Decision-Making Done Right
Every decision you make makes an impact on your company or personal life, so how do you make the right decisions?
Sachin Gupta, CEO of HackerEarth, has a solution. He believes there are three key attributes of good decision making; impact, complexity, and reversibility.
Impact refers to how many lives the decision will impact, how long it takes to have an effect and how significantly it impacts several key metrics.
Complexity refers to the gathering of data you need to make your decision; and once made, the effort it takes to execute it.
Reversibility refers to how easily a decision can be undone if you make the wrong decision.
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When you evaluate each of your decisions against those three metrics, your aim is to optimize for speed and conviction.
In terms of speed, the right decision, when made quickly is greater than the wrong decision when made quickly. But the wrong decision made quickly is greater than the right decision made slowly which is in turn greater than the wrong decision made slowly.
Sounds confusing, we know.
In essence, a wrong decision made quickly is better than a right decision made slowly because, here’s the deal, no decision is completely irreversible.
Even if you make the wrong decision, you can reverse it quickly.
On top of that optimistic nugget of advice, is this: any decision can turn out to be right if it is executed with conviction. That is because the rightness of a decision cannot be determined at the time it is taken, only when it is fully executed.
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We lay out the landscape for how you can make the right decisions based on Gupta’s three key attributes and the proven frameworks developed by some of the most influential business people of our time.
How Do You Make Decisions?
We often make decisions by collecting as much information as possible. That strategy is based on the rationale that collecting as much information as we possibly can will help us to make the best decision.
That is true in some cases. But in others, it can halt our progress or even prove to be risky.
Successful business people and entrepreneurs like Steve Jobs, Warren Buffet and Jeff Bezos implement simple and nifty decision-making rules or guides that remove the need for thought or reflection in particular situations.
For Steve Jobs, that meant simply saying no. For Warren Buffet, it was saying no to any investment decision that calls for a calculator or a computer. For Jeff Bezos, it’s a question of whether or not the decision is reversible or irreversible.
Reversibility is also one of the three factors Sachin Gupta believes is key for good decision-making.
The Difference Between Melted Butter and a Cracked Egg: Reversible vs. Irreversible
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There's a lot of joys involved in melted butter. One being the simple fact that melted butter, once returned to a cool temperature, solidifies, representing a reversible decision.
If a decision is reversible, then you can make it fast and don’t need complete or perfect information to make it. Whereas, if it is irreversible, you need to take your time and ensure that you have the right amount of information to fully understand the problem and make the best decision possible.
Bezos used that rule of thumb in founding Amazon. He figured that if Amazon failed to take off, he could return to his previous job, having learned valuable lessons. The decision was reversible so he went for it.
Reversible decisions fall into two main categories according to Gupta: low-impact, low-complexity and high-impact, high-complexity.
Reversible Decisions That Are Low-Impact and Low-Complexity
If you decide to buy a new brand of deodorant on Amazon after reading customer reviews, you are making a reversible but low-impact and low-complexity decision.
You have never tried that brand of deodorant before so you don’t know whether or not it will work for you. But you can use the reviews, i.e. the incomplete information, to make a decision.
In doing so, you also acknowledge that it’s not a big deal if you don’t like the deodorant. In fact, you could return it if the vendor has a flexible return policy.
Reversible Decisions That Are Complex and High-Impact
An example of this type of decision is taking on a particular job without having complete knowledge about the company culture or how you will feel about the work after a couple of months. Your decision is still reversible – you can leave and take on another job – yet the impact is higher and the decision to leave is more complex.
Whatever the outcome with reversible decisions, you shouldn’t have to obsess about finding complete information because you may miss an opportunity (by taking more time to gather information).
All in all, reversible decisions can be made fast without perfect information; and if it doesn’t work out, it can be reversed at little cost.
However, that doesn’t mean that we should be ill-informed or flippant in making these kinds of decisions. The point is to create a framework that enables us to make these decisions fast.
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A cracked egg is an irreversible action, however thankfully when it comes to everyday life, there are not many decisions that are completely irreversible. There are two main 'cracked egg' types of irreversible decisions, according to Gupta: high-impact, low-complexity and high-impact, high-complexity.
Irreversible Decisions That Are High-Impact and Low-Complexity
Not many decisions fall into the high-impact, low-reversibility and low-complexity category. That is because low-reversibility decisions also happen to be high-complexity ones.
