Smart Choices

by Howard Raiffa

  •For joint or group decisions, first have each individual draw up a list separately, then combine them.

  •Phrase each concern as a true objective, using a verb and an object.

  •Ask ‘‘Why?’’ for each objective. The Mathers are presumably concerned about crime and traffic because they are concerned about safety. By specifically listing ‘‘Maximize safety’’ as a fundamental objective, other safety issues—steep stairs, retaining walls, and so on—might emerge as important means objectives.

  •Ask ‘‘What do we really mean by this?’’ This question will lead to a better understanding of such concerns as, in the Mathers’ case, cost and school quality. Does ‘‘Cost’’ refer to the sale price, the size of the down payment and other up-front costs, the size of the mortgage, or the monthly cost for mortgage payments, taxes, improvements, maintenance, and insurance? Similarly, ‘‘Quality of school’’ has many components, and to make meaningful assessments and comparisons, the Mathers will need to define exactly what school quality means to them.

  Once the Mathers have more clearly defined their objectives, the following suggestions would help them further refine their list:

  •Visit and evaluate some homes currently on the market before finalizing the objectives. This step would help the Mathers verify and extend their understanding of their initial objectives.

  •Imagine the purchase or rejection of a few different houses and consider how well or easily these choices could be explained to others using the stated objectives.

  •Be alert to the possible emergence of an important unrecognized objective, such as a house’s potential to appreciate in value.

  CHAPTER 4

  Alternatives

  ALTERNATIVES ARE THE RAW MATERIAL of decision making. They represent the range of potential choices you’ll have for pursuing your objectives. Because of their central importance, you need to establish and maintain a high standard for generating alternatives. Two important points should be kept in mind at all times. First, you can never choose an alternative you haven’t considered. A terrific house in a great neighborhood may be available for rent, but if you’re unaware of it, you won’t end up there. Second, no matter how many alternatives you have, your chosen alternative can be no better than the best of the lot. Thus the payoff from seeking good, new, creative alternatives can be extremely high.

  Don’t Box Yourself In with Limited Alternatives

  Unfortunately, people don’t tend to think a lot about their decision alternatives. Just as they assume they know their objectives (even when they don’t), so they assume they know the options open to them. Too many decisions, as a result, are made from an overly narrow or poorly constructed set of alternatives. Although the common denominator in all these cases is lack of thought, the essential problem can take many forms.

  One of the most common pitfalls is business as usual. Because many decision problems are similar to others that have come before, choosing the same alternative beckons as the easy course. It’s Friday after work, and you and your date are trying to decide what to do. You went to dinner and a movie the last six Fridays. Hey, how about dinner and a movie? Last year’s city budget assigned 40 percent to schools, 30 percent to the police and fire departments, 20 percent to social services, and 10 percent to recreation, maintenance, and other activities. Why not make the same allocations this year? Business as usual results from laziness and an overreliance on habit. With only a modest amount of effort, attractive new alternatives can usually be found.

  But, sometimes so-called new alternatives represent nothing more than incrementalizing—making small and usually meaningless changes to previously devised alternatives. This year’s city budget may differ from last year’s, but only by a few percentage points, more or less. Don’t just tweak the status quo. Step back and develop alternatives that reflect fresh thinking and different perspectives.

  Many poor choices result from falling back on a default alternative. Say you’re a recent college graduate with a degree in marine sciences, a field you love, but you’re being pressured to return to the Midwest to join the family clothing business. You haven’t got any job offers in marine sciences (perhaps because you haven’t looked that hard). You feel trapped, so you take the family job—the default alternative. Remember, every decision problem has multiple alternatives, even if it doesn’t seem to at first. What people really mean when they say, ‘‘No alternatives’’ is ‘‘No alternatives better than the default option’’—yet. Creating fresh alternatives requires some focused thinking.

  Choosing the first possible solution is another pitfall. Suppose you’ve recently moved and need to select a local physician. You ask a coworker for the name of her doctor, and you make an appointment. You embrace the first alternative—the easy choice. Although efficient, the process was not thorough and as a result could backfire. There’s nothing, after all, that says the easy choice will be the smart choice. The coworker’s doctor may be competent, but he may not have the communication skills, the hospital affiliation, the certification, the referral network, or the office hours that would best meet your needs. With a little extra effort, you would no doubt be able to find a doctor who met your criteria. Develop a new habit: once you find one possible solution, look further—generate new alternatives that could lead to a better solution.

  Choosing among alternatives presented by others can also result in a poor decision. You’re happily employed. Then one day the phone rings and a corporate recruiter makes you an attractive job offer with another company. What do most people do? They choose between the current job and the proposal, both of which have been shaped or presented by others. But if you are willing to consider leaving your current job, why not actively seek still other alternatives? Don’t get boxed in.

