Decision Outcome Chain

Fifty meters. Forty meters. The Peapod skimmed across the water towards the windward mark with a slim lead over its rival, Anemone. "Prepare to tack." Seconds passed like minutes as the crew awaited the next command, ready to rocket into action. The computer which was the skipper's brain, honed by years of experience, monitored wind speed, wind direction and a host of other inputs. "Tack!" The skipper eased the tiller to leeward, the boom swung, the crew sprang into action, and the eager craft leapt to its new course. Despite what appeared to be perfect execution, the skipper remained vigilant. With the craft now just ten meters from the mark, the wind suddenly shifted. Peapod slowed noticeably as the skipper was forced to point dangerously close to the wind to make his objective. Anemone shot past, having anticipated the wind shift.

How Peapod and its crew took on the challenge of rounding the mark can help us understand how decisions produce resultant outcomes. A decision (in this case, to tack and when) is made based on available information. The decision is then implemented (here by the crew working the sailboat's controls). During implementation, external forces (such as the wind) are sure to act. The decision maker may modify his decision (e.g., head up) based on feedback, observing the impact of these forces vis-a-vis the effectiveness of implementation. Finally, an outcome is realized.

While the primary objective of decision-making is to achieve a "good" outcome, good decisions are not synonymous with good outcomes. Good decisions implemented poorly can produce undesirable results. Surprisingly strong external forces (e.g., the economy) can foil even the best of decisions implemented well.

Ironically, such forces can lead to good outcomes even in the absence of good decisions or implementation. Should corporate executives receive a king's ransom in compensation during the best economic times? Should executives receive blame for poor results during economic downturns? I digress.

Decision Context

One of the most impressive business leaders I have met is now CEO of a major corporation. One of this individual's key gifts is the ability to focus on what really matters when it comes to making decisions. This individual asks penetrating questions that get to the heart of the matter.

Focusing on what really matters is in direct contrast to what we observe in most business meetings. Discussions wander aimlessly until someone recognizes the need to get back on track. Many meetings end (on the hour of course) with the group no closer to a decision or plan of attack then they were when the meeting began.

What does really matter when it comes to making a decision? We refer to the collection of data relevant for making a decision as that decision's context. The April 3 post explained that decision context can be more than "just the facts," also encompassing the emotional state of the decision maker. The following questions suggest other relevant data:

1. What does the decision-maker or organization value?
2. How will the decision's outcome be measured?
3. When must the decision be made?
4. What budgetary, resource, political or other constraints limit potential alternatives?
5. Which other decisions should be made consistent with this decision?
6. How complete and trustworthy are available factual data?
7. Which aspects that influence the decision's outcome are uncertain (e.g., the economy)?

The amount of contextual data for a complex decision can be enormous. Getting lost in the details and following irrelevant paths are clear dangers. To avoid these pitfalls, I suggest the following alternatives:

1. Retain my CEO friend.
2. Frequently ask yourself, "what is relevant?" and "is what I am pursuing relevant to the decision at hand?"

Decision Second-Guessing

The day after the big game, talking heads on television and radio sports shows take up the task of "Monday morning quarterbacking." They dissect every failed play, explaining what the coach and players should have done and why. Had the team only done this instead of that, they argue, the outcome might well have been different.

The decision recommendations offered up by these talking heads are made from the comfort of an easy chair rather than from a pressure filled sideline. They judge decisions made in the heat of battle, in the midst of uncertain circumstances, and with the clock ticking, through the crystal clear lens of 20-20 hindsight.

During hearings into the Watergate scandal, Senator Howard Baker asked "what did the president know and when did he know it?" While Baker's question was posed to judge the guilt or innocence of President Nixon, the same question might be posed to judge the effectiveness or ineffectiveness of a decision maker. For one, judgment should be based on what that individual knew (or reasonably should have known) at the time the decision was made and not based on information that subsequently came to light. For another, judgment should take into account the timing of information becoming available. Digesting information and formulating responses takes time. For that reason, information received in advance is more valuable than information that arrives only moments before a decision must be made.

Choose from among the following alternatives the most important take away from this posting for you:

1. Avoid talking heads engaged in Monday morning quarterbacking at all costs
2. Judge a decision maker's choice based only on information that was available to them at the time they made the decision
3. Gather relevant information well in advance of when that information is needed to make an effective decision
4. None of the above

And yes, completing this multiple choice question constitutes a decision!

