Decision Making Models for Leaders

You cannot separate leadership from decision-making, for like it or not, they are inexorably linked. Put simply, the outcome of a CEO’s decisions can, and usually will, make or break them. Those leaders who avoid making decisions solely for fear of making a bad decision, or conversely those that make decisions just for the sake of making a decision will likely not last long.

The fact of the matter is that senior executives who rise to the C-suite do so largely based upon their ability to consistently make sound decisions.

However while it may take years of solid decision making to reach the boardroom, it often times only takes one bad decision to fall from the ivory tower. As much as you may wish it wasn’t so, as a CEO you’re really only as good as your last decision.

“CEO Decisioning” is a skill set that needs to be developed like any other. As a person that works with leaders on a daily basis, I can tell you with great certainty that all CEOs are not created equal when it comes to the competency of their decision-making skills. Nothing will test your metal as CEO more than your ability to make decisions. That said, nobody is immune to bad decision-making. We have all made bad decisions whether we like to admit it or not.  Show me someone who hasn’t made a bad decision and I’ll show you someone who is either not being honest, or someone who avoids decision-making at all costs, which by the way, constitutes a bad decision.

When I reflect back upon the poor decisions I’ve made, it’s not that I wasn’t capable of making the correct decision, but for whatever reason, I failed to use sound decision-making methodology. Gut instincts can only take you so far in life, and anyone who operates outside of a sound decision-making framework will eventually fall prey to an act of oversight, misinformation, misunderstanding, manipulation, impulsivity, or some other negative influencing factor.

The first key in understanding how to make great decisions is learning how to synthesize the overwhelming amount of incoming information, leaders must deal with on a daily basis while making the best decisions possible in a timely fashion. The key to dealing with the voluminous amounts of information is as simple as becoming discerning surrounding the filtering of various inputs.

Understanding that a hierarchy of knowledge exists is critically important when attempting to make prudent decisions. Put simply…not all inputs should weigh equally in one’s decision-making process. By developing a qualitative and quantitative filtering mechanism for your decision-making process you can make better decisions in a shorter period of time. The hierarchy of knowledge is as follows:

• Gut Instincts: This is an experiential and/or emotional filter that may often times have no current underpinning of hard analytical support. That said, in the absence of other decision-making filters it can sometimes be all a person has to go on when making a decision. Even when more refined analytics are available, your instincts can often provide a very valuable gut check against the reasonability or bias of other inputs. The big take away here is that intuitive decision-making can be refined and improved. My advice is to actually work at becoming very discerning.
• Data: Raw data is comprised of disparate facts, statistics, or random inputs that in-and-of-themselves hold little value. Making conclusions based on data in its raw form will lead to flawed decisions based on incomplete data sets.
• Information: Information is simply an evolved, or more complete data set. Information is therefore derived from a collection of processed data where context and meaning have been added to disparate facts which allow for a more thorough analysis.
• Knowledge: Knowledge is information that has been refined by analysis such that it has been assimilated, tested, and/or validated. Most importantly, knowledge is actionable with a high degree of accuracy because proof of concept exists.

Even though people often treat theory as knowledge, and opinion as fact, they are not one in the same. I have witnessed many a savvy executive blur the lines between fact and fiction resulting in an ill-advised decision when decisions are made under extreme pressure and outside of a sound decision-making framework. Decisions made at the gut instinct or data level can be made quickly, but offer a higher level of risk. Decisioning at the information level affords a higher degree of risk management, but are still not as safe as those decisions based upon actionable knowledge.

Another aspect that needs to be factored into the decision-making process is the source of the input. I believe it was Cyrus the Great who said “diversity in counsel, unity in command” meaning that good leaders seek the counsel of others, but maintain command control over the final decision. While most successful leaders subscribe to this theory, the real question in not whether you should seek counsel, but in fact where, and how much counsel you should seek. You see more input, or the wrong input, doesn’t necessarily add value to a decision-making process. Volume for the sake of volume will only tend to confuse matters, and seeking input from sources that can’t offer significant contributions is likely a waste of time. Two other issues that should be considered in your decision-making process as they relate to the source of input are as follows:

1. Credibility: What is the track record of your source? Is the source reliable and credible? Are they delivering data, information or knowledge? Will the source tell you what you want to hear, what they want you to hear, or will they provide the unedited version of cold hard truth?
2. Bias: Are there any hidden and/or competing agendas that are coloring the input being received? Is the input being provided for the benefit of the source or the benefit of the enterprise?

The complexity of the current business landscape, combined with ever-increasing expectations of performance, and the speed at which decisions must be made, are a potential recipe for disaster for today’s executive unless a defined methodology for decision-making is put into place. If you incorporate the following metrics into your decision-making framework you will minimize the chances of making a bad decision:

1. Perform a Situation Analysis: What is motivating the need for a decision? What would happen if no decision is made? Who will the decision impact (both directly and indirectly)? What data, analytics, research, or supporting information do you have to validate the inclinations driving your decision?
2. Subject your Decision to Public Scrutiny: There are no private decisions. Sooner or later the details surrounding any decision will likely come out. If your decision were printed on the front page of the newspaper how would you feel? What would your family think of your decision? How would your shareholders and employees feel about your decision? Have you sought counsel and/or feedback before making your decision?
3. Conduct a Cost/Benefit Analysis: Do the potential benefits derived from the decision to justify the expected costs? What if the costs exceed projections, and the benefits fall short of projections?
4. Assess the Risk/Reward Ratio: What are all the possible rewards, and when contrasted with all the potential risks are the odds in your favor, or are they stacked against you?
5. Assess Whether it is the Right Thing To Do: Standing behind decisions that everyone supports doesn’t particularly require a lot of chutzpah. On the other hand, standing behind what one believes is the right decision in the face of tremendous controversy is the stuff great leaders are made of. My wife has always told me that “you can’t go wrong by going right,” and as usual I find her advice to be spot on…Never compromise your value system, your character, or your integrity.
6. Make The Decision: Perhaps most importantly you must have a bias toward action, and be willing to make the decision. Moreover, as a CEO you must learn to make the best decision possible even if you possess an incomplete data set. Don’t fall prey to analysis paralysis, but rather make the best decision possible with the information at hand using some of the methods mentioned above. Opportunities and not static, and the law of diminishing returns applies to most opportunities in that the longer you wait to seize the opportunity the smaller the return typically is. In fact, more likely is the case that the opportunity will completely evaporate if you wait too long to seize it.

If you develop the appropriate blend of a bias to action with an analytical approach to decision-making your stock as CEO will surely rise. Good luck and good decision-making…