Gupta's example of this type of decision is the electives that you chose in college. These represent low-complexity because you can use conventional wisdom together with your interests to pick useful electives.
Where we tend to go wrong in making these types of decisions is to not think them through properly. For example, students often don’t pick good electives because they are too lazy to sign up for them early enough.
So the risk is not that you make a wrong decision (since it’s a low-complexity decision), the risk is in not thinking it through and making a sub-optimal choice. According to Gupta, “the idea is to optimize for the upside.”
Irreversible Decisions That Are High-Impact and High-Complexity
The toughest decisions we make are those that are high-impact, high-complexity and have low-reversibility. We don’t spend time making those decisions, but once we make them, it is difficult to reverse them.
They are also the kind of decisions that require optimizing for conviction rather than speed. Although we would collect a lot of data and do a lot of research in the decision-making process, in the end, we do what we believe in.
Examples of these types of decisions include whether to resign or start a completely new career. Another, perhaps more extreme, example is whether to undergo a medical procedure like an amputation.
Most big decisions that make or break careers fall into this category.
With these kinds of decisions, extensive research, mining through data, competitive research, going through third-party reports, speaking to people, etc are essential.
The most important thing in making such decisions is to have a fixed desired end result: clarity on where we want to be and why.
Although it is important to have a time limit on any decision, with this one, slow and steady wins the race.
That is because not only is extensive research required but solid conviction about the decision is also required. As Gupta wisely states, the decision will gradually sink in.
Jeff Bezos: Decisions Are Like Doors
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In his 2015 annual letter to shareholders Jeff Bezos, Amazon CEO, compares reversible decisions to doors that open both ways and irreversible decisions to doors that only allow passage in one direction.
Thankfully, most decisions represent doors that open both ways. The reversible door provides us with information from both sides.
In a 2017 letter to Amazon shareholders, Bezos said he believes in making “high-quality, high-velocity decisions.”
Bezos believes that gathering just the right amount of information is enough. Aiming to have 70 percent of the data needed and then acting on it, instead of waiting longer.
Making a reversible decision quickly, at that 70 percent cut off point and then correcting it later, is more effective than waiting for even 75 percent certainty.
Bezo's point? Sometimes making a decision matters more than the decision itself. Getting in the habit of making choices quickly is a habit to develop and strengthen.
How to Make Decisions Quickly
Imagine the Worst-Case Scenario
Imagining the worst-case scenario can clarify some choices. Simply visualizing major problems before they happen and then working backwards to make the right choice can help.
Weigh the Impact
Which options hold greater weight? Does one provide a higher degree of success or failure? It’s about categorizing choices, not decisions.
And remember: not all choices are created equal. Choice A could lead to a large profit increase while Choice B may have a 5 percent cap.
If there is not enough data to make the choice, settle for Bezo’s optimal 70 percent.
Your Next Steps
Great chess players consider what their opponents might do but they also imagine all possible moves on the board. That same process applies to decision-making.
Think years down the road and consider where each choice will lead.
Make the Smallest Decisions First
When faced with making a tough decision, the best strategy is to make the smallest possible decision first. For example, if you’re thinking of moving to a new city, visit the city for a few days to see how you’ll like it before making a permanent move.
Other Ingredients for Appetizing Decision-Making
The subconscious gets less credit than it deserves in the decision-making process. Perhaps, as Gupta points out, because the instinct or gut feeling that we find extremely useful in critical situations is not a mental skill that we have from birth. It’s a skill we build over time.
Although we’re going to be wrong most of the time (because we naturally and consciously think while making various decisions), our subconscious identifies patterns that are hidden in seemingly unrelated data sets and hard-wires them in our minds.
Our intuition puts the entirety of a situation into perspective and takes us beyond a single moment in time to reveal how things will unfold in the future. We already know what to do and what will happen – we just need to follow our internal GPS.
Tuning into intuition in the decision-making process is actually a tactic that a lot of successful business people use.
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You Can’t Reinvent the Wheel
Gupta strongly advises, “don’t reinvent the wheel.”
Most of the time the decisions we make have already been made by someone else. It truly is common sense to venture out and find people who have done similar things in the past and learn from their mistakes and successes.
Mentors can prove to be of great help in talking through options each time a tricky situation comes up.
Take Your Own Advice
Taking your own advice is important in the decision-making process. Lifelong choices typically strengthen wisdom and provide clarity on decision-making process. For example, 10 years ago if you knew what you know now, what would you have done differently?
