Making Decisions Means Taking Risks

 

By Lynda Bourne

Every decision involves making a choice between alternatives, with the project leader picking from a number of options. This selection is influenced by information (albeit sometimes insufficient) and preferences rooted in values and ethics. In these circumstances, the modern trend of risk-based decision-making can be seen as a tautology: Every decision involves uncertainty and therefore incorporates an element of risk.

The worst option is to delay a decision until all of the necessary information is available—and, as a consequence, all of the opportunities have evaporated. So how do you make good decisions? The starting point is to accept there will be uncertainty in all true decisions—and the outcome matters. You have to choose between different options while navigating any number of obstacles ahead of you: incomplete information to support the decision, no clear best path and unknown outcomes of some options. The challenge is to make the best decision in the available timeframe balancing risk and reward. No process can guarantee a good outcome every time, but working through a pragmatic process can help improve outcomes.

Your decision-making process needs to:

• Define the objectives or outcomes you seek. This frames why you need make this decision and what success may look like.
• Consider the risk of each of the alternatives is by assessing the level of uncertainty and the nature of the possible outcomes. Educated guesses are okay.
• Rank the options based on the level of risk exposure and the probability of achieving the required objectives. A weighted decision-making matrix may help, but remember to keep costs and benefits in mind a well.
• Make the decision and move on to implementation.

Getting the weighting right is central to this approach. In some situations, particularly when safety is involved, dull, safe but expensive may be the best choice, particularly if the cost is not particularly significant in the overall project budget. Think about investing in the security layer for any on-line finance or ordering system, for example. In other situations where failure is only going to cause some embarrassment, innovative but risky solutions may be better, particularly if the cost is low. Case in point: No one can predict when a website will become ultra-successful (go viral), but you won’t be successful if you don’t try. Investing US$10,000 in an option that has a 10 percent chance of making US$1 million is a good investment (but prudent managers have plan B ready to roll).

There’s no way to ensure the best decision is made, and often no way of knowing if the decision you’ve taken was the best—you cannot re-run history. But you can measure bad outcomes; the worst decision is no decision. The next-worse option is a late decision. This always costs a lot of money and may result in opportunities being missed. And the next worse option after that are timely decisions based on a wrong premise—usually out of trying to avoid all risk.

If you avoid those pitfalls, you’re likely to be making a well-founded decision. This is the realm of competent managers. But you’ll also need luck on your side to be seen as making a “really good” decision. And for that, you make your own luck, to quote author Ernest Hemmingway. Deciding to make effective decisions is a choice you need to make.

What does your decision-making process look like?