Chris Owen - Ross School of Business and School for Sustainability and Environment
Making great business decisions can be
difficult. Incomplete information, confounding variables, conflicting
interests, and tight timelines—these are just a few of the challenges that entrepreneurs
face as decision-makers. Fortunately, sound decision-making is a skill that
can, in part, be taught. Below is an abbreviated list of strategies—a
decision-making toolkit—based on the research of both Nobel Prize winner
Richard Thaler and Joe Arvai of the Erb Institute that we at Poornatha are
teaching our entrepreneurs in the Journey ‘n Joy Entrepreneurship Ecosystem.
- Begin with vision and
values. Your decisions should align with and
support both your overarching vision and your core values. What are the purpose
and goals of your business? Does this decision support that purpose and
goals? What are your business’ values? How does this decision affect both shareholders
and stakeholders in your business ecosystem?
- Identify important
information. You will always have either too much
information or not enough. Your responsibility is to identify important
information while ignoring that which is irrelevant. This is both an art
and a science. Lean on your own experience as well as the guidance of mentors.
Lastly, stay focused on your end goal as you research your options and
their respective outcomes.
- Learn from the past. History is a great teacher. Often, a simple look backward can
help you take a step forward. Ask yourself: Have I or someone I know faced
similar circumstances before? What was the decision that was made and what
was the outcome? How is my situation similar or different?
- Be aware of brain
tricks. Our brains are inherently lazy. In order
to process large amounts of information quickly, we use mental heuristics—that
is, mental shortcuts—to make decisions. We take into greater consideration
experiences that have happened more recently (recency effect) or more
often (frequency effect). We tend not to stray far from past decisions
(anchoring effect) and depend largely on our feelings (affect heuristic). Are
any of these brain tricks influencing you decision in a disproportionate
way? How and why?
- Acknowledge choice
architecture. The options with which we are
presented often dictate the decisions we make. Our environment shapes us.
So ask yourself: “What are the options with which I am being presented?
Can I restructure this problem or my environment to provide myself
different options?”
- Avoid decision fatigue. Making a multitude of daily decisions makes us mentally tired.
This is called “decision fatigue” and it weakens our creativity,
analytical ability, and self-control. Therefore, never make important
decisions after you have already made several other decisions or when you feel
fatigued.
- Quantify it to clarify
it. Numbers matter - a lot. They often make clear
on paper that which may be fuzzy in our minds. Identify important data
points, quantify them, and highlight trends. When possibly, equalize your
choices by measuring them and comparing their outcomes quantitatively.
- Taste-test your top
choice. Apply the concept of a “prototype” or MVP
(minimum viable product) to your decision-making process. Is there a way
you can test the various outcomes of this decision at a negligible cost?
The goal of this strategy is to gain as much feedback as you can before
having to fully commit.
- Hedge your bet with a
diversified decision portfolio. Ask Yourself: “Do
I have to go all-in with this decision or are there ways I can maximize my
probability of success by distributing risk over several selected options?”
This is the equivalent of a diversified portfolio of investments—a
“decision risk portfolio.” Don’t risk everything on one choice if you
don’t need to, especially when you have several great options available to
you.
- Trust your gut. Most business owners begin by trusting their gut. While this is
valid to a degree, why not also inform your decision with the
aforementioned decision-making tools? Your personal experience and
collective wisdom are important, but it shouldn’t be the only factor that
determines your final decision. Therefore, trust an “informed gut
instinct.”
BONUS: Document your decision outcomes. Many business owners make a decision then neglect to reflect on the
process which produced the outcome. Begin documenting your decision-making
process. Over time, you will accumulate a library of decision-making maps which
can inform future choices.
References
and Recommended Resources:
Triple-Bottom-Line Decision-Making, Joe Arvai,
Professor at the University of Michigan
Nudge, Richard Thaler, University of Chicago
Ruth Chang, Hard Choices, TEDx
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