We make decisions all the time, but how do we make them? How useful are our decision-making techniques? In this lesson, you’ll learn about the skills used in decision making, the six steps involved, and finally, four different techniques you can use when faced with a decision.

What Is Decision Making?

Ten-year-old Arnold needs to choose between a hamburger and a hotdog at a restaurant. Seventeen-year-old Amber needs to pick which college she will attend: Julliard, Harvard or Oxford University. Both Arnold and Amber need to make decisions. Arnold’s decision is minor. Amber’s decision, on the other hand, will affect the rest of her life.

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Decision making involves the process of choosing between two or more courses of action. In many everyday decisions, you must decide your course of action in a split second. For example, if you’re driving and you need to decide whether or not to turn down a road or keep going straight, you need to make that decision within seconds. You won’t have time to draw out a lengthy plan of which road you should take.

But then there are opportunities where you have time to ponder and ruminate on a decision, like Amber with her choice of college. Amber can draw out the pros and cons of each college and choose a course of action based on which option has more advantages. There are certain skills that can make someone a better decision maker. Let’s learn more about these skills using Amber and Arnold as examples.

Decision-Making Skills

  • Intuition – This encompasses an aptness to comprehend something instantly, without the need for analyzing, thinking, or conscious reasoning. When Amber was robbed at gunpoint, her intuition told her to throw her wallet and run in the opposite direction.
  • Foresight – This is the ability to predict consequences of a particular action or decision. Amber made the decision to study for her test instead of going out with friends, because she could foresee that if she got a bad grade on her math test it could impact her college admissions.
  • Critical thinking – This entails the capacity to think and reason clearly and logically, and comprehend how concepts and ideas relate. It involves the ability to gather, analyze and evaluate information. Amber used critical thinking skills when making her college decision. She visited her top choices and gathered all of the financial and other info she would need to make her decision. Then she analyzed the information using a chart of pros and cons for each college.
  • Emotional intelligence – This is an ability to read others’ emotions, which can aid in decision making involving people and to use emotional information for making decisions. Arnold was able to notice cues that his mom was getting irritated that he was taking so long to choose between a hot dog and a hamburger, so he went ahead and chose a hot dog.
  • Self-control – This involves an emotional regulation that is useful to control extreme emotions so that a person can use rationality in making decisions. Arnold’s mom used self-control and anger management techniques, like taking deep breaths and taking a time out, so that she wouldn’t yell at Arnold to get back in the car without dinner.

Six Steps of Decision Making

Before we approach different decision-making techniques, let’s look at the basic decision-making model, which includes six procedures that will guide you:

  1. Define the problem or decision to be made
  2. Identify all alternatives and options
  3. Assess all alternatives and options
  4. Make the decision
  5. Employ your final decision
  6. Analyze the decision you made (i.e. the outcome, the consequences, and whether or not you would do anything different next time)

Decision-Making Techniques

There are many approaches, models, and techniques that one can use when trying to make a decision. Some are more intricate than others, so you have to decide which one to use! Whichever technique you choose should be determined by the situation, number of options, and type of data.

Cost Benefit Analysis

This is usually done on a spreadsheet and includes the costs and benefits of a particular decision. It’s basically a fancier version of the pros and cons list. For example, Tom’s Tires needed to decide if they wanted to invest in a credit card system for their business. They determined all of the costs associated with this decision and the potential benefits. They decided that the benefits outweighed the costs and bought the system.

Decision Tree

You can begin the tree with a circle indicating the topic of decision, and draw branches from the circle indicating the different decisions that can be chosen. Then, you draw branches from those decision options indicating the predicted path or consequences of that particular decision.

A decision tree is a technique intended to map out the possible outcomes of decisions.
Decision tree

Pareto Analysis

Italian economist Vilfredo Pareto discovered that 80 percent of the land in Italy was owed by only 20 percent of the people. This 80/20 rule turned out to be true for many other things too, like 20% of a company’s employees are responsible for 80% of the company’s output, or 80% of a country’s wealth is usually controlled by about 20% of the population.

A Pareto analysis tries to determine the 20% of issues that, if fixed, will solve 80% of the problems. So a Pareto analysis is a decision-making tool that is used if a company or individual is trying to figure out which 20% of work they can do that will solve 80% of the problem.

A Pareto analysis is typically represented on a histogram or bar chart with the highest bars to the left and the bars descending to the right. The purpose of this analytic tool is to see that a majority of the problems or issues (80%) lie with only one or two reasons or causes (20%).

When Binko’s Printing Company tallied the reasons that secure documents were damaged, they saw something very interesting. More than 50% of the secure documents were damaged because of just one reason (paper jams)! And almost 80% of the reasons secure documents were damaged was due to two reasons (paper jams and incorrect info entered). So if Binko’s focuses their problem-solving efforts on these two reasons, their total number of secure documents damaged will go significantly down.

By targeting their efforts at the largest problems, Binkos can significantly reduce damage of secure items.
Fax machine pareto analysis

Decision Matrix

This is usually used to make decisions based on a large amount of quantitative data. A decision matrix is usually represented in rows and columns, like in an excel spreadsheet. It is often used by engineers to make choices about design or for stockbrokers to decide on investments. But a decision matrix does not have to be so complex. Let’s look at this simple decision matrix made by Mr. Williams when trying to decide which used car to buy for his teenage son, Timmy.

If Mr. Williams uses this decision matrix to make his choice, it looks like Timmy is getting a Suburu Legacy.
Mr. Williams decision matrix

Lesson Summary

Decision making is the process of choosing between two or more courses of action. To be a good decision maker, it’s very helpful to have the skills of intuition, foresight, critical thinking, emotional intelligence, and self-control. There are six steps of effective and conscious decision making that begin with defining the problem or decision to be made and conclude with analyzing the decision you made. The decision-making techniques we discussed include the cost-benefit analysis, the decision tree, the Pareto analysis, and the decision matrix. Whichever technique you use should be determined by the situation, number of options, and type of data you have.