Many companies still rely on basic tools like scenario testing and discounted cash flow. These work well in stable contexts, but tools such as case-based decision analysis and “information markets” are better suited to uncertain, complex environments.
(1) Know what it takes to succeed: Know your causal model - this is the understanding of the critical factors and economic conditions for success and in what combination these lead to successful outcomes. Test your model’s strength by specifying “if-then” statements about the decision.
What you should ask: Do you understand what combination of critical success factors will determine whether your decision leads to a successful outcome? Do you know what metrics need to be met? Do you have a precise “recipe” for how to achieve success?
(2) Predict the variety of potential outcomes: Under uncertain conditions, executives are often unable to specify with precision the range of possible outcomes or the chance of these occurring – even in cases where they understand the critical success factors.
What you should ask: Can you define the variety of outcomes that could stem from your decision – both in the aggregate and for each success factor? Can you gauge the likelihood of each outcome?
Action Point
Action point: When reviewing your current inventory of tools – and when deciding how to handle your next big decision – reflect firstly on two key questions: Do I know what it will take to succeed when making this decision, and can I predict the range of possible outcomes from this decision?
Sources: Courtney, H., Lovallo, D. and Clarke, C. (2013) Deciding How to Decide, HBR, Nov; Tillman, F. and Cassone, D. (2012) Decision Science and Problem Solving, FT Press.