Decision Making on Crucial Issues – How Weighted Average Method Can Help You

Google+ Pinterest LinkedIn Tumblr +

Whether in business management or in personal life, we have to make decisions at several junctures. Decisiveness is a fundamental characteristic of any manager. Decision making involves making a choice, after carefully studying the available facts, figures and information, weighing the pros and cons, advantages and disadvantages and then making up your mind. Some amount of influence of emotions, instincts and a hunch feeling too can not be ruled out in decision making. 

Many times, making a choice between two seemingly “equally good” options may prove to be too daunting in decision making. Under such circumstances, “weighted average method” is a simple mathematical technique you can follow to get a clearer picture on what is a better choice.

Before understanding a “weighted average” method, let us first understand the “average” method of giving points to options and averaging them to make a decision on them. Let us understand the whole thing through a practical example. 

Define your problem

(Example:) You are presently employed in a firm. You are not unhappy about your position there. You have now got a new job offer with a better pay; but there are several other influencing factors to be considered over and above salary. Your problem is whether to accept the new job offer or not.

 List out the influencing factors

In this case, let us say

(A) Location of the new work place (B) Salary (C) Growth prospects (D) Matching of your qualification and experience with job profile (E) Your designation/ position in organizational ladder (F) Extent of traveling involved (G) Perks and (H) Convenient working hours (day shift / night shift) are the eight influencing factors you will consider.

 Let us say, the maximum point for each factor is 5. We have 8 factors (A to H) and the total maximum points for these will be 8×5=40.

Allocate points to each of these eight factors in option:1 (your current job) on a 5-point scale: (1 = least favorable; 5= most favorable):

Let’s say, in your current job,

(A)Your location = most favorable = 5 points

(B)Your salary = reasonably good = 3 points

(C)Your growth prospects = quite good = 4 points

(D)Qualif/ exp. Match = not so good = 2 points

(E)Designation = most favorable = 5 points

(F)Trvelling = lots of travelling (you don’t like) = 1 point

(G)Perks = not so good = 2 points

(H)Shift work = not so comfortable = 2 points.

Average of above = (5+3+4+2+5+1+2+2) / (8 x 5) = 24/40= 60%

Based on available information, allocate points to option:2 (your new job):

Let’s say, in your newly offered job,

(A)Your location = not so favorable = 2 points

(B)Your salary = very good = 5 points

(C)Your growth prospects = not so good = 2 points

(D)Qualif/ exp. Match = not so good = 2 points

(E)Designation = most favorable = 5 points

(F)Trvelling = not too much travelling = 3 points

(G)Perks = not so good = 2 points

(H)Shift work = somewhat comfortable = 3 points.

(A)= 2, B=5, (C) = 2, (D) = 2, E = 5 (F) = 3, G = 2, (H) = 3

Average of above = (2+5+2+2+5+3+2+3) / (8 x 5) = 24/60 = 3/5 = 60%

 So in this case, using the average method, you get same weightage for both the options and hence it will be difficult for you to come to a decision.

 Now let us see how the weighted Average method works.

 Give weightage to each of the influencing factors based on how much of importance you give to each of them.

 Here, the “subjective” influence (or to some extent, your emotional influence) comes into picture at a right measure. Give weightage to each factor based on to what extent it is important to you on a 3-point scale – Most important for you = 3, Moderately important = 2 and least important = 1.

 (Note: For the sake of simplicity, only a 3 point scale is suggested above. If you want, you can spread it wider like this: Least important -1, a little important -2, fairly important – 3, very important – 4, extremely important – 5. This will help you to make your decision still finer. However in this example, only a 3-point weightage is given as below).

 Allocate weightage

 (A)Location : Most important for you : 3

(B)Salary level: Very much important for you : 3

(C)Growth prospects : Most Important for you: 3

(D)Matching of Qualification/ experience: Least important for you : 1

(E)Designation: Somewhat important for you: 2

(F)Traveling: You don’t like frequent traveling: 1

(G)Perks: Not too important: 2

(H)Convenient working hours: Very important for you: 3

Now multiply your previously allocated points with the above weightage points:

Option:1 – Existing job

(A)= 5×3 = 15,(B) = 3×3 = 9, (C) = 4×3 = 12, (D) = 2×1=2, (E) = 5×2 = 10

(F) = 1×1 = 1, (G) = 2×2 = 4, (H) = 2×3 = 6

 Option:2 – New Job

(A)= 2×3 = 6,(B) = 5×3 = 15, (C) = 2×3 = 6, (D) = 2×1=2, (E) = 5×2 = 10

(F) = 3×1 = 3, (G) = 2×2 = 4, (H) = 3×3 = 9

Now calculate the Weighted Average:

For Option:1 – Existing Job : (15+9+12+2+10+1+4+6) / (8x5x3)= 59/120 = 49.1%

For Option:2 – New Job: ( 6+15+6+2+10+3+4+9) / (8x5x3) = 55/120 = 45.8%

 Take the decision: Using the weighted average method, you now find that Option: 1, namely, continuing with your existing job is the better option.

 What if you get the same percentage or a very narrow difference even after this exercise?

 You can do the following:

  • Add more number of influencing factors. In our example, you can add: (I) Cost of living (J) Opinion of the spouse about the new job/ location (H) Reputation of the organization, (K) Scope of responsibility/ tension involved in the job etc.

  • Increase the 5 point scale to, say, a 10 point scale, fine-tune the points and reallocate them for each factor

  • Increase the weightage factor from 3 to 5 (as already discussed above) and fine-tune the weightage points.

 It must be remembered that no fool-proof decision making can ever be done simply based on available facts. No purely logical and objective decision can ever be made without some influence of emotions and subjectivity. Weighted average method can at the best help you in fine-tuning your decision making process. At times you will find it quite useful in justifying a decision you made in haste, by making these averages at your leisure!


About Author

Leave A Reply