WE all have to make decisions daily and each decision may not be the same all the time. The decision-making process depends on many factors, such as the current situation or need, the available options, the urgency, the experience and preference of the one making the decision and the significance or scale of the decision to be made.
Typically, when a significant or important matter needs to be decided upon, much more thought and attention is needed in coming up with a decision. Deciding on what dessert to get from a restaurant menu may be made on an impulse but buying the restaurant itself will require much more thought, deliberation, study and due diligence. Deciding on the dessert may take a minute but a more significant decision will definitely take a much longer period of time.
Let us focus on making more important decisions, such as career choices, buying a house or car, investing your life savings and major business matters. Even in making such critical decisions, a correct decision may not be the same for different people. Coming up with a correct decision for you will depend on your experience, capability, ability, objective and risk appetite.
Your experience which includes your background, education and career teaches you many lessons in life, both successes and failures. Typically, you pattern your choices based on what your experience tells you. However, it is always good to keep in mind that a winning formula in the past may not necessarily yield the same results in the future. This is because of many factors that may have changed, different circumstances, as well as how you may have evolved.
People’s capability and ability also have a big impact on the decision-making process. A specific decision may have catastrophic consequences for someone but the same decision may work out wonderfully for someone else with a different skill set, more resources and has a better way of doing things. Know your own limitations and your areas of expertise; make decisions that will tilt things in your favor by making choices that minimizes your weakness and maximize your strengths.
Your objective will also determine your decision-making process. Different people may have different objectives, some people may have short-term priorities while others may have long-term goals. While the objectives of certain decision-makers may seem flawed to us, it is possible that we do not have access to certain information or see the complete picture from the point of view of the decision-maker. The only way to ascertain this is by knowing what the objective is and based on the decisions made, see if the objectives are met.
The ability to assess risk and knowing your risk appetite or how much you could afford to lose also determines how and what decisions you make. Naturally, there is the direct relationship between risk and return, the higher the risk, the higher the expected rate of return. The key is to properly determine the amount of risk and the potential return to establish if you are properly compensated for the risk you are taking and knowing if you can afford to take that kind of risk.
Knowing and understanding the decision-making process will help you in making the right decisions. In turn, making the right decisions are critical in creating wealth and providing for your future.
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