Decision (Ir)rationality

Decision making would appear to be an exercise in rational thought. Apply your mind to the task of gathering the facts and weighing the alternatives and voila, you produce a sound decision. Unfortunately, evidence suggests that people are less "rational" in their decision making than they might think.

A recent Newsweek article (http://www.newsweek.com/id/191430) explains an application of behavioral economics, "an academic field that studies the role of environmental factors in decision making." "Stealth health" is getting kids to eat healthier not by limiting choices, but by pushing them towards the best choices. Examples of "stealth health" methods include giving healthy food appealing names and making healthy food easier to access. Such methods work at a subconscious level, overcoming kids' "rational" desire for sweets and other junk food.

The Spring 2009 edition of On investing, Charles Schwab & Co.'s quarterly magazine, contains a thought-provoking article by Greg Forsythe on the impact of biology on investor decisions (http://oninvesting.texterity.com/oninvesting/2009spring_2/?pg=36). Forsythe explains that the inner brain, which "reacts instinctively and emotionally," can trump the outer brain, which "processes information intellectually," in making investment decisions.

My point is not that you should make decisions based on cold, hard facts and that decisions you make based on subconscious urgings are somehow faulty. My point is that you are not only a decision maker, but also a human being. As a human being who makes decisions, you cannot help but generate and consider emotional input data.

Your assignment for this week is to pay attention to the emotional side of your decision making. Before, during and after you have made some decision, document the feelings and emotions of which you are aware.

Decision Defined

If you haven't already done so, read my March 18 post entitled "Decision Awareness" and complete the corresponding assignment. The purpose of that assignment is to raise your level of awareness of decisions. Having observed and listed decisions you and others face, you may be surprised at just how prevalent decisions are in your life, and how you make many decisions without much conscious thought ("on autopilot" so-to-speak).

One of the primary purposes of this blog is to explore how to make better decisions. Before taking up that objective, let us ask and answer a basic question and that is, "what is a decision?" For our purposes, a decision is a choice among two or more alternative courses of action that can be taken. This definition encompasses two important ideas. First, decisions involve choice; no choice means no decision. Second, decisions lead to actions.

Perhaps the most common type of decision involves exactly two alternatives. These alternatives might be labeled "yes or no," "go or no go," "stay or go," or "to be or not to be." On the other end of the spectrum are decisions involving a very large number of alternatives. Consider the problem of deciding how to assign 10 workers to 10 tasks. One can assign the first worker to any of the 10 tasks, the second worker to any of the remaining 9 tasks, the third worker to the any of the remaining 8 tasks, etc. The total number of possible ways to decide is 10 x 9 x 8 x ... x 1 = 3,628,800.

Your assignment for this week is to answer the following two questions for each decision you listed in your previous assignment.
1. How many alternatives are possible for this decision?
2. What actions would you take to implement each decision alternative?
I encourage you to write down your responses, but whether or not you choose to do so is your decision.

Decision Awareness

"Two roads diverged in a wood and I--I took the road less traveled by, And that has made all the difference." (Robert Frost, The Road not Taken)

The results we achieve depend on the actions we take. Our actions, in turn, depend on the decisions we make. The purpose of "Decision U" is to highlight the importance of effective decision-making and to explore how to make better decisions (and hence achieve better results).

The term decision-maker conjures up images of political leaders or corporate executives, their foreheads creased with concern as they agonize over which way to proceed. Such individuals make weighty decisions with far-reaching impacts. And yet, these people are not the only ones that make decisions. As a matter of fact, everyone, including you, is a decision-maker. Each day, you decide when to wake up, when, where and what to eat, and what to wear. These decisions may seem to be minor and inconsequential, but they are decisions nonetheless.

If you are to benefit from this blog, you will need to take an active role. The purpose of the first homework assignment is to raise your awareness as to how prevalent decisions are in your life. Yogi Berra once said, "you can observe a lot just by watching." For the next several days, observe carefully and identify examples of decisions that you or others in your life face. Then, make a list of five of these decisions that you find most interesting or challenging. As you complete this exercise, keep in mind that Yogi Berra also said "when you come to a fork in the road, take it."