Reading: Lesson 4 – Decision-Making Techniques for Entrepreneurs

Lesson 4 – Decision-Making Techniques for Entrepreneurs

Description:

Being able to make good decisions is an important skill for an entrepreneur. Good decisions don’t just come by luck. Entrepreneurs can use proven techniques to practice making smarter decisions.

In this lesson, students will read and discuss two articles about tips and tools entrepreneurs use to make decisions. Students will then use their decision-making skills to complete the “Your Business Priorities” activity.

 

Time:

45 min

 

Required Materials:

Internet access, writing instrument

 

Prerequisites:

None

3.4.A – Watch and discuss the following video using the questions below to guide your discussion [10 min]:

Video: (Comm Lab India, 4:47 min)

 

Discussion Questions: Tips to Improve the Decision Making Process

 

1.  What is decision making? What are the two main types of decisions and what are the differences?

a.      According to the video, decision-making is “a mental process wherein individuals evaluate the options available to them and choose the one that best suits their needs.”

b.      The two main types of decisions are programmed decisions and non-programmed decisions.

a.      Programmed decisions are generally standard decisions that need to be made on a regular basis and do not require much analysis.

b.      Non-Programed decisions are generally new or unique decisions that need to be made. Examples include moving into a new market or developing new business strategies.

 

2.  According to the video, what are the necessary steps necessary for decision-making?

a.      Decide on your main purpose or goal you are trying to achieve and make sure it is a clear goal.

b.      Gather all the pertinent information you will need in order to make an informed decision.

c.      Develop all the different options or alternatives available to you.

d.      Compare the alternative solutions and weigh their pros and cons of each option.

e.      Commit to a decision and follow through on that decision.

 

3.  According to the video, what are the benefits of good (rational) decision-making?

a.      Quick decision-making

b.      Better utilization of resources

c.      Ability to face new challenges or problems

d.      Achieve end objectives

e.      Facilitate innovation

f.       Motivation of employees (both financially and non-financially)

 

4.  What are some useful tips if you are unsure about a decision?

a.      Ask for advice.

b.      Ensure you have gathered all the pertinent information.

c.      List all options and their consequences.

d.      Be confident once you decide on an action.

e.      Collect feedback regarding your decision.

 

5.  What are some common pitfalls to avoid when making decisions?

a.      Entrepreneurs must make many new decisions when starting a business.

b.      Don’t let pressure get to you. This can lead to you making a rash decision in haste without putting forth the necessary time and thought.

c.      Decisions should be made based on a rational thought process and not on emotions.

 

3.4.B – Read and discuss the following article using the questions below to guide your discussion [20 min]:

Article: Decision-Making Techniques and Tools by Chad Brooks (Business News Daily)

“When running a business, making the right decisions can lead to success, while making the wrong ones can result in failure. With so much riding on each decision, it's important that thoughtful consideration is put into each one that needs to be made.”

Discussion Questions: Decision-Making Techniques and Tools

 

1.  According to this article, there are a wide variety of decision-making techniques and tools, but many tend to revolve around the same key principles. What are they?

a.      Figuring out which decision needs to be made.

b.      Considering and researching the options.

c.      Reviewing the decision once it's been made.

 

2.  According to the University of Massachusetts-Dartmouth, there are 7 steps that students are advised to take when making decisions. What are these steps?

a.      Identify and clearly define the nature of the decision that must be made.

b.      Gather relevant information (from within yourself as well as outside sources).

c.      Identify all possible and desirable alternatives.

d.      Weigh the evidence.

e.      Choose among alternatives.

f.       Implementation; Take positive action.

g.      Review decision and consequences (repeat steps if not “solved”).

 

3.  What are some of the tools you can use to help you make better decisions?

a.      Decision-Making Matrix: A chart where you list all of the options in one column and all of the relevant factors in the top row. You fill out the chart by assigning numbers reflecting the importance of each factor to each option. A final score is tallied to determine the best option.

b.      T-Chart: A chart where you weigh the pros and cons of an option. Similar to cost-benefit analysis.

c.      Decision Tree: A graph where you "map out" each choice and its likely results.

d.      Multivoting: Getting multiple people's input to gradually eliminate options before settling on one.

e.      Cost-Benefit: Considering the likely costs and income generated from choosing a particular option; only choosing those options where the income is greater than the costs.

 

4.  What are some of the common mistakes in decision-making? Can you think of any mistakes other than the ones mentioned in this article?

a.      Sometimes people rely too much on outside help or “experts.” These “experts” are humans who come with their own set of biases and prejudices. Keep perspective on advice.

b.      According to the article, failing to trust your gut instincts and/or reactions can lead to big mistakes. “Our society teaches us to ignore these feelings, but by tuning into your intuition, you will find that you will make much better decisions in the long run."

c.      Sometimes entrepreneurs do not want to admit they are wrong. Be open to changing your mind if the evidence leads you to a different conclusion than the one you were expecting.

d.      Never rush into a decision. Sometimes it’s helpful to “sleep on it” in order to give yourself time to process all the information.

e.      Procrastination can also be a problem, so don’t put the decision off. Take just enough time until you’re comfortable with your decision and then take action.

