A useful tool to aid business decisions
Unfortunately in life, whatever the choices facing us, it tends to be the case that hindsight is always 20:20 where-as our foresight is much more hazy and indistinct.
Making the right choice of which actions to take out of the (potentially very wide) range of options available is very often confusing, daunting and occasionally paralysing.
there is a way to deal with this and bring some clarity to our thoughts.
We have been using a thinking tool called a Decision Matrix with some of our clients who were uncertain about what decisions to make and steps to take.
Creating the Decision Matrix follows a logical process:
Conduct a Decision Matrix on any key issue you would like to focus on:
Step 1 – Establish what the Options are that require a decision to be made by you. Enter them across the top of the matrix as individual column headings.
Step 2 – Brainstorm as a group the Criteria/Factors that would influence the selection of the most suitable Option.
Step 3 – You can select as many selection Criteria/Factors as you like but we suggest no more than 10. In our experience 6 or so is common. List them down the left hand side of the DM as individual row headings.
Step 4 – Having chosen the selection Criteria/Factors, you now need to weigh them individually to jointly total 100. Which of these Criteria/Factors are most important? They will have a higher weighting. Remember, the total weighting of all Criteria/Factors must equal 100.
Step 5 – With the weighting in place you can now go ahead and score each of the potential Options against each Criteria/Factor. Remember that your score for each Option cannot exceed the weighting you have allocated to the selection Criteria/Factor.
Step 6 – It is recommended that your first Option is used as your benchmark for scoring the others and you fix it so that it is rated at 50% of the allocated weight. We strongly suggest you work across the table first and then down. This enables you to concentrate and focus on one important Criteria/Factor at a time and measure and weigh against all the Options. It’s a lot easier this way.
Step 7 – Total all the scores.
Step 8 – Discuss and agree based on the scores what is the best decision to be made.
Here’s an example of a Decision Matrix used to decide which candidate ranked the highest against the selection criteria for the role:
|Criteria / Factors||Weight||1 A||2 B||3 C|
You don’t have to adopt the highest scoring Option if the group agrees that this just isn’t right; but if you have identified the Criteria and weighted them correctly you have to ask yourself why you are choosing to do something different?
We have found this to be a useful tool to quickly capture individual ‘gut feel’ on each option available to it and present this in a way that allows rational judgement to be reached by the entire group.
If you would like further information about this please contact Stephen Gregson, Corporate Finance Director.