Decision making is a fundamental part of leadership and management. While business savvy and intuition can carry one a long way, it helps to be familiar with the potential consequences of said decision before jumping to any conclusions. In an insightful new article from the Farnum Street blog, the two types of decisions are broken down, using some advice from Amazon CEO Jeff Bezos. These are put into perspective, along with some advice on how to make the best of each situation.
Much like diabetes, the type of decision to be made can be broken down into two types: Irreversible (type 1), and Reversible (type 2). Type 1 decisions tend are the higher-stakes decisions that would be too costly to come back from, where as type 2 decisions are easily corrected with little cost and/or time involved. Once issues are viewed on this spectrum of reversibility, it’s possible to know how to approach their solution. For type 1 decisions, the consequences can be much higher, so it’s best to make these decisions slowly. Gather information, weigh risks vs. rewards, and literally calculate potential costs if the results go sideways.
Some folks have a hard time knowing when to stop this process, however, and may miss the opportunity altogether. To know when the data gathering has gone far enough, the author recommends what he calls “Stop, LOP, or Know.” First of all: Stop. if helpful information has stopped coming in, it’s likely there’s no more to gather. Due diligence is great, but once you have a well-rounded view of things, there’s little chance of some earth-shattering piece of information coming in at the last moment. Take what information has come to light, and make the best of it. Secondly, LOP, stands for Loss of Opportunity. If the decision to be made faces a deadline, the opportunity could slip away unless a timely choice is made. And lastly, Know: leadership knows what to do, but may not want to face up to it. Some decisions are awkward and difficult, despite the fact that the answer is clear.
Reversible, or type 2 decisions, on the the other hand, should be made as quickly as possible. This is not a green-light to act recklessly or choose options out of a hat. This is just an acknowledgement that imperfection is acceptable where the stakes are lower. Bezos himself has said having to quickly correct a 70% sure option is better than waiting around for a 90% sure option. For these low-cost gambles, he may just be right. Give the full article a read here for more insights on when and how to incorporate these methods.