How to Make Better Decisions

Management

How to Make Better Decisions
by Harry Dennis



Have you ever asked this rhetorical question: "What is the difference between decision-making and problem-solving, and should I really care? Well, in business the differences can be quite crucial in a subtle sort of way. Why?

A decision, by definition, is really a choice. Usually, it is a choice among alternatives, although it can be a decision to simply do something or stop something, or continue doing something, or doing nothing at all. Compared to "problem-solving," decision-doing is easier, but also much riskier, if, in fact, it is donein the absence of problem solving. In short, the judgments involved become based less on fact and based more on instinct or "gut-feel."

Today, the pressures of time tend to force management to make quick decisions without the benefit of thorough problem analysis. Or the opposite occurs. That is, the pressure of time leads to a "paralysis of analysis," and no decisions are made at all.

The business meeting environment is, unquestionably, the most sly and deceptive place where decision biases are substituted for good, solid cognitive thinking and problem-solving. This is because personalities get wound up, time becomes the enemy, and expedient if not ill-conceived solutions are oftenthe result.

Take, for example, the decision by a local service firm to freeze management salaries and install a totally untested "pay-at-risk" program. Two years into the program, after the abrupt departure of two key executives, the program was aborted. As it turned out, base wages in this firm were not industrycompetitive to begin with.

So how can we improve our ability to make "smart choices"? Here are the steps we at TEC recommend:

1. Anchoring. Don't make a decision based upon the first information coming down the "problem pike." For instance, Sales says, "we can't raise prices or we'll lose the business." Go beyond sales and talk to vendors and other service providers, and study the competition.You might find some pleasant, contradictory surprises.

2. Status Quo. Check out the status quo against your decision alternatives. It may be that the status quo is nothing but a moving target that needs to be challenged once and for all.

3. Sunk-Cost Trap. If a bad decision is followed by a bad decision, "shame on the decision-makers." Warren Buffet once said, "If you find yourself in a hole, the best thing you can do is stop digging." Standing back-moving away from the "box"-is the best way to pushpast this decision-making "sink-hole."

4. The Overconfidence Trap. "We've never failed in a plant expansion yet," was the bold pledge of a former TEC member who had just committed to relocate two Wisconsin operations to a Mexican border operation-against the advice of his managers and other industry peers.Untold losses later, the decision was reversed, the operations were shut down, and this CEO finally admitted that he "should of/could of."

How, then, does one become an astute decision-maker and use well-executed problem solving techniques in the process?

I have this in mind, thanks to the well-written advice of John S. Hammond, Ralph L. Keeney and Howard Raiffa in their work, "Smart Choices: A Practical Guide to Making Better Decisions":

1. Just Start. Get on a problem early rather than later. Later forces the uninvited expeditious decision-making that is not a good plan.

2. Focus on What's Important. Strangely, people will quibble over the easiest issues involved in a decision, studiously avoiding the ones that cause the most frustration and consternation. The "what's important" are the really big issues. As CEOs, this is what we arepaid for-to manage and hold our people and ourselves accountable.

3. Formulate an Attack Plan. Making a decision about a problem is really the first step, not the last step. An attack plan will help you to determine if more information is needed prior to implementation, or if other unexplored alternatives exist that are worthpursuing, or both.

4. Peel Away Complexities. Know what to overlook. Break the decision components down into layers, and ignore detail that is irrelevant to effective decision implementation. Likewise, break the initial problem down into simple components. You might find that eachcomponent produces its own unique decision alternative.

5. Get Unstuck. Talk to a trusted advisor. In TEC, the advisory TEC group fulfills this function for members who are stuck in the problem resolution process. Also, consider hiring a "coach," a subject that was explored in some detail in a recent Small Business Timesissue.

6. Conduct a Decision-Making Tune-Up. Nothing wrong with a periodic "audit" to assess the efficacy of your company's problem solving and decision-making ability. Get your management team involved in a self-assessment. What's working? What's not?

Finally, remember that the failure to realize that you are at a decision crossroad-the failure to see its need for attention-is no different than our old proverbial ostrich friend: a head in the sand is definitely not worth "two viable decisions in the bush"-if they can be flushed out and actedupon!


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Harry S. Dennis III is the president of TEC (The Executive Committee) in Wisconsin and Michigan. TEC is a professional development group for CEOs, presidents and business owners. He can be reached at 262-821-3340 or at hiduke@aol.com.