A few months ago, my dad shared an interesting conundrum that he faced in his business.
One of his largest customers was looking to acquire a competitor that would increase their business volume by about 35%. The result for my dad, would likely be a 35% or more increase in business from this already large customer.
Because the acquisition seemed likely, my dad wanted to invest in a million dollar piece of equipment which would be a profitable move if his business increased by the expected volume.
The problem was that the customer did not want to sign a long term contract while they were going through the acquisition process. The company would be undergoing massive changes (including possible changes at C-Suite level), and they wanted to remain as agile as possible.
My dad could wait to purchase the equipment until the risk subsided, but he needed to make a decision right away about whether or not to allow a sub-leasing tenant to continue to sub-lease or if he had reasonable enough expectations that he would purchase the equipment that he would not renew the sublease.
While the decision he made is really complicated to explain, and I'm quite certain that I will get the details wrong, the decision framework that he shared with me is one that I have found incredibly helpful in the months since he shared it with me.
Making good decisions (especially when it comes to bigger decisions) is an incredibly important skill to develop both in business and in life, which is why I want to share this framework with you.
1. Contextualize the decision
If any of my siblings are reading this, they are probably laughing. Why? Because my dad is a hyper-contextualizer. At a recent family gathering, my dad gave a several minute monologue on why he chose to buy French bread at the grocery store (it was a delicious choice, dad).
Anytime my dad had a serious conversation with us growing up, he would spend the vast majority of the conversation gaining context and noting it in illegible handwriting on pieces of computer paper. Diagrams were also involved.
You don't have to be nearly as into contextualization as my dad to use contextualization to help you make a good decision.
Contextualizing your decision means gathering and synthesizing facts, opinions, and information to help you craft the best possible narrative for your decision. Some people will hate that I say craft a narrative for your decision because they don't like that humans tell themselves stories. Those people are being silly because they are taking "Life-hacking" too far.
Computers make decisions using the following steps: input->program logic-> output. If the decision you're facing is one that a computer can make better than you, then you should let a computer decide. However, most decisions that humans face (especially the big ones), can't be surmised by "program logic" instead we have to deal in gray territory. This is why we life-hack, so that we can focus our energy on making big decisions well, and that means crafting a narrative.
During the contextualization of your decision, you may have a few "aha" moments where you realize that you were overlooking some options, or forgetting important background details. In either case, contextualizing the decision will help you better understand the magnitude of the decision, the options you have, and the best and worst case scenarios that you can expect moving forward.
2. Vet your narrative with trusted advisors
At work, my dad has a leadership team of somewhere around 8-10 people. My dad will not make million dollar decisions for his company without vetting the decision with this team. Each of the people on his leadership team is on the team because they have unique strengths and talents. Each one will see the problem and the narrative from a different angle, and they may offer helpful insights that were overlooked.
Sometimes, my dad will ask my mom for her opinion on a work-related matter simply because he trusts her judgement and because my mom asks good questions.
When you make big decisions in life, you need people who can help point out blindspots. When you have crafted a narrative, your narrative is likely to give you a strong bias towards one decision or another. By vetting out a narrative (and subjecting your decision to outside scrutiny of trusted advisors), you're enhancing the likelihood that you're seeing the situation as clearly as possible.
At the end of the day, you may not change your narrative much, but at the very least you'll have given it the old college try.
3. Assess costs and benefits and risks and rewards
Once you've crafted a narrative and vetted it with trusted advisors, you can begin to do a cost, benefit, risk, reward analysis. This is not as simple as writing down pros and cons and then making a decision. Because you're making a decision, your pros and cons (costs and benefits) exist in the future not in the present, so you can't declare with 100% certainty whether or not the costs and the benefits will play out the way you think they will.
Instead, you can use your narrative to say, if the story continues to progress in the way we think it will, these are the costs and these are the benefits of each of my top options.
However, if the narrative takes a turn for the worse, these are the costs and these are the benefits of each of my top options.
In business, it's easy to "score" costs and benefits because you'll simply calculate the best possible financial estimate of each option. For example:
Option 1: Best Case $1.5M ROI, Worst Case -$200K
Option 2: Best Case $2.5M ROI, Worst Case -$800K
Option 3: Best Case $.75M, Worst Case $0
In life, this exercise is not nearly as easy, but to circumvent the hardship I suggest that people attempt to dollarize emotions (because you have nothing better to do with your time, right?). Seriously, an emotional balance sheet is not a bad idea, and has really helped me clarify how much I value things like time with my kids or helping Rob stay in school.
4. Make the best decision you can
Once you've crafted a narrative, vetted it with trusted advisors, asessed costs, benefits, risks and rewards, it's time to make a decision like a boss. That means acting in accordance with your morals and taking ownership for the decision.
One thing that my dad says pretty frequently is, "To succeed in business, you need to make quite a few more good decisions than bad decisions, but more than that, you need to make decisions."
It's never going to be possible to make decisions that have all benefits and no costs. You'll never make an important decision in which you have 100% of the information necessary to make a great decision. You'll often have to make a decision before "the best possible opportunity" presents itself.
Making a good decision doesn't guarantee that your decision will work out the way that you think it will. It doesn't guarantee that you'll be happier or wealthier. Making a good decision simply increases the likelihood that you will seize whatever opportunity is available to you.
I'm a wife, a mom, an employee, and a personal finance nerd who is devoted to spreadsheeting my way through life.