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Effective Decision Making Needs A Reliable Process

Decision making is both an art and a science. The science tries to analyze all information, while the art attempts to produce divergent, innovative solutions. Making a good decision based on logic alone can be comforting. However, we can’t rely on logic only, as using some creativity in the decision making process often produces good, non-obvious outcomes. Still, whichever approach we apply, decision making can produce significant, sustained, and life changing results. That’s why it is important to understand different approaches to deciding.

How do you analyze a decision to go on a trip, buy a big ticket item, or do a project? If you are like most people I counsel, you look at access to funds on your credit card, your overdraft limit, credit line availability, or home equity, and decide on a spending limit. However, usually, these folks don’t do a full analysis that look at needs before affordability.

Here is a simple analysis to help you see, in advance, effects of likely decisions. The COAT analysis systematically  guides you and shows, in advance, potential outcomes of major decisions to help you plan to deal with them effectively.

COAT Decision Making  Analysis

  1. Consequences
  2. Opportunity costs
  3. Alternatives
  4. Truism

Consequences

Consequences of decision making
Consequences of decision making

Merriam Webster’s  dictionary defines a Consequence as “something produced by a cause or necessarily following from a set of conditions.” The consequence, or effect, is the likely result from your decision. Buying a car is the effect of a decision to meet a specific need (want) or needs (wants). However, often, financing is readily available, and so many folks do not consider the likely results of that decision.

Let’s assume you plan to upgrade your kitchen—that’s your goal. To be actionable, you must define it with 4-Cs—clear, complete, concise and calculable. Only then will you know exactly what upgrading the kitchen means. Maybe you do, or get done, drawings for the proposal with a detailed list of materials and supplies needed. As well, you might do a list of existing items you will dispose of.

Having set the goal, you need to develop a plan with 4-Ss. The plan must be simple, staged, specific, and its execution must be sensitive to people involved.

The consequences of upgrading the kitchen are the many effects along the path from decision making to job completion. It’s essential you invest time before you finalize your decisions to examine these effects thoroughly. Practically, it’s the message Jesus mentions in Luke 14:28: Count the cost before you act.

Opportunity Cost

An essential part of evaluating the consequences of your decisions is to consider the opportunity cost—the likely results of your inability to do items upgrading the kitchen will prevent. Your upgrade will require time, talents, and money that won’t be available for such things as going on vacation, replacing the car, and so on.

That’s why it’s important to consider opportunity costs of your decisions to avoid significant financial stress. Many people decide to do something, and then realize six months or more later that they forfeited an important later decision.

Alternatives

There is an alternative for every decision. Clearly, the most obvious alternative is not  to upgrade the kitchen. For each decision, you should look at alternative ways to achieve the goal. When you examine alternatives, zoom out and look at the big picture and question whether you should upgrade the rest of the house later? Meanwhile, be alert to upgrading creep:  Upgrading sections of the home gradually when you could achieve a larger goal such as selling the home and buying or building exactly what you need. That’s why, in the decision process, you must ask: “Is this the first or second step in a major upgrade of the entire house?” If so, should you think about selling the house? Then again, should you consider selling the house, renting, and investing the equity?

In every case, you need to be clear about the reason for the goal. But most of all, you should not feel tied to a particular path in your decision journey. If you’re replacing the car, question the need for a car. Should you take public transport (where feasible) and rent a car, as needed, on weekends?

Looking at alternatives can be an exciting period if you choose to look outside the box away from logic, and seek creative options.

Truism

This is the most important consideration. Before you decide, check to ensure you avoid this truism: Every decision that money leads will be suboptimal because money is merely a means of exchange. If money is leading your decision, revisit the decision. Similarly, check for the second truism: Time is fixed. You can’t manage time; you manage your priorities. 

Typically, people let money or time lead their decisions. They might say, “My budget is $50,000” and I won’t spend more than that amount upgrading the kitchen. Alternatively, they might say, we have only two months to do this, so it must be done in this time. In these situations, money and time lead and create the probability of suboptimal results.

Don’t set a Budget before you decide what you want done! Normally, you do not understand the scope of the job or the goal (the upgrade). Your goal might cost $40,000, or $60,000 instead of the arbitrary $50,000 “budget.” Let’s understand that a budget is merely the likely cost of goals to be achieved in the future. That’s why you must cost the goal first to decide a realistic budget. Don’t set the budget until after you cost your goal. The budgeting process is iterative, so don’t worry about going through three or more iterations.

Money is a Means

Money is a means of exchange. When you plan to do a project, first, decide your need as I suggested above. Second, develop goals and plans, and then cost those goals. This will show the likely cost of your project. If that amount is more than you can afford, adjust your goal, and repeat the process until you trim the goal to an affordable budget. In each iteration, you will see the cost of the goal. When the estimated cost of the goal is too much, change the goal; don’t cut the budget and force someone to do suboptimal work to do your goal. Have you ever wondered why so many projects are overspent?

When you fix the budget first, you provide a constraint, and you will likely get suboptimal work. The same applies with time. Each day has 24 hours—that’s it. Adjust priorities to fit that time. There is enough time!

Conclusion

Research shows consistently that the process is more important than financial analyses supporting the decision. While it is not a panacea, I believe when you follow this process consistently, the probability of  money-induced stress reduces significantly. Try it!

© 2016 Michel A. Bell

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The post Effective Decision Making Needs A Reliable Process appeared first on Bible-Based Stewardship Blog.



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