A decision with important consequences is worthy of serious, rational, systematic analysis. While decisions can be based on human intuition, decisions can be improved over time only if the process by which they are made is made explicit and analyzed.
One approach to this analysis is Multi-Criteria Decision Analysis. In this process, the multiple criteria for making a decision are often in conflict with one another. For example, in investing, a security with the highest possible return usually does not have the lowest risk. Thus though a decision maker would prefer to optimize for highest return and lowest risk, those criteria are often pointing in opposite directions for a particular investment opportunity.
One approach for dealing with these kinds of conflicts is to apply a weighting to each criteria. This allows for the decision maker to express the relative importance of each factor that goes into a decision without making the decision dependent on just one most important factor. If a decision involves selecting between multiple options, or allocating limited resources across a portfolio of options, they can then be compared across the same set of criteria with the same weightings.
The more criteria that are relevant to analyzing a decision, the more a systematic approach is needed. The most basic approach to this is to assign a weighting to each criteria, and then assign a score to each decision option for that criteria. This allows a score for each option to be calculated via a summation of the weights for each criteria multiplied by the option’s score for that criteria. This is known as a Weighted Sum Model. This basic approach is what is being used in the first iteration of the Osparna diligence application. Contact us now to be among the first to check it out.