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Book of Note
"MAKING GREAT DECISIONS in Business and Life"
by David R. Henderson and Charles L. Hooper (2006)
Summarized by: Marti Benjamin, MBA, Professional Certified Coach
I first reviewed this book for this ezine in 2007 and recently picked it up again to see how the lessons outlined would apply to the current business environment. I found it worth visiting again, this time with a different perspective on business assumptions.
The book offers tools from the field of economics and decision science to work through business and life problems. Although the book gets off to a slow start, it does offer some interesting insights into effective decision-making.
The first tool is thinking on the margin-thinking about the next increment only as opposed to the whole project or process. For example, do I hire one more employee? Or, do I want one more potato chip? Given what we already have, thinking on the margin is thinking about what we want next, rejecting all-or-nothing thinking. This tool can be particularly helpful when tackling a large project-think of it as a series of small steps and concentrate on the next one. That's thinking on the margin-thinking about the next increment only. Decide what to do in the next step toward the goal and the subsequent steps will follow.
The authors encourage us to "think value" rather than focusing on cost. "Whether a purchase is a good deal depends solely on the difference between the value to you and the cost to you, not how much you saved over the regular cost." (Page 34) When you choose one thing over another, you have incurred the opportunity cost of foregoing the other option and that is a relevant cost. Using the idea of thinking on the margin, you can concentrate on the next incremental cost, not the costs that have been expended, the sunk costs that cannot be recovered regardless of the next decision. The best decision is the one that looks forward, carrying the lessons from the expenditure of past costs.
Understanding a change requires looking for the change that drove the one you can observe. If the software worked perfectly for several weeks and then failed to perform as expected, you would look first to see what had changed that had a rippling effect and caused an unintended consequence. The value of knowing what changed is in being able to determine where to find the problem and to determine if the unintended consequence is worth the gain realized from the change.
Knowing what you want before making a choice enhances the efficacy of the choice. That seems obvious, doesn't it? One point of confusion arises in business when we confuse profits with revenue and expense. To increase profit, the theory goes, we want to increase revenue and decrease cost but those two objectives may not be compatible. It may actually be necessary to increase cost in order to increase revenue and profit. Begin by determining which are the ends and which are the means; the goal is to maximize the ends without trading off the means. Revenues are the means and profitability the ends.
We each operate from our biases, creating a unique mental model of the world developed by simplifying reality to a rule. However, it may apply only part of the time but we haven't looked far enough to know that our view is obstructed. To prevent the impact of biases, rely on objective data and, "...dig deeper and look beyond the surface explanation." (Page 108)
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