Better Decision Making

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If someone asked, "How do you make decisions?" you might shrug and say you analyze information, weigh options and consider your instincts. Fair enough. But you may want to approach the process more systematically.

Like most emerging-growth entrepreneurs, you probably make dozens of decisions a day. Unless you apply a consistent decision-making method, however, you risk introducing factors that can undermine your results.

The key is to know your goals. Some business owners start by identifying various courses of action and then wondering, "Which one's best?" A better strategy involves pinpointing your objectives first — and then determining which options will help you achieve them.

In this Quick-Read you will find:

  • Three types of decisions and how to handle them.
  • How to detect and prevent errors when you make decisions.
  • How to develop a framework for rendering stronger decisions.

SOLUTION [top]

For the most part, the type of decision you face determines how you confront it. A narrow cost-benefit analysis can help you weigh two distinct choices, while a broader evaluation of risks and rewards can clarify a more abstract or multilayered decision. Try assigning your next decision to one of three categories:

  1. Decisions whether. "Should I do X or Y?" These are straightforward yes-no, either-or decisions. "Should I move to a new building or continue to use my existing space?" Generally, you must assess whether to act in the first place before you branch off into making more detailed, intricate judgments.

  2. Decisions which. "I need to do something, should it be X, Y, or Z … or something I've never even considered? And if I choose X, then what?" These decisions consist of multiple options, rather than two concrete alternatives. The key is to open your mind to all possibilities. Biases can lead you to close off viable options or disregard factors that fall outside your pre-existing beliefs. A decision tree (a graphic sketch illustrating the various branches your choices can take you) might help with these kinds of decisions. "I've decided I need more space, so now I need to decide if I build, lease a larger space, or have my employees work in multiple locations … or maybe I should outsource my employees so I don't have to provide workspace.…"

  3. Decisions if. "If X happens, what should I do?" A variation on "decisions whether," these involve the imposition of qualifications before the decision can be made. Procrastinators love these types of decisions because they can postpone making them. They may want more information, prefer to wait for a better time or otherwise feel some condition must be met before they can make the final call. Example: "I'll invest in new equipment if I can secure a favorable loan."

Categorizing your decision can help you think more clearly about it and give you a sense of how to proceed. But there are other steps to take after you have determined the kind of decision you face.

More helpful tips in making a decision

  • Confirm the accuracy of your information. You can't make good decisions without good data, but don't take this to an extreme. (Don't get stuck just because you can't confirm every piece of data. If it's really important, pursue it. Otherwise, move on.)

  • Identify ambiguities that complicate the process. The best decision makers acknowledge these unknowns and pin some value or likelihood on how such uncertainties can influence the outcome. Example: You know how much a training program costs and what specific benefits it provides, but you cannot measure how it will change employees' attitudes.

  • Timing counts. Make decisions when you are calm and clearheaded. If you're angry or agitated, put aside the decision for ten minutes or more while you dive into other work. Revisit the issue later. If you make decisions under duress, your emotions can overpower your reason and you risk irrational choices.

  • Watch out for sloppy thinking. The most insidious aspect of decision-making is the tendency for even the smartest people to fall into the "cognitive illusion" trap, which causes them to distort reality or delude themselves with sloppy or misguided thinking. Sloppy thinking may be triggered by:

    • Overconfidence. In the moments leading up to a decision, you may inflate your sense of rightness to the point where you overlook critical elements or discount uncertainties. Overcome cockiness or excessive optimism by acknowledging your fears and perceiving risks in stark, honest terms.

    • Overreaction. Decisions do not occur in a vacuum. If you're stung by bad news, you may project a negative pattern onto the next set of decisions you make. For example, suppose you've just made two high-stakes investments that backfired. Now you're weighing another major investment. Resist overreacting to recent history; strive to learn from experience while treating each decision on its own merits.

  • Finally, only worry about important decisions. Know which decisions matter most. Avoid issues that don't require your attention. Consider the advice of David Rickey, head of San Diego-based Applied Micro Circuits Corp., "As a CEO, you face 10,000 decisions a day, and you've got to know which 9,000 to either delegate or not care about." (Investor's Business Daily, June 15, 2000, p. A4)

REAL-LIFE EXAMPLE [top]

Roland Brewer begins each day by reviewing his company's cash management report and the latest pile of faxes from customers. After that, he's ready to make decisions.

Brewer is founder and owner of Sea View Technologies in Portsmouth, N.H., a company that salvages excess or discarded electronic equipment and resells it on behalf of clients. He attributes Sea View's fast growth to his willingness to make rapid-fire decisions about what to buy, sell and dispose of.

"With every decision, I ask myself, 'Worst case, what's it going to cost?'" he says. "I quantify the worst loss I can have if my decision's bad. I work from there to look at the upside."

Brewer rarely has the luxury of time. If he dallies, he may miss chances to buy parts for stock or lose a customer to a competitor. That's why he immerses himself each morning in the critical information that will affect his judgments throughout the day.

Brewer dreads personnel decisions because he must calculate what's best for both his business and the employee.

"It would be easy if I could just ask, 'What's it going to cost the company to keep someone or let them go?'" he says. "But there are intangibles to consider, like the cost of morale if I stick with [a] poor performer."

DO IT [top]

  1. For tough decisions, list your options on paper. Jot down pros and cons for each one.

  2. To guard against the tendency to favor data that supports your preconceived notions, define best- and worst-case scenarios for each likely outcome.

  3. Ward off "decision fatigue"; careless decisions that can result from a string of decisions made too close together. Space decisions throughout the day. If you face impending deadlines, at least take ten minutes to stretch and cleanse your mind in between decisions.

  4. Set specific intervals to monitor your decisions — such as one- or four-week checkpoints — rather than constantly worrying about matters you've already resolved.

  5. Whenever employees, customers and other entrepreneurs discuss issues they've struggled with, ask, "How did you arrive at that decision?" Their answers may help you grapple with similar challenges.

  6. Before finalizing your decision, identify relevant gaps in your knowledge. Acknowledge what you don't know — and make sure you can live with that uncertainty and still forge ahead.

  7. Enlist employees to help you gather facts and formulate options, especially if your decision will affect them. This increases their buy-in.

  8. Ask a smart colleague to play devil's advocate and argue for opposing decisions. Prioritize the top three reasons to make a choice other than the one you prefer.

RESOURCES [top]

Books

Heads, You Win: How the Best Companies Think by Quinn Spitzer and Ron Evans (Simon & Schuster, 1997).

The Thinking Manager's Toolbox: Effective Processes for Problem Solving and Decision Making by William J. Altier (Oxford University, 1999).


Internet Sites

"How We Sometimes Fool Ourselves When Making Decisions" by Kare Anderson (Pertinent Information Ltd., n.d.)

"More of the Most Common Decision-Making Mistakes People Make" by Kare Anderson (Pertinent Information Ltd., n.d.)

"Perfect Decision," (Interview with Howard Raiffa, John S. Hammond and Ralph L. Keeney) by Karen Dillon, Inc., October 1, 1998.

"Decisions, Decisions" by Anna Muoio, Fast Company, October 1998.


Article Contributors

Writer: Morey Stettner

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