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chapter 17
making decisions

In any position, you will be faced with having to make everyday keep-it-moving-in-your-job decisions, other people’s decisions, and occasionally important decisions. You have to make the first type of decision as you go, based largely on common sense and your instincts, without agonizing over them. You have to insist that other people make their own decisions as opposed to passing the buck to you. And, you have to take the time and follow a certain process to make the right big decisions.
When you are tackling important decisions, here are some points to keep in mind:
  • Determine whether this is a decision to make on your own or if you need to pull together a group from your and other departments to participate in making the decision with you. If the outcome will have serious consequences for a number of parties, you are usually advised to broaden the participation in making the decision. People will accept adverse situations and additional demands much more readily when they have been constructively involved in arriving at the decision.
  • Approach the analysis required for making major decisions as a process that has these six steps:
  • 1. Properly define the decision to be made.
    2. Establish the objectives and criteria that the decision must meet.
    3. Obtain the necessary facts and numbers.
    4. Determine and evaluate the alternative solutions.
    5. Assess the consequences and risks.
    6. Make the decision.
  • Start with the mentality that the customer drives the business. Usually the first factor to consider is how will this affect the customer. Obviously, the more positive it is for the customer, the better.
  • Do not try to deal with big amorphous issues or problems that you cannot easily get your arms around. Break up large decisions or issues into a number of smaller, more manageable pieces and then tackle each individual one in logical sequence.
  • Make certain the issue, challenge or opportunity you have to make a decision on is being seen in the right perspective and is properly defined. With problems, take the time to determine exactly what is the problem and distinguish between what should be happening as opposed to what is actually happening. You also need to know what is going well as opposed to just focusing on what is wrong.
  • Base your analysis as much as possible on the facts and numbers concerning what’s really important. Try to minimize the extent to which unsubstantiated generalities, emotion, proprietary interests and the “not invented here” syndrome get mixed up in determining decisions.
  • Be careful when virtually 100% of the people in any group are in agreement. They could be totally wrong. The pressures of groupthink often act to suppress any viewpoints being expressed that deviate too far from the consensus. Treat the use of computer models and future projections based on past experience with extreme caution. Seek diversity of input from a range of different sources.
  • Think “out-of-the-box”, be a contrarian, ignore conventional wisdom or practices, distrust so-called experts (especially their predictions), challenge the consensus, and do not accept “statements of fact” just because they were expressed by someone in a position of authority. As the supremely successful UK entrepreneur James Dyson said, “I enjoy choosing the path that others don’t.”
  • Identify, question and test the basic assumptions being relied upon in your analysis. When there is a conflict of opinion between head office representatives and those working in the field, place a greater weight on the latter group as they are on the firing line closer to the actual action and live customers.
  • Resist the temptation of trying to obtain too much information. With complicated problems, more information is not necessarily better in terms of making a decision. Only request information that is critical to the decision. Do not let yourself get snowed under with extraneous information. You simply cannot wait to get 100% of the information. On the other hand, resist the natural tendency of focusing mainly on information that supports your point of view as opposed to information that challenges it.
  • Be especially creative in determining the alternative solutions worth considering. Evaluate the alternatives on the basis of your objectives and a screening criteria as opposed to solely listing their pluses and minuses. Take into account the likely response of competitors.
  • Avoid making important decisions when you are overtired and have had insufficient sleep the night before. On long trips, allow yourself several days to overcome jetlag before you tackle tough decisions.
Decisions based on financial projections beyond say three years are tenuous at best. The farther ahead one forecasts, the greater the likelihood of a major unanticipated change in the critical variables and something unknown of significance occurring. That is just how the real world operates. Resist investing any time in preparing projections beyond three years, including those used in so-called “Business Plans”.
A key part of making decisions is a careful assessment of the risks associated with any course of action if things go wrong. Most people have a strong bias towards being overly optimistic. Remember Murphy’s Law — what can go wrong usually does. Be reticent about assuming any guarantees relating to the performance of other parties beyond your control. Obviously, you need to watch out for those decisions where the outcome may be seriously damaging or even fatal for your organization if they turn out to be wrong.
Jim Collins, in his book How the Mighty Fall, recommends that: “When making risky bets and decisions in the face of ambiguous or conflicting data, ask three questions:
1. What's the upside, if events turn out well?
2. What's the downside, if events go very badly?
3. Can you live with the downside? Truly?”
Do not let yourself be rushed into making decisions prematurely before you and your group have completed the necessary analysis. If you are being overly pressured into making a yes or no decision, say “No”. It is easier to change a “No” to a “Yes” afterwards than vice versa. Keep notes on the key factors taken into account and the alternatives considered so that you have them available to refer to if the decision later proves to be incorrect.
Accept that you will make mistakes. Like baseball players, nobody comes remotely close to batting 100% in making decisions unless they are not in the game. Apart from avoiding fatal mistakes, what is important is that you learn from your mistakes and do not keep making the same mistake over and over again. Mistakes are rarely a sin. Trying to cover mistakes up by sweeping them under the carpet definitely is a sin.
Once the decision is made, implement it with a sense of urgency. At the same time, impose closure on any further consideration or discussion of the alternatives.
Charlie Munger, Warren Buffett’s partner, talks about the need to have three baskets on your desk: In, Out and Too Tough. He said, “We have such baskets — mental baskets — in our offices. An awful lot of stuff goes in the ‘Too Tough’ basket. And then we work on the rest.” Try to restrict yourself to dealing with decisions within your area of competency and realize when something is either outside of it or too tough to solve.
For a greater understanding of how to treat uncertainty in making decisions, I strongly recommend you read Nassim Nicholas Taleb’s book, The Black Swan — The Impact of the Highly Improbable. Prior to writing this book, the author made a considerable fortune as an options trader and in the hedge fund business.
On the subject of utilizing theories in making decisions, Taleb said, “I care about the premises more than the theories, and I want to minimize my reliance on theories, stay light on my feet, and reduce my surprises. I want to be broadly right rather than precisely wrong… A theory is like medicine (or government): often useless, sometimes necessary, always self-serving, and on occasion lethal. So it needs to be used with care, moderation and close adult supervision.”


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