Tools and Technique Paper
Decision making is the cognitive process leading to the selection a course of action among alternatives. Every decision-making process produces a final choice called decision. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore, decision-making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions ().
Generally, good decision making is very essential skill in the success and effective leadership. To lead a team to spectacular and well-deserved success, it is important to learn to make timely and well considered decisions. However, if you make poor decisions, the team risk failure.
Techniques in Decision Making
There are some techniques that would help to make the best decisions with the availble data and information. Moreover, these tools will help work out the importance of individual factors and choose the best alternatives and course of action to take. These will also will help map out the likely consequences of the decisions. These techniques are Pareto Analysis, Paired Comparison, Grid Analysis, Decision Trees, PMI (Plus/Minus/Interesting), Force Field Analysis, Six Thinking Hats, and Cost/Benefit Analysis.
Pareto’s Rule
Pareto’s rule is also known as the 80/20 rule. It was named after Vilfredo Pareto who, in the late 18th century, studied the distribution of wealth in Europe and found that 80% was held by 20% of the population. A number of well publicized business studies during this century showed similar 80%/20% relationships, and claimed for example that, “managers spend only 20% of their time to complete 80% of their work”, and “80% of a company’s business comes from 20% of its customers”. These studies served to confirm the rule as an accepted part of management folklore ().
Pareto Analysis is very simple technique that helps you to choose the most effective changes. Pareto analysis was used to rank important factors. This analysis arranges data according to priority and importance distribution. Basically, this distribution is established on the order-of-measurement value for each factor or element considered rather than on the quantitative of the factor (, 1999).
It uses the Pareto principle which states that “by doing 20% of work you can generate 80% of the advantage of doing the entire job.” Pareto analysis is a formal technique for finding the changes that will give the biggest benefits. It is useful where many possible courses of action are competing for your attention (). Basically, it consists in estimating of a benefit delivered by each action with subsequent selection of a number of the most effective actions that deliver the total benefit reasonably close to the maximal possible one (). This may be used after an analytical exercise has been completed to uncover the possible sources of a particular problem, or after a brainstorming session to generate creative ideas to address an issue.
To use this analysis, first thing to do is to write a list of the changes that could possibly be made. If the list is long, group them into related changes. Then after having the list and grouping them, the items or groups are then scored. The scoring method will depend on the sorts of problem which are tried to be solved. For example, if you are trying to improve profitability, you would score options on the basis of the profit each group might generate. If you are trying to improve customer satisfaction, you might score on the basis of the number of complaints eliminated by each change.
The first change to tackle is the one that has the highest score. This one will give you the biggest benefit if you solve it.
The options with the lowest scores will probably not even be worth bothering with. Solving these problems may cost you more than the solutions are worth.
Example: How to use Pareto Analysis
After an analysis or ideas generating session, we have now a list of items to evaluate. If the list is a long one, try to get it down to a manageable size by putting to one side any factors you reasonably suspect are of lesser importance. But it is not advisable to discard them entirely because without proper measurement you will never know for certain how significant the factors are. So it is better to just put them to one side and return to them later if the selected alternatives don’t prove successful.
In this case, an analysis session was completed on the reasons why customers experienced undue delays in delivery of their goods from the time a picking slip is generated in the warehouse. This session yielded a laundry list of possible causes.
- picking errors
- missing stock
- sent to wrong address
- part-supply refused
- refused at delivery address/no receiving authority
- goods returned/exceeded use-by date
- goods returned/damaged
- goods returned/servicing or preparation not done
- goods mislaid by carrier
- delivery delayed by carrier
- goods returned/damaged in transit
To reduce the list to a manageable number of items, some less likely causes were put aside and others were aggregated to produce the following final list.
- goods returned/incorrect items
- goods returned/defective
- goods returned/wrong address
- goods not found in warehouse
For the remaining factors, decide on the best way to measure their relative significance and collect the data required. Plot the data on a histogram in descending order of importance.
Completing the histogram is particularly important if you are working with a team, or need to communicate the results of the data collection in a report or presentation. If you are working with a team, the histogram becomes the focal point for discussing the validity of the findings and how to pursue the issues involved.
A data collection program was then undertaken to find out how much time was being taken to correct these problems for the customer, and the results plotted in the histogram shown below.
The Pareto chart shows that the priority problem, the one causing greatest delays to customers, is incorrect goods being sent. Reducing the incidence of this problem will yield the greatest benefit to customers. After improvements have been made, another analysis can be made to determine if the problem has been reduced and confirm that “goods not found in the warehouse” is the next most important problem to address ().
When we faced with range of problems, we usually end up not knowing what to do and what to work first. Pareto Analysis is the most useful technique to be applied to resolve this dilemma. This rule says – “eighty percent of your troubles will come from 20 per cent of your problems”. In other words, problems will rarely have equal impact, so it is best to first concentrate on the most important.
This analysis does not provide scientifically accurate estimation of the weightings of the alternatives or the course of action but it still helps a lot even simply that this can be a reminder to look at the vital issue or the most important problem and to separate them from the list of many and concentrate on solving the vital problem first.
Pareto Analysis is a simple technique that helps you to identify the most important problem to solve. Moreover, this analysis does not only shows you the most important problem to solve, it also gives you a score showing how severe the problem is.
References:
Credit:ivythesis.typepad.com
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