HOW TO MINIMIZE RISKS WHEN MAKING DECISIONS
Most decisions contain a degree of uncertainty. Use your own judgment and experience to remove as much doubt as possible from a situation. Think through the consequences of your actions, be prepared to compromise, and consider timing carefully.
Assessing the Consequences
Making a decision usually results in some form of action being taken at some point in the future. Minimize risks by listing the possible effects any action, and assessing the likelihood of each negative event, as well as how much damage it could inflict.
Also, assess consequences in terms of time – immediate, short term, or long term – and consider the long-term results of a decision rather than looking exclusively at short-term effects. Look for external factors that could affect your decision, and try to quantify the likelihood of – and reasons for – your plan failing. Itemizing such factors is a step towards making contingency plans to deal with any problems. This will reduce the chance of failure and optimize your chances of success.
Successful management involves many trade-offs and compromises to reach the best decision when several factors are involved. The aim of trade-off is to keep short- and -long-term risks as low as possible. You cannot maximize profits and investment at the same time – short-term profit is sacrificed in favour of long-term success.
Equally, ambitious plans for expansion may be trimmed to achieve satisfactory current returns. Products are similarly affected – you cannot simultaneously maximize a car’s acceleration and minimize its fuel consumption. To make decisions satisfactory, work out your priorities and assess those of your opposition. Establish which features matter most to customers to compile order of priorities – you can then trade-off the less important features against the significant ones. Although some trade-offs involve reducing costs, few customers will be willing to accept the sacrifice of quality to profit.
Many projects fail because their timing is wrong – they start too early or too late. When dealing with a new product’s launch, for example, a trade-off may be needed between having all the necessary elements securely in place and moving swiftly in order to beat your competitors to the market.
Although the latter seems the riskier alternative, you may lose out to the competition altogether if you delay too far long. Have the confidence to decide and implement at speed, and delay only if there are convincing reasons for waiting.
Questions to Ask Yourself
Have I considered all alternatives?
Have I considered and analyzed fully each alternative?
Have I assesses and compared the probabilities?
Do any of my proposed trade-offs endanger the objectives?
Have I built enough leeway into the timing?
Does my team support the choice between alternatives?
Use both judgment and calculation to get optimum value from each.
Never sacrifice the future for the short-term unless there is no option.
Make competitive decisions earlier rather than later.
Keep a list of trade-offs you are making.