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  • Zachary Collier

How Do You Know Whether You Made a Good Decision?


We all make decisions every day. Most of these decisions are small – what to eat for breakfast, what color shirt to wear to work, etc. The resulting consequences (positive or negative) are usually so small that we don’t give decisions like these much thought one way or the other.


But sometimes, especially in business, there are big decisions that we have to make.

-Should we pursue Strategy X or Strategy Y to help grow our business?

-Out of these ten possible projects, which three should we fund?

-What course of action will give the department the best return on investment?


Decisions like these are difficult because they involve uncertainty about the future. If we could see into the future, decision making would be trivial. We would know what projects would be successful, and what business strategies would be the most effective. But of course we can’t peer into the future, so the next best thing is to be able to make good decisions.


This leads us to the natural question – what makes a decision “good”? One might be tempted to think that, as a result of a decision, if things end up going well, then the decision you made was a good one. Similarly, if things have gone terribly, then your decision was bad. In reality, we have to make a distinction between a good decision and a good outcome.


So what is the difference?


“A good decision is a logical decision -- one based on the uncertainties, values, and preferences of the decision maker. A good outcome is one that is profitable or otherwise highly valued. In short, a good outcome is one that we wish would happen.”(1)


For example, after selecting a project for investment out of ten potential projects, if the project ends up being wildly successful and making the company large profits, this would be a good outcome. However, if that project was selected by picking it out of a hat at random, this would be a bad decision. A good decision in this case would have been to carefully evaluate each of the ten project proposals, weighing the pros and cons of each one using a formal and structured process. Bad decisions can sometimes lead to good outcomes, and good decisions can sometimes lead to bad outcomes, due to the probabilistic nature of the world around us (i.e., luck). However, more often than not, the best way to reach a good outcome is to make a good decision.


The lesson here is that good decisions arise from following a proper, logical decision making process. When facing a big decision, there is immense value in working with an expert who can guide you through a structured process of generating alternatives, identifying your values, thinking about uncertainties and trade-offs, and comparing various courses of action.


When it comes to making smart business decisions, Collier Research Systems (www.collierresearchsystems.com) partners with companies and organizations to achieve lasting success through clear decision making and effective strategic planning. Leveraging state of the art methods and capabilities, the professional services offered by Collier Research Systems are aimed at supporting decision making in complex and turbulent environments.


References:

(1) Howard, R.A. 2007. “The foundations of decision analysis revisited.” In: Advances in Decision Analysis: From Foundations to Applications. Edwards, W., Miles, R.F., and Von Winterfeldt, D., (eds.). Cambridge University Press: Boston, pp. 32-56.