Basic Decision Analysis


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Introduction

This short segment wil provide you with a tool you can use to analyze decisions. There will be occasions where there are multiple options to choose from in approaching the situation; this tool can help find the best one.

How to Do It

Suppose that, for the situation you are dealing with, you have three possible actions that are useful. We'll call them actions A, B, and C. It might be possible to combine two of them in some way. Some such combinations might not work. How to choose?

Since we have three options here, make a table outline having 3 columns and 8 rows. Why 8 rows? The choice for each of the options is use it or not use it - a binary choice. It takes 23=8 rows to show them. In general, your matrix will need 2n rows where n is the number of choices.




















Next, label the columns A, B, and C for the three options.























In each row enter a combination of "+" and "-" to indicate the possible combinations. If you have some background in computers or math you should recognize a binary count from 0 to 7. Look carefully at this list - it really does contain all possible combinations.




















Suppose you analyze the possible combinations and that options A and C are mutually exclusive, which means that you can't do both. Doing one precludes the other. Mark out such mutually exclusive combinations as is done here. You now have 6 possible combinations remaining:

  • Do nothing (1)
  • Do A, B, or C (3)
  • Do AB or BC (2) (Note AC and ABC not possible here)
Now comes the analysis. You have to figure the costs, benefits, and possible outcomes of all 6. VERY IMPORTANT: The "do nothing" option has equal status with the other 5. It is a valid choice and must be analyzed like the others. Too many people think that doing nothing avoids making a decision. Nothing could be further from reality. When you elect the "do nothing" (null) option you are in fact deciding and making a choice. The null option can have costs and consequences just like the others. You are NOT avoiding making a decision by choosing the null option.

There is one exception to the above: there are times when analysis or circumstances indicate that a decision is not required at the moment. There may be a deadline later on but you needn't decide right now. The null option may have no bad consequences. The art of decision making includes recognizing when a decision can be delayed and for how long.

This method gives you a structure for analyzing possible options for a decision. It's very simple and can be done on paper with a pencil. The analyses you'll have to figure out.