The Five Steps to Making Wise Decisions

The secret to good decision making is to have and follow a plan. A decision making situation may seem overwhelming and confusing with issues, choices, alternatives and risks all thrown together. By using this five step decision-making procedure you can break the decision into steps, follow the steps and arrive at a wise decision.

1. Be clear about what to decide

It is critical to know what is the ultimate problem to be solved by the decision. This is the important first step; take plenty of time to think things through carefully. Step back and take the long view. Will this decision take me further toward my goals? Will this decision be in line with my beliefs and values? Is there a larger issue that needs to be decided first? The Decision Tree is a tool that is useful in visualizing a series of decisions.

Here’s an example: Joe initially thought his decision was whether to buy the old fixer-upper house on Cherry Street or the new townhouse on Main. In stepping back he saw that a decision first needed to be made as to whether to rent or to buy. In stepping back further he saw that a decision needed to be made as to whether he wanted to live in that town. In stepping back still further Joe realized that the most important thing he needed to decide and what he needed to know before making any other decisions was whether or not he would remain in his present job or make a career change. That was the ultimate decision to be made before considering any downstream decisions.

2. Gather facts and set criteria

Determine what you need to know about the problem to be solved/decision to be made and what a successful decision would look like.

First, decide what information about the problem that you will need in order to come up with and develop options to choose from. Know the time frame in which the decision needs to be made and exactly what information is needed to make the decision.

For example, if Joe’s decision is whether to continue with his present career as a teacher, become a stockbroker or go to law school, he would want to research such things as income projections, working conditions, advancement opportunities, supply and demand and quality of life. He would also need to decide when to make the decision. If he waited until fall to decide to attend law school he would most likely have to wait until the following fall to begin his studies.

Second, set out your criteria for a successful decision. Be clear about what minimum standards the choice you will make must meet. This will eliminate the clearly unworkable choices from consideration before you begin evaluating choices. For example, if one of Joe’s criteria was to make at least $100,000 per year, the teaching option would fail. If, however, one of Joe’s criteria were income stability the stockbroker option would fail. The Criteria Filter is a useful tool for filtering out unacceptable options and, in addition, helping you clarify ideal factors.

3. Develop options

The more options you have to choose from the better your decision will be. Good photographers take many photographs, then pick only the best. It's the same with decision making; the more options you have to choose from, the better your decision will be.

This is a step where you should spend plenty of time to uncover all possible choices. Start by listing all the options you can think of that meet your criteria. Then combine parts and pieces of different options to come up with more options. Investigate these options and other options may appear. Brainstorm. Think of a really crazy way to solve the problem. Imagine you were someone else, an expert, what would you do? Ask other people for their ideas. Imagine a solution and think backwards to how you came up with it. Think outside of the box, often an option is right in front of us and we don’t see it. Use your intuition.

4. Evaluate options and assess risk

Evaluate Options: This step requires plenty of organization. Don’t try to do it in your head, you need to use some simple pen and paper tools to help you see and analyze the options. Here are the most effective and easiest to use decision making tools:

The Ben Franklin Ledger is the simplest and one of the most effective tools when used as Ben recommended. Divide a piece of paper in half and write “pro” on one side and “con” on the other. Next, over a period of several days list all of the pro and con points you can think of. Then, and this is the important part, estimate the weight of each item on a 1 to 10 scale. Look at the list and wherever you have a pro and a con of roughly equal weight, strike them both out. When you have finished the strikeouts what is left should guide you toward a decision.

The Modified Ben Franklin Ledger allows you to compare the pros and cons of two separate options.

The Measured Criteria Table is another simple tool that will help you compare a number of options. On a sheet of paper list down the left side the criteria factors that are important in making the decision. Then at the top across the paper list the options. In Joe’s case he might have listed down the left side as criteria factors: income, stability, number of jobs, stress level, enjoyment, etc. Across the top list the professions of teacher, stockbroker and attorney. Joe would then score each profession on each criteria on a 1-10 or 1-100 scale. By adding up the scores, he could get an idea of which profession best suited his criteria.

In a Weighted Criteria Table Joe could weight the specific criterion as to how important it is to him compared to the other criteria. He might rate enjoyment as an 8 on a 10-point scale and stress level as a 4. Joe could then multiply each profession’s score for each criteria by its weight to obtain a weighted score. The benefit of the criteria table is that the numerical scores are helpful in comparing each option.

Assess Risk: Assessing risk is part of making a decision. Think about and identify the risks of each option. Decide whether the risk is necessary and take the risk only for clearly thought out reasons. Carefully evaluate what the consequences of failure will be and try to make an accurate estimate of the probability that the option will fail. Use this risk factor in evaluating the options.

The basic strategy for assessing risks is the Expected Value Calculation. In the basic risk evaluation formula, EV=PR, the expected value (EV) equals the prize (P) times the risk (R). This is usually used in evaluating investment opportunities and isn't directly applicable to most major life, career, etc. decisions. However, the concept is useful in understanding risk:

• What is the Prize - what do you hope to gain. Be clear
• What is the Risk - Don't be overly optimistic or pessimistic
• What is the Expected Value? Be realistic

In Joe’s case, for example, there is a risk that the stock market could take a severe downturn or that he would not be accepted into law school.

5. Make the decision and follow through.

You've done your homework, now is the time to commit. You probably don’t have as much information or time as you would like and that’s typical. Just make the decision and commit to implementing it. Commitment is vital and is an area related to Outcome where you do have control. And:

• Decide how to measure whether the decision was successful
• Realize that the decision and the outcome are separate and distinct
• Remember, you can make a new decision