What are the 7 decision making tools?

The decision means selecting a future course of action today. For an effective decision, a manager uses various techniques and tools for decision-making.

He may use different qualitative and quantitive tools. Qualitative tools use through the interpretation of problems and generating ideas whereas quantitive tools are the use of mathematical and other scientific means of solution. The important quantitative tools for decision making are,

7 Important Tools For Decision Making

• Linear Programming
• Simulation
• Payoff Matrix
• Decision Tree
• Queuing Model
• Game Theory
• Accounting Tools

Let’s get to know,

Tool #1 Linear Programming

Linear programming is a mathematical tool for decision-making. This tool is used for an optimum combination of scarce resources and activities to achieve the desired objectives. In other words, it is used to allocate scarce resources effectively to get optimum output from it.

Under this tool, mathematical equations are employed to describe the system in the form of linear relations between variables. It is appropriate when an objective must be met within the set of constraints. It is extremely useful for maximizing profit and minimizing cost.

Combining the resources helps to determine the future values of certain variables affecting their outcome.

The linear programming model is useful in varieties of situations where numerous activities have to complete within the limited resources. Thus a manager must find an optimum way to allocate the limited resources to achieve an objective within the constraints.

Tool #2 Simulation

Simulation represents a model to solve real-life problems.

Under this technique of decision-making, related variables and their inter-relationships are put into a system to find out the outcome. Basically, a computer program is used to find out the set of output with the combination of different variables. Until an optimum output is obtained the regular changes are made in the combination of different variables.

In simple words, here different variables are combined and processed through the computer programs to find out the optimum output from them.

The simulation tool is more useful in a complex situation characterized by various constraints and opportunities. It is a descriptive rather than perspective technique. It helps to analyze more information speedily. Thus, this technique is used for decision-making in large organizations that requires more resources.

Tool #3 Payoff Matrix

A payoff matrix is a mathematical tool for decision-making. Here the alternatives are evaluated calculating their expected value. An alternative having the highest expected outcome is selected.

It provides a method of computing outcomes of various available alternatives to the manager. In the payoff matrix, the probability of various alternatives and their expected values are taken into consideration. The probability ranges from zero (0) to one (1).

Most of the probabilities managers are used based on subjective judgment, intuition, and historical data. And, while the outcome is calculated from the calculation, the expected value of an alternative course of action is multiplied by the respective probability. And, finally, the decision-maker weighs the expected value of all available alternatives, and the highest expected value alternative is being selected.

Tool #4 Decision Tree

A decision tree is a graphical tool for decision-making. Here a manager uses graphics to study alternative solutions available.

The decision tree is like a payoff matrix because alternatives are evaluated by calculating their expected value, just like doing in the payoff matrix. But here is the use of financial tools to calculate the net expected value (NEV) of available alternatives and the highest expected value alternative is selected.

However, it is most appropriate when numbers of decisions are to be made in sequence. It enables the manager to consider an alternative solution, assign financial value to them, estimate the probability of a given outcome for each alternative, make comparisons and choose the best alternatives.

Steps to solving problems in the decision tree;

• Identify the problem by developing a decision tree diagram.
• Developing the course of action which is represented by a separate branch of the decision tree.
• Assign a probability of the outcome of each course of action.
• Determine the financial outcome of each outcome.
• Calculate the net expected value of each outcome.

After calculating the net expected value the alternative with the highest net expected value is selected.

Tool #5 Queuing Model

Queuing model is used to analyze the cost of the waiting line. This method is used to optimize the waiting lines in the organization so that better services can be provided to the customers.

Queuing problem arises when the demand of customers can not be matched perfectly by a set of organization service facilities. Thus manager has to develop the service facility in a way the customers get service when they want.

The main objective of queuing model is to achieve an optimal balance between the cost of increasing service and the amount of time during which individuals, machines, or materials wait for service. When the customers are forced to wait for a long time due to a shortage of services, they may get bored and frustrated, and the organization may lose the customers.

Queuing model is appropriate in service sector like banks, public transport, gas and petrol pump, hospitals, airports, cinema halls, department stores, etc.

Tool #6 Game Theory

Game theory is applied in the competitive environment. It was originally developed to predict the effects of one company’s decision over competitors.

This theory intends to predict how a competitor will react to various activities that an organization undertakes such as a change in price, promotion, the introduction of a new product, etc. The objective of every competitor in business is to choose a particular strategy or course of action to frustrate the others to win the game.

The primary objective of game theory is to develop a rational procedure for selecting a strategy. In businesses, it is applied in a competitive situation where it is more difficult to assess the competitor’s response. It develops a framework for analyzing decision-making and describes various phenomena in a conflicting situation. It is a highly sophisticated and systematic model that enables a selection of rational strategies for attaining goals.

Tool #7 Accounting Tools

In the financial decision process, accounting tools play important roles. In accounting tools of decision making, a manager need to collect, analyze, and interpret financial information and data. It is essentials to evaluate the financial strengths and weaknesses of the organization before taking a decision. These financial and accounting tools consist of beak even analysis, ratio analysis, standard costing, funds flow, cash flow analysis, and budgeting, etc.

