Delving into the Way Decisions Are Made
Business leaders must make many decisions on a daily basis. They often must choose between seemingly trivial options based on strategy, personal preference and, often, a gut feeling for what is right.
Occasionally, one of these decisions backfires in a big way. Therefore, it’s a good idea to not just weigh the rewards of one option or the other, but to consider the risks, both in terms of what could go wrong, and how difficult it may be to change directions at that point.
You may wonder what the worst decision a business leader can make? Basically, it’s the kind that can’t be undone.
Delving into the Way Decisions Are Made
There are deep sciences behind decision making, including:
- The way people’s minds frame the initial question;
- The heuristics or gut reactions they may employ;
- Biases one brings to decisions;
- The data one considers accurate or relevant; and
- The final selection of the best alternative.
But as stated above, and as anyone with years of business experience in the real world knows, the worst decisions business leaders can make are the ones that cannot be easily undone. These are the decisions that lock executives into many seemingly unrelated downstream decisions, tying their hands when it may be important to be unencumbered.
Too often, these “downstream consequences” are not discovered until it’s too late. Perhaps the firm has picked the wrong software vendor, and its enterprise is now locked into a single vendor with an aging platform that won’t have the latest mobile features that customers want. Perhaps you thought that outsourcing accounts receivable processing was a good idea, but now the company is worried about its data security.
One classic example of a bad decision for a small business may involve hiring someone you already know. Let’s say two brothers hire a relative to work in the new family business after he retired from years as a factory shop foreman. It seems like a no-brainer because he has great management experience, both partners really like him and they trust him implicitly.
But the relative turns out to be really bad with numbers. He forgets simple things. He gets really frustrated and impatient with simple projects. He’s thrown the small office out of balance and there’s no longer peace among other team members. He’s just not working out as planned. So how exactly can the brothers go back and fire the relative? This is a decision that will affect them not only professionally but personally.
The partners have locked themselves into a no-win situation through what they thought was a no-brainer, because they failed to see the risks involved in the decision. More importantly, they failed to consider how they might actually get out of the decision if things did not go as planned.
In this case, the two actually ended up hiring their sister who brought an objective viewpoint to the problem. She was able to convince family members that the relative just couldn’t function as everyone had hoped.
The non-performing relative was eventually talked into an early retirement. The situation was handled, but not without major pain and disruption to the business. The partners also learned an important lesson.
Compare it to a Game of Pool
Business decisions are often like shots in a game of pool. An old saying goes: “It’s not the shot you take that matters, but the shots you leave on the table for your opponent.” Do the shots you take in business provide the desired long-term strategy, or will today’s quick actions set up opponents to “run the table” without interference?
Consider both the risks and rewards when making business decisions. For example, compare the potential money to be made by Option A multiplied by the odds of it actually happening by removing the risk versus making Decision Option B.
For example, perhaps Option A could yield $1,000 in revenue times .33 — in terms of one to three odds of coming through. This leaves Option A an estimated value of $330. Then, compare that to Option B: perhaps yielding $1,200 in potential revenue, but only having 1 in 4 (.25) odds. This leaves Option B with only $300 (less value than Option A’s $330).
But then step back and view the entire pool table to consider how this decision impacts the overall strategy, and how one might mitigate damages in case the decision goes awry. Great businessmen and women make mistakes every day. They just consider the potential backlash early in the process.