3. The Decision-making Process

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   In describing the Value Method many descriptors have been used. The descriptors have ranged from a highly positive "its magic" to those that are much less complimentary. The Value Method is neither. It is a highly refined decision and management tool that reliably produces high quality results. It results appear magical because, when you adhere to its job plan and its fundamental components, you are virtually guaranteed some form of success. When all or some of these steps are ignored, missed, or otherwise circumvented, even when this is done with the best of intentions, you get the kind of result that you should expect when a decision is made using poor data and/or procedures.

   Few of us are trained in decision theories and uses. We tend to think decisions occur naturally. However, just as all of us communicate, those who do it well are usually highly trained in it. Further, just as we expect a professional in communication, such as a TV announcer, to be highly trained in speech and other communication issues, so should the professional decision-maker. Since the Value Method is a refined decision-process, to understand how the Value Method generates its success, it is helpful to understand some basic principles behind decision-making.

   1. The Roadblocks to Good Decision-making. Decision-making is a complicated process. However, we tend to forget this since we do it many times every day. We decide to go to the store, what to eat, what to wear, and so much more. As a result, we become deceived about its complexity. Indeed, unless something happens to point its difficulty out to us, such as a class or becoming disabled, we hardly give it a thought.
      
      
      
      1. Learning Theory. Think of a child learning to walk for the first time. For the child, it is so hard! That is because walking on two feet is really a complex task. Yet, in just a few months, that same child will walk all over the place without an apparent thought. It has become "easy." Learning theory tells us that the average person must do something about 130 times before it becomes, "natural." Once it becomes natural, it is because we have generated a customized internal road-map of how it is to be done. The map is generated through our experiences: through our feelings, recognized space requirements, visual clues, etcetera.
         
         
      2. Decision Theory. We also have other limitations. They tend to cause us to take shortcuts. For example, most people can keep only four items at the front of their mind when making comparisons, Few can keep as many as seven in active consideration. Yet, even the most simple decision may have more than 100 parameters affecting its success. Therefore, we usually use our customized "natural" road-maps to allow us to make shortcut decisions and keep functioning.
         
         
      3. Social Theory. Each of us has individual needs, desires, and experiences. As we grow, we create a customized window by which we view the world. Steven Covey (of 7-habits fame) called this our paradigm. He defined this as our personal map to life. This personal window creates biases that influence how we think and behave. Without realizing it, when things don't fit, we tend to make them fit that personal window.
         
         
         Due to these influences, even when it is to our benefit, we usually find it hard to accept change. Not doing something is always easier, than it is to be proactive, exercise the initiative, and do something. Yet, change is the only constant of life. The rate of change is accelerating too. Twenty years ago the life of a typical product was as much as five or more years. Today, most typical products have a "shelf-life" of less than a year. Some products are effectively outdated before they can be marketed.
         
         
   2. Decision-making Pitfalls. There are many pitfalls to making good decisions. Everyone feels the pressure of time, resource, and other limitations. These features also coerce us to use shortcuts and are often the causes for mistakes. According to Russo and Schoemaker (1989), the ten most common mistakes are shown in the table below.
      
      

      Mistake	Key features
      Plunging In	Beginning to gather information and reaching conclusions without first taking time to think about the crux of the issue you are facing, or to think through how you believe decisions like this one should be made.
      Frame Blindness	Setting out to solve the wrong problem because you have created a mental framework for your decision, with little thought, that causes you to overlook the best options or lose sight of important decisions.
      Lack of Frame Control	Failing to consciously define the problem in more ways than one, or being unduly influenced by the frames of others.
      Overconfidence in Your Judgment	Failing to collect key factual information because you are too sure of your assumptions and opinions.
      Shortsighted Shortcuts	Relying inappropriately on "rules of thumb" such as implicitly trusting the most readily available information or anchoring too much on convenient facts.
      Shooting From the Hip	Believing you can keep straight in your head all the information you've discovered, and therefore "winging it" rather than following a systematic procedure when making the final choice.
      Group Failure	Assuming that with many smart people involved, good choices will follow automatically, therefore failing to manage the group decision-making process.
      Fooling Yourself About Feedback	Failing to interpret the evidence from past outcomes for what it really says, either because you are protecting your ego or because you are tricked by hindsight.
      Not Keeping Track	Assuming that experience will make its lessons available automatically, and therefore failing to keep systematic records to track the results of your decisions, and failing to analyze these results in ways that reveal their key lessons.
      Failure to Audit Your Decision Process	Failing to create an organized approach to understanding your own decision-making, so you remain constantly exposed to all the above mistakes.

      Ten most common decision-making mistakes (after Russo and Schoemaker, 1989).
      
      

   3. Decision-making Elements. Basic decision-making involves the four basic elements and basis ingredients or approaches shown in the table below.
      
      

      Element	Ingredients or Approaches
      Framing	1. Select the viewpoint for the problem and future scenarios. 2. Determine what to decide (e. g., what are the problems to be solved). 3. Establish acceptable outcomes (e. g., the criteria and limits
      Gathering Intelligence	1. Obtain known factual data, information, and requirements. 2. Estimate unknown but required information. 3. Search for "dis-confirming" information that invalidates view, data, assumptions, or expectations.
      Coming to Conclusions	1. Use approaches ranging from "seat of pants" to highly developed and systematic. 2. Evaluate and analyze information and assumptions. 3. Formulate and evaluate alternative solutions. 4. Decide and select the alternative(s) to be implemented.
      Learning from Feedback	1. Develop a process to monitor the outcomes. 2. Compare expected to the actual results. 3. Incorporate "lessons learned" into ongoing or future decisions.

