 10,000 USD to participate in an exhibition, and then the boss asked you various questions to prove the correctness of this decision. However, this approach is actually wrong.
Because everyone has overlooked a concept called “lawyer thinking” and “scientist thinking”. The lawyer thinks that “my client is innocent, and I am going to find evidence to prove his innocence.” This is a preset position. While a scientist’s thinking that “I don’t know whether he is guilty or not, I need to find enough evidence to know.”
The myth of advocacy/approval, in fact, both parties have fallen into law thinking, first have opinions and then look for evidence. When looking at the evidence, it is difficult to avoid various deviations.
For example, you will focus your eyes on finding evidence of your competitors attending the exhibition, while subconsciously ignoring the evidence that some of your competitors only went once and stopped going this time.
The correct approach is not to presuppose a position, do not turn the proposition and approval parties into a tit for tat debate, and do not think that if you refute me, it proves that your decision is right. Everything must be based on the six elements of high-quality decision-making.
Making a decision is a choice. In many cases, we can’t choose. It’s not that we lack options, but we haven’t set good standards.
High-quality decision-making contains six elements: framework, options, information, value, comparison and commitment, all of which are indispensable.
Team decision-making can make up for the shortcomings of individual decision-making, but we should also guard against consistency traps and proposition/approval myths.
Hope you can make better decisions in life, work, business or investment with the above six steps.
- Decision Quality: Value Creation from Better Business Decisions, by Carl Spetzler, Hannah Winter, Jennifer Meyer
- Thinking, Fast and Slow, by Daniel Kahneman
- Six Thinking Hats, by Edward de Bono