How to make informed decisions

In the movie Margin Call, Kevin Spacey’s character is presented with the impossible moral decision of whether or not to sell off a slew of toxic assets in order to save his company’s solvency, thereby poisoning the Global Financial system and causing a worldwide recession. I won’t spoil the movie for you, but the drama that makes the movie so gripping should be familiar to any manager who has to make tough decisions on a daily basis. The world financial system may not hang in the balance of your decision on which vendor to choose, but every decision has consequences. Managing the stress this causes, and streamlining the decision-making process will be beneficial to any leader.

Decision-making is at once the most essential and most gut-wrenchingly difficult part of managing your business. There are tens to hundreds of little decisions to be made any given week and they aren’t always clear-cut. Even with a wealth of data and advisors, there come times when you feel you just have to roll the dice and pray. Before you do that though, there is a time-tested process you should go through to determine whether you are making the right decision.

Step 1: Examine the Evidence

This should always be your first recourse in the face of uncertainty. Utilize a modified version of the Scientific Method to gather all available data and organize the potential variables.

•At this stage in the process your gut feelings should take a backseat to pure analysis.
•Evaluate each suggested course of action based on the evidence at hand and objectively record the projected effects.
•Look at your business’ history of similar cases and attempt to determine the effects those decisions have had.
•Research the type of decision you’re making to get a sense of the courses of action commonly taken by other businesses.
•Finally, evaluate which decision seems most appropriate for your particular situation.

Step 2: Determine Possible Ripple Effects

Step back for a moment and think about the less obvious ways this decision will affect your company. Does it conflict with your company’s core values or objectives? How will it be viewed by investors or outside clients? Are there any hidden costs? What are the long term organizational effects of this decision? What precedents does it set? Give all of these questions due diligence, and then move on. Spending too much time worrying about the ripple effects can paralyze your ability to decide since there are simply too many uncertainties to account for. Look for obvious red flags, but don’t go digging around for problems where none exist. This promotes a form of negative confirmation bias which will ruin your objectivity.

Step 3: Perform A Reality Check

You’d be surprised at how much of human (and managerial) behavior is based on commonly accepted preconceptions with not evidential basis. Take an honest inventory of your reasoning for making a decision, and perform a Reality Check. If you’re basing it on some idiomatic truism or intuition, you would do well to investigate further. Intuition has its place, but it should not be at the center of an important decision. Remember that the entire marketing industry is based on manipulating people into making decisions based on irrational premises; don’t assume that you as a manager are immune to this type of thinking.

Step 4: Evaluate Risk

Every decision is at its heart somewhat of a gamble. To be effective, you have to bring an actuarial acumen to everything you do. Try to estimate whether your decision will be a “good bet.” Do the risks outweigh the potential rewards? Don’t let the attractiveness of a prospect instill you with confirmation bias so that you ignore the possible pitfalls.
Further, be aware of the warning signs of the possible risks so that you can quickly alter your decision if it appears to be going south. For example, if your decision was wrong you might expect to see a large amount of pushback from the frontline. You might not see the projected cost savings in the timeframe you estimated. You might see behavior from a contractor indicating that it isn’t fulfilling its end of the bargain.
If you’re aware of these risks from the outset, you’ll be able to quickly shift course when you see them becoming realities. Otherwise you’ll continue plodding ahead with a failed policy, falsely confident in its essential validity.
At the same time, don’t act prematurely. Determine which risks are acceptable, necessary costs of a decision which will ultimately pay off. Learning to distinguish between these two types of risk will be essential in carrying out your decision.

At this stage in the process, you should feel fairly confident in the validity of your decision. If it’s passed the previous four checks, you’re ready to take your prototypical idea to the next stage in the process.

Step 5: Get Second and Third Opinions

Take your idea to everyone from frontline employees to other managers. Encourage the active discussion of it within the company at large. If you are sufficiently confident in your decision you should be able to honestly answer any questions and concerns that arise from this process. If something comes up which challenges you, take it seriously.
However, don’t doubt yourself excessively. Remember that you are the one who has thought the longest and hardest on this issue, and you shouldn’t let baseless negativity affect your decision. Remember that this is not a popularity contest or an election, but one more step in the process of honing and defining your decision.

Step 6: Perform a Final Check, and Act

Having run through the five steps of this process, you should now do them once again in miniature, just to make sure you haven’t fallen victim to confirmation bias or allowed yourself to let others’ opinions corrupt your judgment. Be confident in your plan having run it through this exhaustive process and execute it with authority. There’s always the chance that things can go wrong, and a roll of the dice always entails a risk. At least now you know the odds are in your favor.

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