How to Make Better Decisions
Analysis Models to Help you Make Better Decisions – Contents
- The Eisenhower Method
- The SWOT Analysis
- The BCG Matrix
- The GE-McKinsey Matrix
- The MECE Framework
- Portfolio Analysis
- Morphological Analysis
The Eisenhower Method
The Eisenhower Decision Matrix requires that tasks or decisions be evaluated by using two criteria:
- Important versus Unimportant, and
- Urgent versus Not Urgent.
Then placing the actions or decisions in according quadrants in an Eisenhower Matrix (also known as an “Eisenhower Box” or “Eisenhower Method”). Tasks are then prioritizing actions and decisions as follows:
- Important and Urgent quadrant are done immediately. Examples include crises and critical deadlines.
- Important and Not Urgent quadrant and scheduled in a time management system like a calendar item with an end date. Examples include relationships and strategic planning.
- Unimportant and Urgent quadrant are delegated, automated, canceled, or outsourced. Examples include phone and email interruptions, or upcoming meetings or activities.
- Unimportant and Not Urgent quadrant are dropped and eliminated. Examples include time wasters, poor habits, or trivia.
The “Eisenhower Method” is named from a quote attributed to Dwight D. Eisenhower: “I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent.” This decision-making method has antecedence that precedes Eisenhower, however without a popular title; it was given Eisenhower’s name.
How to Make Better Decisions with Eisenhower’s Principle
List all of your tasks and activities, and put each into one of the following categories:
- Important and Urgent.
- Important but Not Urgent.
- Not Important but Urgent.
- Not Important and Not Urgent.
Then schedule tasks and activities based on their importance and urgency. If you do not complete your list, at least you have prioritized. Prioritization is always a good first step.
The SWOT Analysis
SWOT analysis is a planning technique used to help a person or organization identify Strengths, Weaknesses, Opportunities, and Threats (SWOT) related to business or scenario planning.
To use a SWOT analysis, you need to ask and answer questions to generate meaningful information for each category to make the tool useful and identify their competitive advantage.
Strengths and Weaknesses are frequently internally-related. While Opportunities and Threats commonly focus on the external environment. The four parameters that this technique examines are:
- Strengths: Strengths are characteristics of the business or scenario that provide an advantage over the alternatives.
- Weaknesses: Weaknesses are characteristics of the business or scenario at a disadvantage to the alternatives.
- Opportunities: Opportunities are elements in the environment that the business or scenario can exploit to its advantage.
- Threats: Threat elements in the environment that could cause challenges for the business or scenario.
A SWOT analysis is essential because it can inform the next steps in planning how to achieve your objectives. You should consider whether the target is attainable, given the SWOT. If the goal is not achievable, then you need to select a different objective and repeat the process.
Questions that can help inspire a SWOT Analysis for Business
Here are a few questions that you can ask your team to develop your SWOT analysis.
Strengths are positive attributes that are within your control.
- What is our core strength?
- What tangible assets do we have, ie, location, technology, etc.?
- What intangible assets do we have, ie, network, brand, etc.?
- What is our competitive differentiation?
Weaknesses are negative factors that you might need to improve.
- What is the weakest link in our processes?
- What assets do we need more of, ie, cash, etc.?
- Is our Website easy to use?
- What receives the lowest score in our Customer Surveys?
Opportunities are external factors that may contribute to your success.
- Is the market growing?
- Are there upcoming events that will help us to grow?
- Are there upcoming political, legal, or regulations trends that we can take advantage of?
- Is the economy growing?
Threats are external factors that will challenge the business.
- Are there new competitors entering the market?
- Are there any threats to our supply chain?
- Are there any disruptive technologies on the horizon?
- What new technologies may impact our business model?
A Personal SWOT Analysis
A similar approach can be taken to develop a personal SWOT, where the questions are about your unique individual circumstances and your unique environment. See the video below for more examples.
The BCG Matrix
The BCG-Matrix is an analysis used to help analyze business units or product portfolios. It helps to make decisions about the allocation of resources and is used as an analytical tool for marketing, development, management, and portfolio investment analysis.
