The value of a decision

How do you justify why a specific decision is worthy of an hour or two of analysis time and effort.  This is typically delivered as a form of pushback, “I would never spend that much time making a decision – you’re making it too hard”.  Let’s think together about how much time a decision is worth.

So what is the value of a decision?  How much rides on it? What rule of thumb should I use when I determine how much time to invest in making a decision?

We use a “2 percent rule” or “50-to-1 rule”.  This means, on average, that we don’t want to spend more than 2% of the value of the decision on the analysis effort required to make the decision.  We would all think it foolish to spend $10,000 of our time to make a decision that has only $10,000 riding on it.  We might as well flip a coin and go with trial and error in such cases.  But spending $200 of our time on a decision that risks $10,000 seems a bit more reasonable, even prudent.  What we really want is to spend the least amount of time we can, while still producing a superior (near ideal) outcome.   We want lots of leverage from our analysis effort by thinking quickly, efficiently and creatively.

We calculate the value of the decision by comparing the “dollars at risk” between the best possible alternative that might be created or discovered and the outcome associated with picking an alternative that fails (and has to be replaced after it is implemented).  In some cases, there are so many viable alternatives, few of which could fail, that I compare the best alternative with one of the OK, but mediocre ones.

When buying a used car, we might peg the dollars-at-risk at $5000 (the difference in purchase price, operating/maintenance/resell between the best car on the lot and a real lemon).   The 2 percent rule hints that I would like to spend no more than $100 of my time on making this decision.  If I make $50/hour at my job, I calculate the real value of my non-sleeping time at $25/hour.   So 4 hours of research and analysis, test drives and debates would be time well spent.

Of course, most life decisions are driven less by money and more by values, love, or peace of mind.  I might spend many extra hours looking for a car with my child just for the sake of our relationship or because I think car-shopping is fun or because their safety is vital to me.

Step back at a higher level.  Most of us have more than 100 waking hours each week.  If you could spend 2 hours each week on decisions that would make the remaining 98 hours significantly more productive or joyful, why wouldn’t you?


A foundation for great thinking

Last week I was asked what I do for a living. Rather than give a long explanation concerning Decision Management and Systems Engineering consulting, I went with the short version, “I teach people how to think” and followed it tongue-in-cheek with “It’s a tough job, but someone has to do it!”.

Actually, its a great job, a blessed privilege, lots of fun and the ticket to continuous learning on my part.

That exchange reminded me that I’ve been consulting for over 30 years; half a life and three/fourths of a career. Thirty years ago, I was immersed in the roll-out of Kepner-Tregoe (K-T) Problem-Solving/Decision-Making (PSDM) workshops/skills at a large defense contractor (since renamed/resold/merged multiple times). I had been exposed to the K-T Rational Processes early in my career, used them extensively as an individual in my first engineering job and had gained a reasonable mastery of the basic human thinking skills that they represent. My passion for systematic thinking convinced my new boss (Director of Manufacturing Engineering) that such skills could make a difference in his workforce of 300 engineers and technicians.

If you’re unfamiliar with K-T precepts, I’ll summarize:

  • There are four fundamental thinking patterns/processes (SA: Situation Appraisal, PA: Problem Analysis, DA: Decision Analysis and PPA: Potential Problem Analysis) by which knowledge workers successfully address their job concerns.
  • These patterns are not theoretical; they were discerned by observation across many industries and job roles.
  • Mastery of these systematic thinking building blocks can greatly improve the effectiveness and efficiency of individuals and teams in any work situation.
  • The ability to do great thinking is a skill that can be taught.

In March of 1986 I attended a 12-day PSDM Bootcamp that deepened my understanding of these processes and how to communicate such skills to my peers. In May, 1986 I taught my first PSDM workshop to the Manufacturing Engineering management team. By the fall of 1986 I was teaching 2 workshops a month, coaching my students in the use of their new skills on the job and helping to build systematic thinking techniques into the company’s business and engineering processes. A consultant was born!

The K-T framework is essentially a set of questions that frames the issues/concerns in any situation and creates an efficient “knowledge pull” from the stakeholders and contributors. Because it’s independent of any type of business or technology domain (and works just as well in our personal lives), this also implies there is a universal information architecture for human thinking. That leads the possibility of knowledge patterns and software tools that expose these patterns. Most of what I’ve done in the Systems Engineering and Decision Management fields is simply the refinement of these patterns and tools, accelerated by the rapid learning cycles that come from seeing any situation as some combination of SA, PA, DA and PPA.

From K-T I also learned how to avoid lot of bad thinking habits:

  • Failure to separate concerns
  • Diving into detail
  • Jumping to cause
  • Jumping to an alternative

In three decades of business, engineering and innovation consulting, I’ve seen my share of movements, frameworks and methodologies (TQM, CMMI, Six Sigma, Lean, Agile, MBSE, Business Model Canvas, …). All of these promote useful concepts; but none of them simplified my world as much as the four elegant K-T Rational Processes that lay a foundation for great thinking in any situation. Many of the proponents of these frameworks seem to exhibit the bad thinking habits that I learned to avoid.

What’s been your experience?

(Originally posted by John Fitch, October 14, 2016)

Proactive Decision-making

Often decisions are a surprise.  They pop up spontaneously like a fork in the road, seemingly out of nowhere.  They usually have a deadline that leaves one scrambling to meet it.  You have to quickly find a friend who knows something about this topic (like Google), get input and take the plunge.  There’s always  a nagging feeling that some important factors were overlooked.

When you understand that life, business or engineering decisions follow a pattern, continuing as a “reactive” decision-maker is foolish.  Although it may take a while to discern these patterns, when a decision “pops up”,  a  pattern can be matched and the decisions that I will be face can be anticipated.  You can be “proactive” when attacking these decisions.  This gives plenty of time to gather the appropriate information (which also follows a pattern) and produces both better decisions and greater peace of mind along the way.  Even when events beyond our control throw us into a new situation (e.g. a major illness diagnosed),  checking the pattern can help to quickly respond to the new circumstances.

There is great power in proactive decision-making.  Like any other new  habit, you’ll have to apply a little effort until it becomes second nature.  You just need to decide to start your journey toward becoming a proactive decision-maker.

(Originally posted by John Fitch, January 29, 2008)

What is a decision?

When we use the word “decision” in everyday speech, we use it in two different ways.  When I am looking forward to a fork in the road of life, I might say, “I need to make a decision – which college should I attend?”  The word “decision” implies a question, issue or concern that needs an answer.  At Decision Driven® Solutions our definition is “A decision is a fundamental question or issue that demands an answer or solution”

After I have wrestled with this question a while, I might tell a friend, “My decision is to go to Purdue University”.  In this usage, “decision” no longer means the question, but rather the specific answer that I’ve committed to or plan to commit resources to.  At Decision Driven® Solutions we call these answers, “alternatives”.  Some alternatives are the answers we committed to in the past, other alternatives were considered and rejected; still others are just raw ideas that we may evaluate some time in the future.  Some synonyms for alternatives = solutions, options, ideas.

Neither approach is right or wrong, but there are quite a few advantages to the “Decision = the question” meaning.  More on that in the “Proactive Decision-making” topic.

(Originally posted by John Fitch, January 29, 2008)