Effective Decision Making Needs A Reliable Process

Decision making is both an art and a science. The science tries to analyze all information, while the art attempts to produce divergent, innovative solutions. Making a good decision based on logic alone can be comforting. However, we can’t rely on logic only, as using some creativity in the decision making process often produces good, non-obvious outcomes. Still, whichever approach we apply, decision making can produce significant, sustained, and life changing results. That’s why it is important to understand different approaches to deciding.

How do you analyze a decision to go on a major overseas trip, buy a big ticket item, or do a project? If you are like most people I counsel, you look at access to funds on your credit card, your overdraft limit, credit line availability, or home equity, and decide on a spending limit. But you would not do a full analysis that looks at needs before affordability.

I use the COAT analysis to see in advance potential effects of major decisions. In this process, I can plan to eliminate or mitigate likely negative outcomes, and try to accentuate positive ones.

COAT Decision Making Analysis

  1. Consequences
  2. Opportunity costs
  3. Alternatives
  4. Truism

Consequences

Consequences of decision making
Consequences of decision making

Merriam Webster’s  dictionary defines a consequence as “something produced by a cause or necessarily following from a set of conditions.” The consequence, or effect is the likely result from your decision. Buying a car is the effect of a decision to meet a specific need (want) or needs (wants). However, often, financing is readily available, and so many folks do not consider the full results of that decision.

Let’s assume you plan to upgrade your kitchen—that’s your goal. To be actionable, you must define it with 4-Cs—clear, complete, concise and calculable. Only then will you know exactly what upgrading the kitchen means. Maybe you do, or get done, drawings for the proposal with a detailed list of materials and supplies needed. As well, you might do a list of existing items you will dispose of.

Having set the goal, you need to develop a plan with 4-Ss. The plan must be simple, staged, specific, and its execution must be sensitive to people involved.

The consequences of upgrading the kitchen are the many effects along the path from decision making to job completion. It’s essential you invest time before you finalize your decisions to examine these effects thoroughly. Practically, it’s the message Jesus mentions in Luke 14:28: Count the cost before you act.

Opportunity Cost

An essential part of evaluating the consequences of your decisions is to consider the opportunity cost—likely results of your inability to do items after upgrading the kitchen. Essentially, the missed opportunities. Your upgrade will require time, talents, and money that won’t be available for such things as going on vacation, replacing the car, and so on.

It’s important to consider opportunity costs of your decisions to avoid frustration and significant financial stress later. Many people decide to do something, and then realize six months or more later that they forfeited an important later decision.

Alternatives

There is an alternative for every decision. Clearly, the most obvious alternative in our example is not to upgrade the kitchen. For each decision, you should look at alternative ways to achieve the goal. When you examine alternatives, zoom out and look at the big picture. For our kitchen project, do you plan to upgrade the rest of the house later? If you do, look at an overall plan for the house. But most of all, be alert to upgrading creep: Upgrading sections of the home gradually when you might achieve a better and more cost effective result if you sold the home and bought or built exactly what you need.

The art of decision making will lead you to ask: “Is this the first or second step of a major upgrade of the entire house?” If so, you might think about selling the house, renting, and investing the equity! The logical approach would focus on upgrading the house at the lowest cost.

Still, in every case, you need to be clear about the reason for the goal. However, don’t be tied to a particular path in your decision journey. If you’re replacing the car, question the need for a car. Should you take public transport (where feasible) and rent a car, as needed, on weekends?

Looking at alternatives can be an exciting period if you choose to look outside the box away from logic, and seek creative options.

Truism

This is the most important consideration. Before you decide, ensure you understand two truisms. First, every decision money leads will be based on the wrong premise and will likely lead to problems. Money is merely a means of exchange. If money is leading your decision, revisit the decision. In other words, if you are deciding primarily because credit is available or you think you are getting a deal, you are focussing on the wrong element. Only after you establish the need or want should you consider whether you can afford to spend—to use the means of exchange to get it.

The second truism to know and accept deals with time: Time is fixed. You can’t manage time; you manage your priorities. Always ensure time is not the deciding factor. Evaluate time needed to do the decision and remember each day has 24 hours. So adjust things you need to do in each 24-hour period.

When Money or Time Leads Decisions Problems Result

Typically, people let money or time lead their decisions. They might say, “My budget is $50,000” and I won’t spend more than that amount upgrading the kitchen. Alternatively, they might say, we have only two months to do this, so it must be done in this time. In these situations money and time lead your decisions.  Therefore, there is a high probability you will not meet your goals on time and on budget, and problems will result.

Don’t set a budget before you decide what you want done. Normally, you do not understand the scope of the job or the goal (the upgrade). Your goal might cost $40,000, or $60,000 instead of the arbitrary $50,000 “budget.” Let’s understand that a budget is merely the likely cost of goals to be achieved in a future specific period. That’s why you must cost the goal first to decide a realistic budget. Don’t set the budget until after you cost your goal. You need to go through the budgeting process several times to arrive at a final budget. So, don’t worry when you must revise the budget three or more times.

Money is a means to your goal

Money is a means of exchange. When you plan to do a project, first, decide the need or want. Second, develop goals and plans, and then cost those goals. This will show the likely cost of your project. If that amount is more than you can afford, adjust your goal, and repeat the process until you trim the goal to an affordable amount. In each iteration, you will see the cost of the goal. When the estimated cost of the goal is too much, change the goal; don’t cut the budget and force someone to do suboptimal work to do your goal. Have you ever wondered why so many projects are overspent?

When you fix the budget first, you provide a constraint, and you will likely get suboptimal work. The same applies with time. Each day has 24 hours—that’s it. Adjust priorities to fit that time. There is enough time!

Conclusion

Research shows consistently that the process is more important than financial analyses supporting the decision. While it is not a panacea, I believe when you follow this process consistently, the probability of  money-induced stress reduces significantly. Even so, ensure that during your decision making process you listen for the Lord’s guidance.

© 2016 Michel A. Bell

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Michel A. Bell

Michel A. Bell is a former senior business executive, author of five books, speaker, and adjunct professor of business administration at Briercrest College and Seminary. Michel graduated from Massachuetts Institute of Technology with a masters of science in management. He is founder and president of Managing God's Money, a private mission devoted to teaching biblical stewardship of time, talent, money and other resources. Visit Managing God's Money

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