To use the matrix, plot a scatter graph to rank the businesses or products based on their relative market shares and growth rates. The result is a matrix of four quadrants that can be labeled as follows:
- Cash Cows: The CashCow quadrant is for High Market Share in a Low-Growing sector. These units typically generate cash above the amount of cash needed to maintain the business. This category is general “milked” with as little investment as possible, on the assumption that any investment would be wasted in an industry with low growth.
- Dogs: The Dog quadrant is for units with Low Market Share in a Low-Growing industry. These units typically break-even, generating barely enough cash to maintain the business’s market share. These areas depress a profitable company’s overall return. However, there may be other reasons why these areas are maintained. Reasons such as social benefits, jobs, or synergies that assist other business units.
- Question Marks: Question marks are units that attract a Low Market Share in a High-Growth Market. These units have the potential to gain market share and become stars, and eventually, cash cows when market growth slows. This category must be analyzed carefully to determine whether the unit is worth the investment required to grow market share.
- Stars: Stars are units with a High Market Share in High-Growing Segments. These units require high funding to fight competitors and maintain their growth rates. When industry growth slows, if they remain, market leader, they can become Stars and then Cash Cows. Otherwise, if they lose market leadership, they become Dogs.
The following names also know the BCG Matrix:
- the Boston Consulting Group analysis,
- the Growth-Share matrix
- the Product Portfolio Matrix,
- the Boston Box,
- the BCG-matrix,
- Boston matrix.
Boston Consulting Group made this tool famous in 1970 to help corporations to analyze their business units and product lines.
The GE McKinsey Matrix
The GE-McKinsey Matrix also called the GE multifactoral analysis technique. It is used in marketing and product management to help decide what products to add to a portfolio and the opportunities to invest.
The GE-McKinsey Matrix is similar to the BCG model, but with a different analysis perspective. It comprises of nine industry attractiveness measures and internal business strength measures. The matrix is constructed in a 3×3 grid with Market Attractiveness plotted on the vertical axis and Unit Strength on the horizontal axis. Both axes are measured on a high, medium, or low score.
Industry or Market Attractiveness
The attractiveness of a market ranks how beneficial it is to enter and compete within this market. Factors to be considered include:
- the size of the market,
- the rate of growth,
- the opportunity for profit,
- the availability of skills,
- the industry structure,
- the product life cycle changes,
- the number of competitors and their weaknesses.
Business or Competitive Strength
The following factors can determine the ability to compete in a market:
- the size and type of assets available
- the market share in the market and the opportunity to grow share,
- the brand position and the loyalty of customers to this brand,
- the skills, and creativity to innovate and develop new and improved products and services,
- the agility to deal with volatile conditions,
- the profitability of the organization to make the necessary investments,
- the opportunity for product differentiation,
- the organization’s ability for learning and flexibility,
- sustainability subject to environmental, legal, and government regulation.
Measuring Attractiveness, Strength, and Plotting
The units in the matrix can be represented as a circle. The radius exhibits the size of the market. The unit’s market share can be drawn as a pie chart within the circle. Arrows outside the circle can demonstrate expectations of how the unit will move in the future.
Grow, Hold or Harvest
Units that are classified into the GROW category should attract investment as they are expected to yield high returns in the future. These investments can include increases in research and development, acquisitions, marketing, and expanding capacity.
Units that are classified into the HOLD category should attract investment if there are competencies in managerial and corporate capabilities and if companies have any money left after investments in GROW units.
Units that are classified into the HARVEST category are performing poorly in unattractive markets. Only invest if the unit generates enough cash to equal the investment amount. Otherwise, they may be divested.
McKinsey developed the GE multifactorial for General Electric in the 1970s.
Other Decision-Making Tools
- Core Competencies
- SWOT Analysis
- PEST Analysis
- PESTEL Analysis
- Porter’s Five Forces Analysis
- GE McKinsey Matrix
- GROW Model
- Negotiation Models
- The Flow Model
- The Johari Window
- Maslow’s Hierarchy of Needs
Other Decision-Making Tools to be added in future installments include:
- MECE Framework
- Portfolio Analysis
- Morphological Analysis
Are there any other models you would like to see included?
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How to Make Better Decisions – Videos
How to make Better Decisions – Dr. Joe Arvai
How to Carry Out a Personal SWOT Analysis
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