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How Managers Can Make Better Decisions

September 29, 2016

 

 

Decision‐making is a discrete discipline. It is so important, especially in high stakes situations such as the military or NASA, that whole computers are dedicated to nothing but decision‐making. This is not to say that stealth in implementing plans is not important to a project’s success. But, the old acronym GIGO (garbage in, garbage out) applies to all thought‐systems. No system, manual or otherwise, is going to work well if its design is ill‐conceived or inconsistent with objectives. Over the years I've consulted to small businesses, I've noticed that decision‐making is lax. This is not an indictment, per se, though David Maister's insightful article The Courage to Manage may have come close to it. He posits that managers routinely forsake strategy for expediency due to lack of courage. In my experience, however, there are some managers who earnestly wonder to what extent their decisions are strategically consistent. They would stay the course... if only they had a map. For these earnestly curious, the following is intended as a rubric for devising sound strategy and staying true to it.

 

Guiding Principles

The first notion to keep in mind is that building a business is like a game. The object of the game is to achieve specific objectives. The challenge is that resources are scarce. Thus, a technique that will aid in winning this game is being efficient. In other words, get the most movement for the least expenditure (of energy, money, time, etc.). However, not all movement is equal. Obviously, the movement should be in the right direction. Ideally, movement should be the straightest line between two points and it should be advancing. This leads to the second notion to keep in mind: distractions which impede movement, obscure objectives or erode resources are never‐ending. This is nothing more than the second law of thermodynamics which says, loosely, things will fall apart unless you prevent them from doing so. There must always be some effort expended to fight against this. The best skill for doing that is the ability to focus. This boils down to having the discipline to come back to a strategy‐related task regularly, even though it may be occluded by papers or other matters beckon. However, the act of coming back to a task, as heroic as that can be sometimes, doesn't necessarily convert into quality time and attention. Quality not only requires tuning out distractions, but, more importantly, requires finding saliency. Differentiating what is important is really efficiency in thinking. Efficiency is not solely an outcome of speed and economy. It is also an outcome of accuracy. Herein lies a conundrum. Accuracy in thinking relies upon knowledge. Knowledge relies upon relevant information. But, the very process of obtaining information, let alone deciding what is relevant, is anything but expeditious and economic.

 

Choices

It’s as if two roads diverge in a yellow wood. One is the road of training and learning to become an excellent decision‐maker. Smart decision‐making is the competitive edge. That is why elite management in major corporations are compensated at outrageously high levels. It's not because they produce product. It's because they think efficiently. But, as with all disciplines, mastery takes time, attention and commitment. Here is where the choice can get confusing. Mastering smart decision‐making may make all the difference in achieving objectives, but it is not the objective. It will always be ancillary. This leads to the other choice—the road of delegation. Delegation is certainly commonplace when it comes to administrative, financial or secretarial duties. And, for good reason. Letting people who have mastery over their discrete disciplines perform freely is what builds infrastructure. With all the competitive advantages that come as a result of speedy, far‐reaching, accurate conclusions, why not delegate decision‐making? There’s a well‐founded impediment. Confidence needs to be absolute. Getting to the point of absolute confidence requires at least several rounds of initial decision‐making which can then be evaluated. The quality of a decision is determined by its relevance to the situation at hand. In other words, smart decisions are always relative. There is no one size fits all. And the only way to know how smart a decision is, is to walk it through the paces of a decision‐making process. What this means in terms of which road to choose... well, the answer is both. You need to be familiar enough with smart decision‐making rigors in order to know a smart decision when you see it so that ultimately you can delegate the component steps.

 

Smart Decision‐Making

Smart decision‐making is really problem‐solving. Whether solving for x in algebra or discovering what causes water to evaporate in chemistry, we rely on math and science to solve problems. But when it comes to solving problems in business, leaders are wont to seize the most convenient answer. One obvious explanation for forsaking academic roots is that it's just easier. But, another perhaps not‐so‐obvious explanation is that the majority of small business leaders did not bargain for job descriptions dependent on math and science. For most business owners, big‐picture problem‐solving is a detraction from the very thing that caused them to start a business. And, truth be told, business problem‐solving is also outside their comfort zone. If it were only so easy as to apply fundamental math and science to get up to speed on business problem‐solving and smart decision‐making, some owners would just do it. Unfortunately, it is not that simple. And, that’s because businesses are complex systems existing within even greater complex systems. They deploy esoteric systems (technology, finance, etc.) while using perhaps the most complex of all systems....humans! Simply put, complex systems are those where there are innumerable variables, many of which themselves may be systems, interacting in often uncertain ways. This is why you just can’t solve for x as you did in high school. High school presumed the other variables are known, finite or static. This is not the case in business where there may be several answers for x.

 

Finding the optimal answer out of many possibilities requires a scientific approach. What this means is that certain procedures and standards must be applied in order to get good answers. You can see this, for example, in drug testing. In order to validate the cause and effect relationship of a drug, the scientific community uses double‐blind studies. In so doing, drug companies can’t select only the control group which is likely to produce the results they want. It's designed to eradicate bias or wishful thinking. Does this mean that every business owner should don a lab coat, complete with pocket protector? Not exactly. Decision‐making can be delegated. While it is not necessary for every owner to obtain a degree in quantitative decision‐making, it is an owner’s responsibility to make sure that scientific decision‐making standards become de rigueur.