 

3.4.C— Complete the following activity and share your ideas with the group [20 min]:

Activity: Time to Decide!

In this activity, students will break up into groups of no more than 6 and will listen to various scenarios in which an entrepreneur must make decisions about her ice pop business. Students will then consider what things the entrepreneur should take into account when making her choice.

 

Directions:

Present the following background to the students. For each scenario, give the students 4 minutes to discuss the choice among themselves, then take a few minutes to discuss how the students arrived at (which) choices.

 

Background:

Ally just opened an ice pop stand and is making decisions about her business. Consider the following choices Ally needs to make and discuss with your group what you think the best choice is and be ready to explain why. Use decision-making techniques learned in this lesson and apply economic concepts you learned in Lesson 1-3 in Module 3 (e.g. scarcity, choice, tradeoffs, opportunity cost, and thinking at the margin).

 

Scenario 1:

Ally is considering offering ice cream sandwiches in addition to ice pops. She can produce 100 ice pops in one hour, or she can make 50 ice cream sandwiches in one hour.

1.  What should she consider when making her decision?

a.      Ally should consider the opportunity cost is for each alternative. Producers should choose to produce products with the lowest opportunity cost.

·        For ice pops: 50 ice cream sandwiches

·        For ice cream sandwiches: 100 ice pops

b.      Ally should consider if her customers are likely to prefer having a variety of goods to choose from, or if they would prefer one product over another. An entrepreneur needs to always think about how to create the most value for their customers.

c.      She may want to start with a small test of her market.

d.      She should consider the expected costs and revenues for the ice cream sandwiches and the ice pops to see which is more profitable.

Scenario 2:

Ally wants to spread awareness of her new ice pop stand and has been thinking of ways to promote it, but she has to choose between working on advertising and making the ice pops; she cannot do both at the same time.

2.  What things should Ally consider when deciding how to use her time?

a.      The scarcity of time and the tradeoff (measured in value created) she would make between advertising and producing ice pops. Because time is scarce, it is important that an entrepreneur uses their time in ways that create the most value for their business.

b.      Ally should consider which activity brings more value to her business, producing pops or advertising? She will have to compare the money she makes selling pops to the expected money made from increasing her customers due to advertising.

c.      If producing pops makes more money, then she should focus on that and leave the advertising to someone else.

d.      She may want to consider using some of her time to advertise her product and some of her time making the ice pops. She does not have to choose all or nothing. She should use thinking at the margin to find the right balance of production and advertising.

 

Scenario 3:

Ally’s ice pop business has been an astounding success, but the summer is coming to a close and the weather is beginning to cool down. Ally is confident that her customers will keep buying her ice pops, but she notices more and more people walking around with cups of hot coffee.

3.  What should Ally consider when deciding what products to serve?

a.      In order to make a profit, a business owner needs to create value for his or her customers. This means entrepreneurs need to constantly seek out information about what their customers would find valuable.

b.      Entrepreneurs need to be able to adapt to changing circumstances, whether it’s a new product or technology, a change in tastes, or even changing seasons!

Lesson Recap

·        The key principles of good decision-making techniques are figuring out what decision needs to be made, considering and researching options, and reviewing the decision once it's been made.

 

·        Never rush into a decision.  Sometimes it’s helpful to “sleep on it” in order to give yourself time to process all the information.

 

·        Procrastination can also be a problem, so don’t put the decision off. Take just enough time until you’re comfortable with your decision and then take action.

 

·        Entrepreneurs can use proven strategies and economic thinking to help make better decisions. 

Additional Resources

Video: 4 Ways Economists Think We’re All Wrong (Learn Liberty, 1:20 min)

“How much does the average person know about economics? How about trade and immigration? Economists claim to know a great deal about these topics, and study them in depth. And while they often disagree with each other, most economists agree a lot more with each other than they do with the public. So why do democratic citizens tend to reject what economists say? Are there certain biases that make democracies choose bad economic policies?”

 

Article: 57 Cognitive Biases That Screw Up How We Think (businessinsider.com)

“Understanding these biases is key to suppressing them — and needless to say, it is good to try to be rational in most cases. How else can you have any sort of control over investments, purchases, and all other decisions that you make in your life?”

 

Article: Richard Branson on Decision-Making For Entrepreneurs (entrepreneur.com)

“Most good chief executives or entrepreneurs only make three or four key decisions every year. Running your business's day-to-day operations and managing your team can take much of your time, so there are usually only a few that stand out -- the game-changing decisions that can make or sometimes break a business.”

 

Article: Decision Making Checklist for Entrepreneurs by Tito Philips (naijapreneur.com)

“An entrepreneur’s decisions affect the success of his products, the loyalty of his employees and the overall success of his business.”