      The four basic steps of decision-making (after M^cLean, 1996).
      
      

   4. Decision-making Processes. A reactive decision-making stance is opportunity-based. Most of us use this approach. We rarely go looking for the problem. If we did, we might be thought of as a troublemaker. Rather, usually, someone complains about a problem, and once notified, we go about solving it. This common reactive stance is represented on the left in the table below.
      
      

      The Value Method uses a value-based approach. It switches the first and second steps used in the typical approach. All considerations are made using the values involved. This includes the decision opportunity. It becomes a much more proactive step. You are looking to create decision opportunities that better meet the values: not just identify them. This shift greatly increases the likelihood that a high value result will be generated during the decision process.
      
      

      Decision-making Processes
      Typical Approach	Value-based Approach
      1. Identify a decision opportunity.	1. Specify the values involved.
      2. Specify the values involved.	2. Create a decision opportunity.
      3. Create the alternatives for the decision opportunity.	3. Create the alternatives for the decision opportunity.
      4. Evaluate them using the information derived.	4. Evaluate them using the information derived.
      5. Select the alternative that best suits the opportunity and the information derived from the decision-making approach.	5. Select the alternative that best suits the opportunity and the information derived from the Decision-making approach.

      Typical versus value-based decision-making processes, (after Keeney 1992, M^cLean 1996).
      
      

      1. Value Defined. The Value Method is a value-based approach. It uses the concept of value in almost every operation. Since it is such a key element, we need to understand it before considering more about how the Value Method works. However, how do you define "value"? A good start to understanding value is to examine Webster's© dictionary and thesaurus. They give these definitions for value:
         
         

         1.) A level of superiority that is usually high. Synonyms: quality, virtue, merit, worth, stature, caliber
         

         2.) A measure of those qualities that determine merit, desirability, usefulness, or importance. Synonyms: account, worth, valuation
         

         3.) That which is signified by a word or expression. Synonyms: sense, meaning, message, significance, import, intent, acceptation, purport. signification
         

         4.) To have a high opinion of. Synonyms: consider, regard, honor, admire, respect, esteem
         

         5.) To make a judgment as to the worth or value of. Synonyms: estimate, calculate, judge, evaluate, assess, rate, appraise, assay, gauge
         

         6.) To recognize the worth, quality, importance, etcetera. Synonyms: enjoy, appreciate, cherish, respect, savor, relish, esteem, prize, treasure
         

         Value is subject to interpretation. Each person, organization, and locality has a different set of values. The Value Method balances these interpretations through criteria weighting and prioritization. The customer, usually the product owner, defines the main value to be used. However, in most activities, many other groups are also involved. They are defined as: the owner(s) of the product, user(s) of the product, and stakeholder(s). Stakeholders are those that have a stake in the product or an interest in it due to its collateral affects on them. The customer can be one or all of these three categories.
         
         

      2. Value Equation. In the Value Method, value is defined by the equation:

         Value =

         Just as value consists of both monetary and non-monetary factors, so does the components of worth and cost. As a result, they may involve hard to quantify features. The Value Method uses weighting techniques that are not monetary to help in the value evaluation.
         
         

      3. Worth Defined. Worth is the virtue that makes the activity or product important to the customer, and the other involved parties that are important to the customer's product. Worth involves tangible components as well as intangible ones. The first and foremost worth of a product is the successful performance of the reason for doing the activity or buying the product (meeting the essential need). Other factors making up worth are the quality, esteem factors, conveniences, safety, and other benefits provided by the product.
         
         
      4. Cost Defined. Most people believe they understand the cost of a product. You usually pay a price in dollars and that is equated to being the cost. However, the full cost of a product is the total loss sustained in the accomplishment obtaining the product. It includes the life-cycle affects. These affects on cost include the: operation and maintenance, insurance, support, etcetera, as well as the outlay expense for the sacrifice of time, expertise, damages, level of expertise, and other factors. Life Cycle Cost (LCC) is used because it is the true cost of anything we obtain. If something costs $1,000 to buy, lasts ten years and never needs repair or service, it is less costly than something which costs $10 to buy lasts five years and costs $500 in repairs and service every year. This is true even when we take the "time value" of money into account. Again, some of these life-cycle costs are tangible and some are less tangible.
         
         
      5. Good Versus Poor Value. Using the value equation, when the value of the product (its worth versus cost) is greater than 1.0, it is considered to be a good value. If it is far better than 1.0, its value is considered to be excellent and these are the kind of things that we typically decide are acceptable for purchase. However, when the value is less than 1.0, it is a poor value and we usually avoid purchasing such products. Value that is near or equal to 1.0 is marginal in nature and should be subjected to improvement to ensure the customer gets their fair value for the product before they purchase it.
         
         Change has a value too. When we are making a choice about a change, the value equation can be used to determine the incremental value of making the change versus not making a change. The only difference is that the incremental worth and incremental costs involved for the change are used. The same rules of value apply. When the ratio is much greater than 1.0, the change should be made.

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