Do You Make Foolish Decisions? 7 Ways to Sharpen Your CEO Smarts


Are you making foolish decisions in your business? Often we think we aren’t. We even judge other people for their foolish decisions never taking the time to step outside our own box to see our decisions from the outside looking in. Chances are you’ve made some foolish decisions yourself. The trick is to know what led to that a decision because it seemed like a good idea at the time.

It’s a well-documented behavioural phenomenon that slight errors in judgement, fueled by ego, lead people to “keep digging” long after it’s apparent that continuing to do so is a good decision. It has caused the downfall of many foolish leaders. It’s usually triggered by the false belief that spending more money will enable you to get your initial investment out (or what my grandmother called “putting good money after bad”).

From the outside, we think “How can someone be so stupid?” But when you are halfway down the hole and can’t tell up from down, it seems to make sense to try to keep on going. Essentially, it’s not one bad decision that leads to our downfall, but a series of tiny errors in judgement followed by one big failure to recognize that continuing down that path is at best foolish.

Sharpen Your CEO Smart Decision-Making Skills

Get ALL the Facts: This is where a lot of projects are doomed. In our excitement to get going, we neglect to slow down and gather all the information needed to make a good decision. Do your homework! Gather all the facts, ask lots of questions and then do a double check to make sure you didn’t miss anything.

Challenge Your Assumptions: Many a bad decision started with a false premise. Look for the possibly faults with your assumptions. Ask yourself, “What am i missing?” Don’t be afraid to get tough with your assumptions.

Establish Your Conditions: What has to go right for your project to be a success? Beware of projects with too many success conditions as it only takes one break in the chain to completely derail your a success. Aim for robust conditions that given you plenty of ‘back-up’ in case one condition doesn’t work out.

Monitor Results: The truest test of any decision is ultimately your results. Many “good on paper” decision fail the results test. Build into your project early milestones to gauge the results and plan on either adjusting or abandoning if it fails the test.

Watch for Changes in Conditions: Sometimes the bad decision isn’t a bad decision to start with, but instead becomes a bad decision because the business landscape changed. Monitor industry trends or the general business landscape for early warning signs that the conditions may be changing.

Ask for Feedback: Decisions made in isolation are difficult to put into perspective. Seek outside advice from a trusted mentor or business coach. Don’t take their feedback as a “Yes” or a “No”, but rather use it as part of your information gathering process to be factored in when considering your decision.

Decide When to Pull the Plug: Overcommitment is when bad decisions turn into downright foolish ones. Decide (in advance) when to pull the plug and stick to that decision. Remember, you made the decision when you were the most clear-headed. If you do decide to give yourself an extension, limit it to a 10% increase in time or money.

Are You Letting Your Ego Decide? How to Swallow Your Pride and Change Directions

Decision-making is a funny thing. Part information, part psychology, often the results have little to do with critical thought and a lot to do with emotion. Often one emotion in particular rules over our reason: ego.

It’s the cause of every classic failure. The drive to carry on despite the many warning signs, the logic that says, “We’ve already spent 5 times our budget, we can’t stop spending now”, the blind overcommitment that pushes us beyond reason (and then some).

Behind it is the most basic human emotion: the protection of self that doesn’t want to admit we started out in the wrong direction. Ego tells us to ignore the warning signs, keep pushing and it will all work out in the end. Funny how those types of decisions rarely do.

How to Avoid Ego-Driven Decision-Making

Decide Slowly – Give yourself time to fully evaluate new directions. Look at it from every angle, ask questions and play out the “What if” scenarios. If possible, set up a test project to try out the new direction on a small scale before committing.

Set Time Limits – Place time limits on how long you will give a new initiative before calling it quits. Deciding how long to give a new direction before you launch eliminates the spiral of bad logic that tells you to “Give it just one more month.”

Pay Attention to Metrics – Constantly monitor and measure key success metrics, especially for new programs. Give them every chance to succeed by adjusting tactics and analyzing outcomes, but be prepared to pull the plug if it doesn’t pay off quickly.

Turn Off Emotion – Establish a core value system for weighing key decisions. For example, you may include personal enjoyment, skill development, and spiritual alignment as key values in determining new directions. That way if a new opportunity doesn’t fit, it doesn’t fit.

Watch for Signs of Ego – Pay attention to your own warning signs. Are you anticipating how other people will view your change of course and role-playing a justification speech? That’s a sure sign your inner voice is telling you something you don’t want to hear.

