The value of a decision

I’m often asked to justify why a specific decision is worthy of an hour or two of analysis time and effort.  This is typically delivered as a form of pushback, “I would never spend that much time making a decision – you’re making it too hard”.  I typically bite my lip at this point and respond, “Let’s think together about how much time a decision is worth” because saying “You spent 2 hours last night watching televised drivel with no value” doesn’t add to my client base.

So what is the value of a decision?  How much rides on it? What rule of thumb should I use when I determine how much time to invest in making a decision?

I use a “2 percent rule” or “50-to-1 rule”.  This means, on average, that I don’t want to spend more than 2% of the value of the decision on the analysis effort required to make the decision.  We would all think it foolish to spend $10,000 of our time to make a decision that has only $10,000 riding on it.  We might as well flip a coin and go with trial and error in such cases.  But spending $200 of our time on a decision that risks $10,000 seems a bit more reasonable, even prudent.  What we really want is to spend the least amount of time we can, while still producing a superior (near ideal) outcome.   We want lots of leverage from our analysis effort by thinking quickly, efficiently and creatively.

I calculate the value of the decision by comparing the “dollars at risk” between the best possible alternative that I might create or discover and the outcome associated with picking an alternative that fails (and has to be replaced after it is implemented).  In some cases, there are so many viable alternatives, few of which could fail, that I compare the best alternative with one of the OK, but mediocre ones.

When buying a used car for my daughter, I might peg the dollars-at-risk at $5000 (the difference in purchase price, operating/maintenance/resell between the best car on the lot and a real lemon).   The 2 percent rule hints that I would like to spend no more than $100 of my time on making this decision.  If I make $50/hour at my job, I calculate the real value of my non-sleeping time at $25/hour.   So 4 hours of research and analysis, test drives and debates with my daughter would be time well spent.

Of course, most life decisions are driven less by money and more by values, love, or peace of mind.  I might spend many extra hours with my daughter looking for a car just for the sake of our relationship or because I think car-shopping is fun or because her safety is vital to me.

Step back at a higher level.  Most of us have more than 100 waking hours each week.  If you could spend 2 hours each week on decisions that would make the remaining 98 hours significantly more productive or joyful, why wouldn’t you?

Most of the 200+ decisions in our Decision Driven® Life pattern can be completed in less than an hour. We provide the criteria pattern, the questions to ask, so you can jump right into the task of gathering the most important data.  We provide a simple Evaluate Alternatives canvas to capture your rationale; just drag-drop and type a few notes.  It may take you a few decisions to become proficient, but the payoff of a “decision-a-week” habit will be for a lifetime.

If your organization adopts the Decision Driven® Solutions Framework (DDSF) for its strategy and product development decisions, we will make available our rich life decision patterns upon request. By using DDSF for both business and personal decisions, you will gain many more learning cycles on the use of these powerful tools and rapidly improve your decision-making speed and skill. If you haven’t begun this journey, please contact the Decision Driven® Solutions team at trial@decisiondriven.com or solutions@decisiondriven.com to begin a free organizational trial of DDSF.

About decisiondriven

Innovator in Decision Management, Systems Thinking and System Engineering methods and tools
This entry was posted in Decision Concepts, Decision Driven Architecture, Decision Driven Innovation, Decision Driven Life, Decision Driven Product Development, Decision Driven Strategy and tagged , , , , , , , , . Bookmark the permalink.

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