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Making decisions based on models



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No, not the kind of models you’d find in a Victoria’s Secret catalogue…

 

What are decision making models?

Again, not talking about Heidi Klum deciding whether to eat a carrot or water for lunch, but theories, practices and examples created by economists, philosophers and sociologists for example.

 

One of these models is based on the Pareto principle, or the 80/20 rule as some may know it. The Pareto principle was based on Vilfredo Pareto noticing already back in the 19th century that 80% of the land in Italy was owned by 20% of the people. He then examined whether the ratio would apply to different situations, and what do you know, it did.

 

According to a 1992 United Nations Development Program Report, 82,7% of the world’s income is controlled by the richest 20% of the population, with the poorest 20% controlling only 1.4%. So a hundred years after the Pareto principle was discovered, the same theorem still applied to the world, thus making the principle a rather good model for decision making in my opinion.

 

Applying the Pareto principle to decision making in business is far simpler than one might think, as a business is rather likely to be following this model already, perhaps unknowingly, but still following it. 80% of the company’s turnover comes from 20% of its products.

 

The decisions regarding product creation and discontinuation can be made based on this principle quite easily, but of course the company will have other methods and plenty of data to base decisions on when you have time to make a decision.

 

When short on time and a decision is needed instantly, keeping in mind different types of decision models could prove quite valuable after all.

 

Different areas of decision making require different models

The book divides the models into four different areas: Self understanding, self improvement, understanding others and improving others.

 

Naturally, not all the models apply for all situations universally, as some models have been developed to help make self improvement decisions. One of these models is The Eisenhower Matrix, which aims to help you work more efficiently, thus helping you make decisions regarding your processes and methods of working. Another model is The John Whitmore Model, a useful decision making tool for deciding whether or not you’re pursuing the right goal.

 

Not all models apply to all situations, but personally I think that for example SWOT analysis, which is one of the models in the book as well, could be used to help decision making in other areas, as well as the area self improvement that it’s categorized under in the book.

 

You can learn a lot of others and the different factors affecting your business using the SWOT analysis, thus making it a useful model for understanding others.

Contradictory or complementary?

Some models often thought contradictory, and even those that so obviously seem contradictory can actually be very much complementary, you just need to look at them the right way.

Should you make decisions based on models?

Swimsuit models – probably not.

Decision making models – Probably not directly, but they are a great tool to use as a helping hand in the decision making process.

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