How to Make Better Decisions in Tough Times

IN my last article CEO Dos & Don’ts in a Recession (CEOWORLD Magazin) Just a few weeks ago, the perennial economic forecasters had the US economy headed for hard times this fall and into 2023. Why?

As the Federal Reserve raises short-term interest rates to curb inflation, mortgage rates, now above 6% in September 2022, are the highest in 14 years and inflation rates, still stubbornly above 8%, are the highest in 40 years, combined as the two most powerful headwinds we have seen in years.

It goes without saying that the outlook for US companies over the next 6 months will be at its most challenging when consumers turn around and stop buying stuff. Using a soccer analogy, American companies could soon feel like they’re standing on the goal line, seconds to play, and the game on the line.

If that sounds about right like most business leaders do, you’re probably wondering what to do next. Asking how I navigate the field and choose the next play without fumbling the ball and losing everything. One way to play it is brute force, just plowing your way headlong into the next six months’ recession, throwing everything you’ve got at it and hoping you get a result. But that’s like failure, like expecting defense to win the game. And we don’t want to go there.

A better, simpler way is to make sure you’re making your toughest decisions smarter. And that’s what this is about.

About a hundred years ago, so the story goes, Norwegian-born American football player and legendary Norte Dame coach Knute Rockne (1888-1931) coined the epigrammatic phrase: “When the going gets tough, the tough start.” ‘ The remark was so inspirational to his players that it helped the coach lead the game Fighting Irish to a staggering 105 wins in 13 seasons at Norte Dame, a staggering 88% win rate. And Rockne still holds a record today.

But the real key to his success was not only his gift for motivational pep talk before the game, but also his combined ability to assess his resources, weigh the strategic options and execute a winning game plan. In other words, make smarter decisions. As a Norte Dame chemistry graduate and teacher, Knute Rockne knew that when times were tough, preparation was the only legitimate mark of success. He also knew that you can’t rely on luck or gut feeling, even if your back is against the wall.

A century later, we hope to know better. But as we head into a new fall season in the US and once again embrace our beloved football addiction and at the same time a recession, we can only hope that our chosen “head coaches” will make the best decisions on and off the field when game time arrives. Because if they get it wrong on key decisions like labor/wage increases, supply chain fixes, securing lower cost of capital, M&A investments, R&D spend, advertising spend to name a few, the negative long-term consequences could last for years. Which, given these challenges, begs the question;

Why are so many CEOs still not using a decision support tool to help them make tough decisions? The answer I hear most often, with an underlining confidence, is, “That’s why they hired me.”

OK. Maybe like this. But as much as I’ve seen and admired the courage to assert yourself in the face of uncertainty, breaking the decision-making process into measurable chunks and checking your ego and intuition (prejudices) at the door makes far more sense than overdoing it to indulge in exaggerated hubris. I’ve seen many “brave” moves both win and fail. And when they flop… it’s not pretty.

As a business strategy guy, a few years ago after researching dozens of large, high-risk historical business decisions (winners and losers), I developed what I call the Decision Ring method. This method or tool is designed to measure your trust level before making an important decision by questioning and evaluating it Six key decision-making principles (click for more details).

In short, the Decision Ring (DR) breaks a key decision into six parts (as shown). Each is then rated and weighted individually, and if the score “doesn’t add up,” back out and re-evaluate.

The idea is to help you separate your intrinsic bias from the facts and identify where the weakness in your confidence level really is, then document it and improve where necessary before pulling the trigger. So whether high or low, the total score is a measured indicator of your overall confidence. And that makes sense, right?

decision ring

But what is trust? Where does it come from?

Confidence is the feeling you have in your ability to perform well under pressure. Achievement comes from your accumulated knowledge, training and experience. And while these are important inputs to any good decision, too often we over-rely on trust and reward it as the last fair go/no-go arbiter.

This is the case when I hear the sentence: “When in doubt, follow your gut” or “Follow your nose” or “What does your instinct tell you”. My wide-eyed reaction is always the same; Why take a risk if you don’t have to?

Instead, use a DR so you can break down and reduce the weight of the almighty intuitive gut check factor into a smaller, clearly measurable part of a larger set of key decision components, allowing you to separate your emotions from your overall confidence level before making a decision.

When decision makers see that their risky gut feeling is only part of a key decision, they tend to back off their trust in their overrated gut strength and see the bigger picture. It also helps them sleep better at night.

For decades, most leaders have rightly relied on a variety of inputs, including research, analysis, experience, training, and instinct, to measure the outcome of a major decision. They don’t go away. But when faced with more than one competing choice, these executives tend to resort to the arbitrary method of gut control and run with it. And if they’re wrong, they get the axe, which also “belongs to the territory,” they’ll say.

But by using a decision ring, you can reduce the chances of a fumble or the ax booty by isolating your biased intuition and not allowing it to overwhelm your confidence and force a big mistake.

Keep in mind that the DR isn’t designed to completely remove your gut feeling from the equation. These feelings are still an essential part of a successful decision. When wrong, however, most executives can’t figure out where they went wrong or why they should have stopped and looked more closely at the key components of their decision before giving the green light.

That is why using a decision ring makes the most sense. It’s the only decision tool that measures your ego and feelings separate from your facts and figures, putting the “expected outcome” of your decision on a firmer footing.

Also, the DR is not designed to replace traditional decision assessment methods such as decision trees or DCF models, but is designed to be built on top of these methods. Nor is it intended to compare the value of a decision outcome, but rather the value of a manager’s level of confidence in committing to that outcome.

This way, before a decision goes wrong, we can stop the process, avoid costly mistakes and make better decisions in difficult times.

The DR can also extend beyond the boardroom. Managers at any level of the organization can adopt it to help them more fairly evaluate and sort through competing decisions during difficult times, e.g. B. Capital investment in inventory vs. new equipment vs.

It’s a simple tool with a powerful message for measuring business results in an unbiased format for tough times. And given the economic forecasters’ forecasts for the coming months, that’s exactly what the coach ordered.

Let’s face it, while key decision-making processes have come a long way since Coach Rockne’s great days of the last century, it’s not long enough for us to forget the wisdom he left for leaders on and off the field today.

And how the coach can best remind us of this is in his own words; “I don’t have to continue unless I can improve.” “Build on your weaknesses until they become your strengths.” And: “If winning isn’t everything, then why bother making points.” collect?” Right?

Amen Coach!

Written by Rick Andrade.
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