Making Better Business Decisions

We make decisions everyday. Small ones. Big ones. Simple and complex ones. We often rely on previous experience, our gut instinct, analysis etc. In simple terms these are all mental tools. There are hundreds of tools out there. But which tool is best for which situation? And worse, how do you know when you have succumbed to cognitive biases that will lead to poor decisions? For more on decision making, there are tons of excellent books you can read. I particularly enjoyed reading “Thinking in bets” by Anne Duke and “The Paradox of Choice” by Barry Schwartz.

For more on cognitive biases pick up “Thinking fast and slow” by Daniel Kahneman and Amos Tversky and The Art of Thinking Clearly by Rolf Dobelli. Both are great books

But First, let me clear up a common misconception.

Does a good decision always lead to a good outcome?. “No, no, no.”

Really?

"Well think of it this way..." each decision you make is like throwing a ball up in the air. The exact spot the ball will land ( aka the outcome) depends on many factors. Some you control and some you don’t. Examples are, the force of the throw, the size of the ball, the velocity of the ball, the direction and speed of the wind, the absence or presence of another person hitting the ball mid air and sending it straight through your neighbor's window. The list goes on.

You can make a pretty dumb decision that ends in a good outcome. Like what? Like when you order a very expensive office equipment from a company with extremely poor customer rating and it turns out just fine. You made a bad decision but you got lucky.

Conversely you can hire the well dressed, well spoken, highly recommended straight A Ivy League grad student and he turns out to be a disaster on the job. That sounds like a good decision with a bad outcome

A good decision comprises a good process and the right tools for the situation. The outcome like I illustrated depends on many variables that are not all in your control.

One of the most difficult decisions we make is deciding between Yes and No. A new business, a new business line, a new project, expanding an old project, developing a new brand or sticking with the old one, shutting down operations in a country or staying, increasing or cutting marketing spend. These all come down to Yes or No.

One tool I use is a simple checklist. Business opportunities come everyday so I developed this checklist to help me decide when to say Yes or No. 1. Is it in my zone of interest 2. Win or lose will I gain valuable knowledge or skills 3. Is there a reasonable financial payoff ( if it succeeds) or can it open doors to one 4. Can I make out the time it will demand from me and what would I have to give up to make the time?

If my answer is YES to all 4, I move quickly on the opportunity OR commit the time to evaluate it further. If not, I say No and move on. One caveat. I take a long term view of work and life so this works for me. But it may not work for everyone. You have to know how you are wired.

One cognitive bias I often fall prey to is called the Confirmation Bias. We’ve all been there. First, you’ve instinctively decided what to do, then in the guise of logically evaluating options, you look for any evidence to back up your decision and completely ignore or discount evidence that doesn’t support it. This can lead to costly mistakes.

To counter this is I seek the opinion of someone most likely to say No.. This is very hard to do …believe me. For example, Imagine you want to run a sales campaign with free shipping. The heads of logistics and customer service make great safeguards because they are often at loggerheads with Sales. If they can find good reasons to go ahead, then I feel more comfortable.

In Summary find the right mental tools and watch out for your cognitive biases.

Have questions or comments or want to suggest a topic for the series? Send Juliet Anammah a short email at info@cgandrstrategy.com

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