  People who wait too long to make a decision risk being stuck with what’s left when they finally do choose. The best alternatives may no longer be available. If you delay choosing among vacation plans, for example, all the best flights may be full by the time you’re ready to make reservations. If you delay dealing with a health problem, your condition may have deteriorated so much by the time you act that your options are limited. Remember, get an early start on major decisions. Take charge.

  The Keys to Generating Better Alternatives

  Generating a good set of alternatives isn’t all that difficult, but it takes time and thought. Try some of these techniques to make the most of your efforts:

  Use your objectives—ask ‘‘How?’’ Since your objectives drive your decisions, use them to guide your search for good alternatives. Ask yourself ‘‘How can I achieve the objectives I’ve set?’’ Do this separately for each individual objective, including both means objectives and fundamental objectives.

  Asking ‘‘Why?’’ took you from means to ends; asking ‘‘How?’’ will take you from ends back to means, leading you toward alternatives. After all, alternatives are the ultimate means. You’re planning a new distribution center. How would you fulfill the fundamental objective ‘‘Minimize the time before the center is operational’’? One answer: by minimizing the time needed to get construction permits. How? By hiring a local attorney who knows local regulations and local bureaucrats. This is an alternative.

  Challenge constraints. Many decision problems have constraints that limit your alternatives. Some constraints are real, others are assumed. Let’s say you’re in the market for a new car, and you’ve found a model you really love. There’s a problem, though. The car’s 18 feet long, and your garage is only 17 feet. The length of the garage is a real constraint. With a little creativity, however, you can often find ways around real constraints. You could extend your garage by two feet, for example, or you could park elsewhere.

  An assumed constraint represents a mental rather than a real barrier. A marketing position opens up in your company. The traditional practice is to promote from within, appointing a current employee without even looking for outside candidates. The traditional practice is
an assumed constraint, and in identifying alternatives, it should be ignored (even if you’ll need to take it into account as an objective when you ultimately make a decision). To ensure that you examine all viable alternatives, you need to break free from the straitjackets of tradition and habit.

  Try assuming that a constraint doesn’t exist, and then create alternatives that reflect its absence. If the resulting alternatives are attractive enough, maybe you can figure out how to make them feasible. A utility company, for example, assumed that its proposed new power plant had to be on a waterway to ensure a sufficient supply of cooling water. Working within this constraint, it found that all of its alternatives would cost more than $1.5 billion and would result in significant environmental damage. Under pressure from environmentalists, the utility removed the waterway constraint and took a fresh look at its alternatives. Freed from its self-imposed straitjacket, it identified an inland site that required pumping water a modest 12 miles. The result: a $1.2 billion facility that caused only minimal environmental damage.

  Set high aspirations. One way to increase the chance of finding good, unconventional alternatives is to set targets that seem beyond reach. High aspirations force you to think in entirely new ways, rather than sliding by with modest changes to the status quo.

  In the late 1980s, for example, many companies sought to lower costs by reducing the size of their support staffs. A common aspiration was a 15 to 20 percent cost reduction. By automating formerly manual processes, some companies managed to lay off enough people to cut their costs by the desired amount. They were delighted—until they heard about competitors who had set cost-reduction goals of 50 percent and had met them. Forced to think in new ways, these companies outsourced some of their support functions entirely, transforming their corporate structures. Setting high aspirations stretches your thinking.

  Do your own thinking first. Before consulting others about alternatives, give your own mind free rein. Some of your most original ideas, born of innocence, may be suppressed if exposed to others’ ideas and judgments before they have been fully formed. Sometimes ignorance is bliss, so let loose your own creativity for a while. Once you buy into another person’s line of thinking, especially someone expert in the matter at hand, your own thoughts may be prematurely knocked out of the running. Noted MIT professor Norbert Wiener, one of the most creative geniuses of the twentieth century, always spent time thinking through a new scientific problem on his own before reading the existing academic literature.

  Learn from experience. You shouldn’t let yourself be constrained by history, but you should certainly try to learn from it. Find out what others have done in similar situations, and if you’ve faced similar decisions before, consider again the alternatives you devised then. (Don’t, however, limit your alternatives to those previously considered—you don’t want to fall into the ‘‘business as usual’’ trap.) For example, if you’re looking for ideas on how to remodel your house, you might go on a tour of recently remodeled houses in your community.

  Ask others for suggestions. After you’ve thought carefully about your decision and your alternatives on your own, you should then seek the input of others to get additional perspectives. People at a distance from a problem may see it more clearly, without the conceptual or emotional blocks that you may have. (See the career choice example below for an example of using advice to overcome constraints.) In seeking out advice, consider people in fields beyond the obvious. For ideas on keeping track of hospital surgical supplies, for example, you might ask the parts manager at a local car dealership how they track their inventory.

