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Decision Making Framework

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Decisions have consequences. Some short-term, some long-term. Most decisions are easy and brainless. Some are difficult.

As my children grow, one of the questions I’ve often thought about is, how to help them make better decisions, without making the decisions for them.

So, I reflected back on how I’ve made decisions over my life, and in Websum. Also thought about which ones worked, which ones didn’t and why they worked or failed.

From all that introspection was born a 2-part decision making framework I’m sharing with you today.

Part 1 – ROI Assessment

Part 2 – Risk Assessment

ROI Assessment

One of the first realizations was, at the end of every decision lies an action I must take.

To figure out whether to take or not take the action, I needed to do an ROI assessment. Goal of this was to identify short-term and long-term benefits and losses of taking action.

  1. Short-term benefits
  2. Short-term loss
  3. Long-term benefits
  4. Long-term loss

Once you list down everything, it will become quite clear whether you should take the action or not. Let’s go through an example. Say, you’re trying to decide whether or not to open a account on a new social media network.

Consequences of Joining a New Social Network

  • Short-term benefits – You may get access to a whole new set of audience.
  • Short-term loss – You will take resources away from other areas of your business to develop your audience on the new social media network.
  • Long-term benefits – As an early adopter, you could build a massive following in a few years, especially if the social network grows exponentially. And that could result in significant growth opportunities for your business.
  • Long-term loss – If the network turns out to be a dud (think MySpace), then it would result in waste of resources amounting to years of employees time and thousands of dollars. Loss of reputation can also occur if something unwanted gets posted online.

If the benefits of taking the action seem appealing, you want to visit the second part of this framework – Risk Assessment

If the losses scare you enough, then you may simply not want to take the action, and that could be the end of it. Decision made would be inaction.

One piece of advice – If an action results into short-term benefit, but long-term loss, consider not taking the action. It may not be worth it.

RISK Assessment

Let’s say taking the action, building a following on a new social network seems appealing. Then you want to run it through the risk assessment.

First thing to do is to list all the risks you can think of that could be associated with building presence on a new social network. Here are some examples:

  • The new network could be riddled with malware and infect your phones and computer network
  • Audience on that network may not fit your ideal customer profile.
  • An employee or a customer posts something that may not be in line with business goals and values causing loss of reputation and possibly financial damage.

Now that you have some risks listed down, run each risk through the following:

  • What is the probability of the risk playing out? (Think low = 0, medium = 1, high = 2)
  • What are the consequences if the risk materializes? (Think, low = 0, medium = 1, high = 2)
  • Calculate your risk score (Probability + Consequence).
  • What can be done to minimize the risk?
  • If the risk comes true, how long would it take to get back to ground zero?
  • What resources would be required to get back to ground zero?

If the risk score comes to 3 or 4, avoid the risk. May not be worth taking it.

If the risk score is 0, the risk is negligible. No harm moving forward.

If the risk score is between 1 or 2, figure out what you can do to minimize it, and how would you get back to starting point if the risk does come true. If you like your answers, plow ahead. If not, don’t take the risk.

The objective of this exercise is to make an educated and informed decision of whether you should be taking the action or not.

Now if I can only simplify this process to a point where a teenager could understand, that would help.

Till then, I hope this helps you.

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