Quantifying Tradeoffs

Have you ever considered the process that goes into making a decision? A traditional business decision process might look something like the following:

1. Identify a business problem.

2. Collect solution alternatives and information about the pros and cons of each option.

3. Have meeting(s) to hash out which solution you should choose.

4. Execute on the chosen solution.

This process should feel pretty familiar since it includes the basic elements needed for any decision. Consider picking what to eat for dinner:

1. We need to eat something for dinner.

2. What alternatives do we have? Do we have the ingredients or ability to eat out? How healthy / expensive / tasty / time consuming is each option?

3. Discuss viable alternatives and select one.

4. Go eat that.

But is this the only way to make a decision? If you come from a background in Operations Research, your answer will be a resounding "No!" Instead of listing the pros and cons and qualitatively trying to find the best solution, you could quantify the outcomes and select the best solution according to your quantification. When you follow this approach, your decision process looks a little bit different:

1. Identify a problem

2. Clearly state the decisions and develop a model from each feasible decision to outcome variables.

3. Evaluate the outcome variables for each decision and quantify tradeoffs between the outcome variables.

4. Execute the solution with the best outcome as defined through the prior steps.

Historically, Operations Research has focused on problems for which it is straightforward to create a complete model from decision to outcome. However, the basic framework of quantifying tradeoffs, and therefore the outcomes associated with different solutions, is much more generally applicable. With the intuition from this approach, here are some key insights you can start using today:

• The clearest business problems are defined in terms of outcome variables.

• Do your best to consider all feasible decisions / solution options.

  • This also implies that if you miss some possible solutions the best case scenario is you left out something that you wouldn't have ultimately chosen anyway. If you unfortunately missed a solution that would have been the best, your final solution will be worse for it.

• Different priorities can be quantified in the same units to be compared.

• Just because the math says a certain solution is the best does not mean it is - it just means that with the way something has been quantified, the given solution has the highest quantification.

  • For example, winning the electoral college in a US presidential election does not mean you got the most votes. But it does mean you will be the next president.

Quantifying tradeoffs is certainly not the only way to solve a problem. But it is one of the best ways to ensure everyone in the room is working on the same problem and with the same priorities.