The decision making process is a method of gathering information, assessing alternatives, and making a final choice with the goal of making the best decision possible. In this article, we detail the step-by-step process on how to make a good decision and explain different decision making methodologies.

We make decisions every day. Take the bus to work or call a car? Chocolate or vanilla ice cream? Whole milk or two percent?

There's an entire process that goes into making those tiny decisions, and while these are simple, easy choices, how do we end up making more challenging decisions? 

At work, decisions aren't as simple as choosing what kind of milk you want in your latte in the morning. That’s why understanding the decision making process is so important. 

What is the decision making process?

The decision making process is the method of gathering information, assessing alternatives, and, ultimately, making a final choice. 

The following seven step process is intended for challenging decisions that involve multiple stakeholders, but this process can be used for something as simple as what cereal to pour into your breakfast bowl in the morning. 

The 7 steps of the decision making process

Step 1: Identify the decision that needs to be made

When you're identifying the decision, ask yourself a few questions: 

• What is the problem that needs to be solved?

• What is the goal you plan to achieve by implementing this decision?

• How will you measure success?

These questions are all common goal setting techniques that will ultimately help you come up with possible solutions. When the problem is clearly defined, you then have more information to come up with the best decision to solve the problem.

Step 2: Gather relevant information

​Gathering information related to the decision being made is an important step to making an informed decision. Does your team have any historical data as it relates to this issue? Has anybody attempted to solve this problem before?

It's also important to look for information outside of your team or company. Effective decision making requires information from many different sources. Find external resources, whether it’s doing market research, working with a consultant, or talking with colleagues at a different company who have relevant experience. Gathering information helps your team identify different solutions to your problem.

Step 3: Identify alternative solutions

This step requires you to look for many different solutions for the problem at hand. Finding more than one possible alternative is important when it comes to business decision-making, because different stakeholders may have different needs depending on their role. For example, if a company is looking for a work management tool, the design team may have different needs than a development team. Choosing only one solution right off the bat might not be the right course of action. 

Step 4: Weigh the evidence

This is when you take all of the different solutions you’ve come up with and analyze how they would address your initial problem. Your team begins identifying the pros and cons of each option, and eliminating alternatives from those choices.

There are a few common ways your team can analyze and weigh the evidence of options:

• Pros and cons list

• SWOT analysis

• Decision matrix

Step 5: Choose among the alternatives

The next step is to make your final decision. Consider all of the information you've collected and how this decision may affect each stakeholder. 

Sometimes the right decision is not one of the alternatives, but a blend of a few different alternatives. Effective decision-making involves creative problem solving and thinking out of the box, so don't limit you or your teams to clear-cut options.

One of the key values at Asana is to reject false tradeoffs. Choosing just one decision can mean losing benefits in others. If you can, try and find options that go beyond just the alternatives presented.

Step 6: Take action

Once the final decision maker gives the green light, it's time to put the solution into action. Take the time to create an implementation plan so that your team is on the same page for next steps. Then it’s time to put your plan into action and monitor progress to determine whether or not this decision was a good one. 

Step 7: Review your decision and its impact (both good and bad)

Once you’ve made a decision, you can monitor the success metrics you outlined in step 1. This is how you determine whether or not this solution meets your team's criteria of success.

Here are a few questions to consider when reviewing your decision:

• Did it solve the problem your team identified in step 1? 

• Did this decision impact your team in a positive or negative way?

• Which stakeholders benefited from this decision? Which stakeholders were impacted negatively?

If this solution was not the best alternative, your team might benefit from using an iterative form of project management. This enables your team to quickly adapt to changes, and make the best decisions with the resources they have. 

Types of decision making models

While most decision making models revolve around the same seven steps, here are a few different methodologies to help you make a good decision.

​Rational decision making models

This type of decision making model is the most common type that you'll see. It's logical and sequential. The seven steps listed above are an example of the rational decision making model. 

When your decision has a big impact on your team and you need to maximize outcomes, this is the type of decision making process you should use. It requires you to consider a wide range of viewpoints with little bias so you can make the best decision possible. 

Intuitive decision making models

This type of decision making model is dictated not by information or data, but by gut instincts. This form of decision making requires previous experience and pattern recognition to form strong instincts.

This type of decision making is often made by decision makers who have a lot of experience with similar kinds of problems. They have already had proven success with the solution they're looking to implement. 

Creative decision making model

The creative decision making model involves collecting information and insights about a problem and coming up with potential ideas for a solution, similar to the rational decision making model. 

The difference here is that instead of identifying the pros and cons of each alternative, the decision maker enters a period in which they try not to actively think about the solution at all. The goal is to have their subconscious take over and lead them to the right decision, similar to the intuitive decision making model. 

This situation is best used in an iterative process so that teams can test their solutions and adapt as things change.

Track key decisions with a work management tool

Tracking key decisions can be challenging when not documented correctly. Learn more about how a work management tool like Asana can help your team track key decisions, collaborate with teammates, and stay on top of progress all in one place.