Decision Making Models: Definition, Development & Types

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  • 0:04 When Do We Have to…
  • 0:45 How Do We Make Decisions?
  • 1:25 Examples of Rational Models
  • 2:48 Intuitive Decisions
  • 3:11 Developing Your Model
  • 3:36 Lesson Summary
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Lesson Transcript
Instructor: Lisa Christoffel
In this lesson, you'll gain an understanding of when decisions need to be made and discover how to use different decision-making models and types. Both rational and intuitive decision-making models are discussed.

When Do We Have to Make Decisions?

How many times have you wished for more than 24 hours in a day? Those 24 hours are what is known as a constraint, or a limitation. Specifically, it's a time constraint. No matter how much you might want more time, you can't get more than 24 hours in a single day. Scarcity, which is a type of constraint in which something you need is in short supply, forces you to figure out what your options really are and what decision will give you the best outcome.

Using a time constraint as our example, let's say you have 20 hours of work to do by Friday afternoon and it's now Thursday night. You will employ some sort of decision-making process, formal or informal, to figure out how to do your work in the scarcity of hours in the given time frame.

How Do We Make Decisions?

Some of the decisions we make, like what to eat for lunch, are simple. For our time-crunch problem, well, you'll need to use some kind of process to decide what to do and how to get 20 hours of work done with only 10 hours of time available.

Rational decision-making models tend to be based heavily on analysis. Pareto charts, decision trees, and critical path analysis are only a few examples of such models. They all use step-by-step processes to determine viable alternatives. Then, participants evaluate the alternatives based on the advantages and disadvantages of each option, with the goal in mind to determine the best decision.

Examples of Rational Models

Business and project teams normally use these models to make the optimal decision. A Pareto chart uses the 80/20 rule. This method assumes that 20% of your efforts will produce 80% of the benefit. Will all the tasks associated with the 20 hours of effort create an equally beneficial outcome, or can you choose certain activities and get most of your benefit? By using the Pareto rule, you can prioritize the tasks into those that will make the most impact to those that will make the least. Generally, the top 20% of your ideas will give you 80% of the benefits you're looking for.

A decision tree is built from decisions, uncertainties, and payoffs. You use software to build the tree with its various decision options and outcomes, and it tells you the optimal decision based on your inputs. For our example of 20 hours of tasks, you'd list them and their payoffs and the tree would tell you the optimal tasks to do that will generate the best outcome.

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