Good Decisions Are More Important Than Ever

“We have seen the collapse of some major corporate institutions

because of one common failing; they made bad decisions”

Consequently, they failed to understand the unconstrained risk associated with financial derivatives such as Collateralized Debt Obligations and Credit Default Swaps. They failed to consider the longer-term consequences of decisions that had short-term benefits. They failed to comprehend the risk of complex decisions and how decision risk can escalate. Some ignored making critical decisions, because they just never got around to addressing them. Some simply and blindly followed the decisions of others [herd mentality].

While we need to learn the underlying lessons from these decision failures, we also need new strategies for making business decisions so we don’t repeat the past in a different form. Good decisions have always been fundamental for business success, but now this is more important than ever. In today’s uncertain economy, it is nearly impossible to make confident assumptions about the future when making decisions. At the same time, there is less room and tolerance for bad decisions, compared to the previous decade when most bad decisions could be reversed, overcome or hidden with subsequent decisions.

“Today one bad decision can cause a major setback or even kill a company”

To compete successfully in today’s economy, companies need to adopt new strategies for making decisions. Here are a few examples:

Work harder on major decisions
While most executives usually intend to put sufficient work into their decisions, all too frequently they just don’t spend the necessary time. Today this is inexcusable.

“There is zero tolerance for poor decisions”

In the past for example, executives might spend 10-20 hours on an important decision, today they need to spend ten times that amount of time.

Understand decision risk
The recent economic collapse was caused largely by executives’ failure to understand the risk of major strategic decisions. Understanding decision risk takes effort and is not as exciting as visualizing benefits. We recently learned all too painfully about the consequences of failure to understand decision risk, and it is now irresponsible to say “I just didn’t consider that risk.” Decision risk is not easily understood; in fact, many executives have never learned techniques for sufficiently appraising the risk of their decisions.

Take decisions step by step or try them on for size
Many major decisions are best made by adopting a step-by-step approach rather than making a full commitment up front. Another technique that is increasingly important is to try a decision on for size before making it.

Develop decision making as a core competency
When you look at successful companies, they all share one common trait…they make good decisions. When you look at mediocre or failing companies, they all seem to have made bad decisions. Yet surprisingly few companies actively cultivate decision making as a skill set for their leaders and managers. When they have, such as the phase-based product development decisions mentioned above, the results have been extraordinary.

“Improving decision making can even become a competitive advantage”

Don’t hesitate to make bold move decisions
Being cautious in today’s uncertain economy does not mean decision paralysis. In fact, now may be the best time to consider bold move decisions. The shifting economy provides many new opportunities for courageous businesses to make bold move decisions. These just need to be objective and well thought through decisions.

Boards of Directors need to play a bigger role in major decisions
One of the biggest questions raised in the recent collapse of major institutions such as Lehman Brothers was:

“Where was the board of directors when these decisions were made?”

Directors should not be involved in micromanaging a business, but they should care about the incentives, diligence, and skills applied to major decisions, and they should use their experience and wisdom to review major strategic decisions before they are made.

In many ways, the abrupt decline of the economy and its dramatic impact on business should serve as a wake-up call for better decisions and more focus on decision making as a skill, if not we will face even greater disasters in the future. It’s not a call for more sophisticated decision making, but it’s a return to the basics of due diligence, common sense, and hard work.

Author, Michael E. McGrath is an experienced advisor to executives, former CEO, executive chairman of Thomas Group, and author of Business Decisions! – How to Be Decisive While Reducing Risk in Today’s Economy. Full article and credits:
http://www.halllc.com/2010/08/good-decisions-are-more-important-than-ever/

ZDT Author’s Comments:
This looks specifically written for corporate applications, but after careful review, many of these points apply to individual challenges. Very insightful and extremely timely.