  Keep an open mind during these conversations. The primary benefit may not be the specific ideas that others provide, but simply the stimulation that you get from talking about your decision, from organizing your thoughts into explanations, and from answering questions. It may well be you who ends up generating the most valuable ideas.

  Identifying New Alternatives:

  Making a Better Career Choice

  Many years ago, we counseled a British student who was near the top of his class at Harvard Business School. His tuition was paid by a British chemical company, for which he had formerly worked as an engineer, with the understanding that after graduation he would return to the company. At the time, the company had a rigid career policy: Engineers remained as engineers for a fixed period before they could become managers.

  The student was dismayed. As an engineer, his hard-won new business skills would go unused and unnoticed, and his salary would be less than a third what his classmates were being offered. He was tempted by the challenges and financial rewards of a management consulting career, but he also felt obligated to fulfill his arrangement with his former employer. What should he do?

  We were able to suggest an alternative he hadn’t considered: pursue management consulting opportunities, but at the same time approach your former employer and state your concerns, offering to repay your tuition. They may respond by rethinking your placement and salary. If not, move on—take a management consulting job and reimburse the chemical company.

  The company did offer a much-improved position and salary, but one that the student still found far less suitable than management consulting. The student accepted a consulting job and 25 years later was head of European operations for a major international consulting firm. (The chemical company, by the way, graciously declined his offer of reimbursement and wished him well.) Getting an outside perspective helped the student challenge assumed constraints and create an alternative that freed him from his dilemma.

  Give your subconscious time to operate. How many times have you had a great idea while drifting off to sleep or taking a shower? Your subconscious had been turning over the problem, and a good idea bubbled up in a quiet moment. The subconscious needs time and stimulation to do this well. Start thinking about your decision problem as soon as possible; don’t put it off until the last minute. Once you’ve begun, make a point of thinking about the problem from time to time to give your subconscious a nudge. Your reward may well be a flash of insight. (Always write these insights down quickly when they occur; details are easily forgotten.)

  Create alternatives first, evaluate them later. Creating good alternatives requires receptivity—a mind expansive, unrestrained, and open to ideas. One idea leads to another, and the more ideas you entertain, the more likely you are to find a good one. Bad ideas will almost certainly emerge along with good ones. That’s a necessary part of the process and something you shouldn’t be concerned about at this point. Don’t evaluate alternatives while you’re generating them. That will slow the process down and dampen creativity. An obvious shortcoming, even a potentially fatal flaw, should not keep you from listing an alternative. If some aspect of the alternative is promising enough, it may be worth the effort to try to eliminate the inadequacy later. Evaluation narrows the range of alternatives. At this stage, your task is to broaden the range by bringing forward as many alternatives as possible.

  Never stop looking for alternatives. As the decision process moves on to the consideration of consequences and tradeoffs, the evaluation stages, your decision problem will become increasingly clear and more precisely defined. Often, the evaluation will turn up shortcomings in your existing alternatives, which may in turn suggest better ones. Keep your mind and your eyes open.

  Here’s a case in point. Public officials had to decide whether to approve the construction of a natural gas terminal at Matagorda Bay, Texas. There were a number of alternatives for the terminal’s location and design, but even the best of them carried a small risk of a serious accident that could cause fatalities in nearby communities. Analysis found that most of the risk fell on summer weekends, when the bay was crowded with pleasure boats and the beaches thronged with sunbathers. Based on the analysis, the best alternative in contention was modified in a simple way: ship operations at the terminal would be suspended on summer weekends. The revised alternative reduced the public risk by 75 percent, with essentia
lly no drawbacks.

  Tailor Your Alternatives to Your Problem

  Just as certain cuts and styles of clothing suit certain people, certain kinds of alternatives fit certain kinds of decision problems. When, for example, uncertainty and risk play a major role in determining the consequences of a decision, as in most investment decisions, you may want to seek alternatives that reduce risk through such means as diversification and hedging. (We’ll talk more about risk in Chapter 8). Four categories of alternatives—process, win-win, information-gathering, and time-buying—are particularly well suited to specific kinds of problems.

  Process alternatives. Odd as it may seem, the best alternative is sometimes a process rather than a clear-cut choice. Suppose your two roommates, Heidi and Susan, are both big fans of figure skating, and you arrive home one evening to find an answering machine message from your sister saying that she has an extra ticket for the National Ice Skating Championships. She knows that you have plans for that evening, so she offers to give the ticket to one of your roommates. It’s up to you to decide who gets it. The basic alternatives are clear—give the ticket to Heidi or to Susan—but the choice is tough. One answer is simply to flip a coin—heads, Heidi goes; tails, Susan does. The coin toss is a process alternative—it establishes a process for deciding who will get the ticket. You all consider the coin toss to be fair, whereas the risk of making the choice yourself (angering a roommate) is great. Hence, it is clear to you that the process alternative is the best alternative.