 

Preparation

Given all the lurking dangers, distractions, easy answers which run astray, secretly held contempt for business exigencies and, last but not least, abundant opinions from friends, family, colleagues and every article written since Gutenberg (including this one), what is an owner to do? The answer is to use a scientific system of decision‐making. Using some precise techniques, following logical steps and remembering underlying principles will yield higher quality answers.

 

Define Objectives

Use as much specificity as possible. For instance, an objective of make more money could mean that expenses are cut and law firm life is a bit more stoic. Or, it could mean developing a system of attracting and retaining a high caliber of client. The first choice might yield more money in the first year whereas the second choice might result in less money in the first year, but ever‐increasing returns over the life of the business. And, of course, both would have very different strategies.

 

Brainstorm

Lock your internal editor in the closet. Let loose. Let every creative idea on how to achieve your objective come to the fore regardless of how ridiculous it may seem.

 

First‐Pass Edit

From all the creative tactics brainstormed, isolate and discard those which are obviously ludicrous. Be careful not to let this step creep in to the pure brainstorming phase. These are discrete steps.

 

Analyze

For each tactic that has survived the first‐pass edit, break it down into its component parts. In project management parlance, you want to identify the specific activities and determine their sequence.

 

Find Case Studies

If you have been truly innovative in either defining your objectives or brainstorming viable tactics for achieving those objectives, you will not find case studies which replicate your situation. Even when launching fairly standard business approaches, the outcome at one subject organization may be a function of entirely other variables. This means you will have to analyze the scenario you are studying as well so that as many variables as possible are known. You are seeking to extrapolate information only from scenarios which have the greatest correlation to yours. This becomes known by comparing and contrasting the attributes of your tactic with those of the subject case. Consider that for closely held businesses, you may not have access to case studies or statistical data for the scenario you are analyzing. In this event, you may have to rely on think‐pieces. If so, they should be sufficiently expository.

 

Examination Before Trial

Ask Who, What, Where, When and Why to discover the details of any comparative piece of information. Lawyers who depose litigants bore down to the most fundamental levels in order to qualify the truth. It is a technique to avoid reliance on a deponent’s conclusion. The same holds true for information upon which you seek to rely. Come to your own conclusions about its accuracy.

 

Second‐Pass Edit

Accuracy of comparative data is only one requirement. The other is that it must be relevant. Remember that distractions are to business decision‐making like water is to iron. Its beguiling to get lost in someone else’s story of how they did something. But if it has nothing to do with the objective you are working on, it will lead you astray. An example of this is seizing upon a story of how some business saved a lot of money by economizing somewhere. The facts may be accurate. But, if your goal is anything but saving money such as cultivating staff competencies or attracting more qualified clients, the facts are not only irrelevant, they can be sabotaging. The value of a tactic is in its utility toward reaching objectives.

 

Extract Data

For each valid case study or exposition that survived the second‐pass edit, identify data. You want to capture information on costs, time requirements, skill sets, environment, outcomes and other variables at play.

 

Determine Cost/Benefit Outcomes

Develop the equation which will reveal the true value of each tactical choice under consideration (e.g., Net Value = [value of outcome x probability of occurrence] ‐ [ cost of equipment + cost of implementation + opportunity costs]). Drop in the numbers derived from analyzing relevant case studies.

 

Choose Optimal Contenders

Optimal choices are those which yield the greatest on‐target payoff and momentum. This is not to say that some choices are without risk. It's an economic fact that the highest returns often come with the highest risk. However, by identifying potential pitfalls, you can also deploy attendant strategies which mitigate risk. In any event, the best tactical choices are those which stand on their own before being compromised by local limitations.

 

Know Local Limitations

Local limitations are real and, therefore, must be known. Specifically, you need to know how much you are willing to spend and over what time frame; you need to know how much time can be devoted to business initiatives, and; you need to be realistic about skill sets and when expertise needs to be brought in.

 

Third‐pass Edit

Overlay the real world local limitations onto the optimal contenders. It could be that budgets, skill sets and devotional time are more than adequate. However, it may be that limitations are so severe that certain choices are not viable. Another possibility is that limitations elongate the time frame. Factor in the limitations to see what effect they have on outcomes and implementation schedules.

 

Choose the One Best Tactic

Whatever tactic stands strong after scrutiny, tests and qualification in the face of real world limitations is your custom tactic. Stay true to it.

 

Use Project Management

Using the information you have gathered, develop timelines, milestones, budgets and accountabilities for each phase of the project. These are your normative benchmarks.

 

Monitor

There’s a maxim that says, you can’t manage that which you don’t measure. The fact of the matter is that information must be captured on what you are doing. The captured information is then compared to your normative benchmarks. Deviations from where you want to go are like little alarms which advise you that all things are not as they should be and remediation is needed.

 

Finishing School

As you might suspect, when actualities deviate from intentions, another cycle of decision‐making is triggered. When finding out about the who, what, where, when and why of results which are off the intended course, answers hide in irreducible parts. They, too, have to pass the tests of accuracy and plausibility. Even the most creatively conceived remedies still have to fit the objectives. Alas, there really is no finish to this process. This coda is not intended to be like the punch line to a bad joke, what is a manager’s version of hell? Instead, if effectively managing a small business could be thought of as eating, the whole process might be...well...more palatable. You never eat once and for all. It is an on‐going necessity done within thresholds to sustain health. So it is with managing a business.

 

[ A Rubric for Sound Decision Making is available to Members]

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