What other emotions are influencing your business decisions? Guilt? Obligation? Fear? The secret to not being swayed by them is recognizing them and stepping back in order to make your decision.

Don't Build Your Business Blind: How to Use Data to Drive Decisions

Even if numbers aren’t really your thing, it’s worth it to get comfortable with them. The reason is simple: knowledge is power and the most useful knowledge about your business comes in the form of numbers: cost per lead, lifetime spent, profit/loss per client and so on.

Without understanding how a simple change on one side of the equation impacts the other, you can’t make informed business decisions. Instead you are just driving blind, uncertain as to whether or not your business is actually profitable or what makes it the most profitable.

Let’s take, for example, the impact of a seemingly minor price adjustment. On paper, it seems like a good idea – a little extra from each customer adds up quickly. What it fails to take into account is the drastic drop in volume that results from even just a little increase. A good metrics system would tell you right away that your decision cost you profit instead of improving it.

Examples of how to use data to drive business decisions:

Determine which are your most profitable clients. Understanding which clients are the most profitable allows you to: 1) create a profile of that client to find more clients that fit that profile and 2) survey them to find out what else you can offer to increase profit and/or enhance the relationship to retain them as clients.

Examine your expenses to find costly money leaks (and that includes customer service draining clients)! Often your money leaks comes down to operations. Is there an internal process that costs you more to administer than you gain from it? Are you overspending on a low-profit product line?

Calculate lifetime customer value. Knowing what each customer is worth helps you determine a reasonable marketing budget to acquire that customer. It also helps you decide where to focus your customer engagement efforts. For example, a low lifetime spend may mean you need to focus on customer retention.

Attribute profit to lead generation efforts. Understanding which lead generation tactics yield the most profit helps you focus more of your time, energy and marketing budget on those channels. For example, calculate how much new business results from your weekly networking group.

Don’t make ANY decision without first asking the numbers. Even if you don’t have actual numbers to work with, sketch out a basic scenario that summarizes your current position and play with the variables. Get curious – ask the numbers what happens if you added this or subtracted that.

Momentum Monday: Go With Your Gut – How to Avoid Paralysis by Analysis

Why is it that there never seems to be enough information to make an informed decision? That no matter how much you research a topic, you never seem to get to the definitive right answer? That every decision is shrouded in the fog of war, forcing you to step into the unknown?

It’s tempting not to make a decision, to continue to research and research until you can be 100% without a doubt, absolutely, positively certain that THIS not that is the right decision. But it’s impossible to know for absolute certainty that you have all the information, that your view on the subject is perfect.

So how do you make a decision without going into paralysis by analysis?

How to Avoid Paralysis by Analysis and Learn to Trust Your Gut

#1: Find Analysis Shortcuts – Ask a crowd (or the one research fanatic who researches and researches a topic until there is nothing left to discover). Crowdsourcing your research cuts down decision-making time on the front end.

Ask our ‘sources’ to share why they choose A over B or what other factors were a consideration in their decision so you can gauge whether their approach is analogous to your situation.

#2: Develop a Visual System – Sometimes the trouble with information is that there is simply too much of it and often different pieces of information point in opposite directions which in itself often leads to paralysis.

Use a visual mapping system to translate the ‘raw data’ into tangible images. This is where those pie chart and graphing tool come in handy. Even a simple mindmap can help you decipher what appears to be a mindboggling amount data.

#3: Apply a Risk Threshold – Calculate the cost of a wrong decision and use that to determine how much research is necessary to justify the decision. Costs may include money, time or hassle of changing course on a wrong decision.

Now weigh that potential risk against the cost of not making a decision. What is it costing you to continue not making a decision? The lower the risk of making a bad decision, the less time needs to be spent on analysis.

#4: Factor in Uncertainty – Accepting that you are making a decision based in imperfect information doesn’t mean taking a wild leap off the deep end. Make a contingency plan for dealing with uncertainty.

Giving your decisions a bit of ‘wiggle room’ for uncertainty not only prepares you for those uncertainties, but it also helps overcome the temptation to over analyze and not make a decision.

#5: Decide and Adjust – Make a decision knowing that it may not be perfect, but that it’s more important to decide and act. The key is to monitor the outcome and adjust course as necessary.

That may mean a shift to the right or the left or that may mean abandoning that course of action altogether if it proves to be the wrong choice. The key is to not stop gathering information once the decision is made.

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