Other questions to ponder include:
- What has a bad decision from a similar situation in the past taught me? (If you take the same action, you may get the same results.)
- What advice would I give someone who has a similar issue to the one I had in the past?
Dipping into your fountain of knowledge and taking your own advice can have tremendous value in the decision-making process.
Detach From Negative Emotions
Our own fear, frustration and impatience is what keeps us stagnant. Moving forward and making the right choices means that we have to do away with those emotions.
By eliminating fear, we make decisions with more courage and conviction. By throwing impatient and irritable behavior out the window, we wait and recognize when the right opportunities come around and widen our perception.
Those feelings are impediments to progress in life and when you get rid of them, your decisions will come from your highest self.
When we think of positive things that can happen: we brainstorm the right choices or decisions to make it come true.
Writing out a situation where you have to make a decision, exploring all positive outcomes, and putting these thoughts into words can help.
List out all choices and their likely positive outcomes and predict what would happen if you did one thing versus the other. Select the choice you think will lead to the highest good.
Don’t Get Fatigued
Humans are hardwired to feel decision fatigue when we have too many choices. That is why Mark Zuckerberg, Barack Obama and Microsoft’s Scott Guthrie wear the same outfit every day.
Decision fatigue is the reason behind most of our decisions to buy junk food at the grocery store or splurge on clothes, etc. The more choices you make throughout the day, the more your brain acts impulsively and shuts down. Reducing the number of decisions in your day is a way to preserve brain power.
So create systems for the less important things like what to eat and what to wear; so you can make more space for the important stuff.
Indeed, not all decisions are created equal: some can be put on autopilot while some deserve your cognitive energy.
It is best to categorize choices into small, medium and large decisions. You can be systematic with the small ones and reserve your best thinking and personal values for the big ones.
It takes a few basic practices like these to hone decision-making skills. Successful business leaders and entrepreneurs like Richard Branson offer a few more.
Decision-Making Tips from the Man Who Owns Over 400 Companies
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On the Virgin website, Richard Branson has revealed his top tips for making good business decisions. He claims business decisions are no different than sitting on a jury: you should always consider all reasonable doubt before making a judgment.
1. Don't Judge a Book By Its Cover
Branson believes while first impressions carry weight for him, he does not let them influence his decision-making.
If you have a good feeling about an idea, although you may be right about it, it’s important to remain objective.
Always poke around for red flags, because, according to Branson, finding the red flags after signing a deal isn’t going to help you.
It is important to do your research even when everyone on your team is in favor of going ahead with it.
In the business magnates’ own words, "Nothing is perfect, so work hard at uncovering whatever hidden warts the thing might have and by removing them you'll only make it better still.”
3. Don’t Make Decisions in Isolation
Branson references something called the “decision stream” which is essentially how every decision has an impact on your ability to take on future opportunities.
Even though an idea or project may be too exciting to pass on, you need to consider how it will affect your current projects and future opportunities. Weigh the risks and make your decision after everything is weighed.
4. Minimize Risks
According to Branson, all wise investors seek inventive ways to mitigate risks if things go wrong.
Branson claims, “when we started Virgin Atlantic, the only way I got my business partners in Virgin Records to begrudgingly accept the risks involved was by getting Boeing to agree to take back our one 747 after a year if things weren't working out as we hoped.”
"To this day, with giant, capital-intensive ventures like Virgin Galactic and Virgin Voyages, we always spend a lot of time in finding inventive ways to mitigate the downside."
5. Be Patient
Branson believes that procrastination in decision-making can be a good thing. Doing more research and due diligence is never a bad thing.
Giving yourself more time could lead to finding better alternatives. Perhaps the market could change and you could be glad you waited.
With technological advancements taking place around us, and the limitless amount of information we have at hand, making smart decisions is more important than ever. It is an essential skill.
Put yourself in as many situations as possible to take on more decisions, over a long period of time you’ll find your value lies in making as few decisions as possible.
By setting up a system to reduce the number of decisions you make, you’ll be empowering others on your team to make decisions of their own. Thereby creating a decision-making process that won’t take a hit if you’re away.
Next decision you have to make, stop and ask the question, “do I really need to be making this decision?” Allow yourself to do less by cutting through the noise and focus on only the most critical decisions.
Decision-making, according to Gupta, is more of a science and less of an art.
We couldn’t agree more.