Learn three ways to reduce decision-making risk.

You face risk in all decision-making. And a goal of yours should be to reduce that risk as much as is reasonable. There are three primary methods for reducing risk.

First, involve more people in the decision-making process. They’re going to give you additional information and offer perspectives you may not have thought of. Additionally, by involving them early, you’re reducing execution risk on the back end. You’re getting people to buy into the decision now so when it comes time to execute, they’re onboard.

The second way to reduce risk is take more time. Today, the future may be completely uncertain. A month from now, maybe you’ve resolved some of those sources of ambiguity. A year from now, you have even better information as to the environment you’re going to make your decision in.

The third way to reduce decision-making risk is break big decisions into smaller decisions. If you’re trying to decide whether to relaunch the entire company website, perhaps you break that decision down and you make a smaller decision today of launching a pilot website, gather some additional information, and then make the bigger decision down the road.

Now, there’s a balance between gathering information and making a decision in a timely manner because gathering information takes time and money. And yes, you’re reducing uncertainty by doing so, but remember, there’s always new sources of uncertainty entering the equation. So find that balance between having enough information to make your decision.

As you look at ultimately reducing decision-making risk, remember, involve more people, take more time in making the decision, and break those bigger decisions into smaller ones.

Want to learn more about decision-making strategies? How about taking an entire course on it? Go directly to the course and start learning decision-making strategies. The entire course is available at LinkedIn Learning. Enjoy!

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Learn how to make a decision when you face a situation with completely unpredictable outcomes.

The fourth state of ambiguity you might find yourself in is one with completely unpredictable outcomes.

Let’s look at a situation where I give you a card and it’s the seven of clubs. And then I give you another card and it’s the queen of diamonds. The next card is an UNO card. And then I give you a joker from a deck of cards. The next card I give you is a credit card, then a greeting card, then a baseball card, then a SIM card.

It’s not clear what the next outcome is going to be. You have no way to predict what the next card is that I’m going to give you. It’s impossible. Even with a lot more information, you would be hard pressed to even construct a scenario where you would be able to figure out what that card is going to be.

Let’s imagine I said, “Hey, would you bet a hundred dollars on betting what that next card is?” Would you take that bet? What if I told you you could win a thousand dollars on that bet. Or a hundred thousand. Or a million. At what point do you take that bet? The uncertainty is too high in this situation. And the value of incremental information is going to be extremely high.

So when you’re facing situations with complete ambiguity, the value of spending the time to gather additional data, construct possible scenarios, is going to help you make a much better decision. And sometimes the way you can eliminate some of that ambiguity is to actually move to a phase decision-making approach, where you make a decision, you gather some additional data, and you make another decision. So breaking those big decisions down into smaller ones will reduce that risk.

Let me offer an example of what this might look like. Let’s say your company is based in California, and you’re looking at expanding your service offerings. So you decide you’re going to expand into India. Now there’s a lot of ambiguity in this situation.

First, you don’t know how customers are going to receive your new service. Your service has never been offered in that geography before. You have no idea how your competitors are going to react. There may be regulators who are going to govern how your service is offered, and you have no idea how those regulators are going to decide whether your service is offered or not. You don’t know what the employee capabilities are in that market. Is there a talent pool that can actually deliver your service? You may be unsure about the economic environment long-term in the Indian market.

So as you look at this very large decision, there are so many sources of ambiguity that you are really facing a situation with completely unpredictable outcomes. Given all that uncertainty you face, it’s critical that you reduce that ambiguity. So what are some ways that you could do that?

Well you could run a small pilot of your service in the Indian market to gauge true consumer receptivity to your service. You may have conversations with regulators and ask them what decisions might they make about your service. What regulations do they plan on putting in place? You could look at your competitors and see how their offerings fare in the Indian market. Maybe pick up your competitors annual report and look at their strategic plan. See what reactions have been in the past when they’ve had somebody go head to head with one of their service offerings. You could look at the Indian economic forecast and understand what are some of the trends that could affect your service, positively or negatively? The value of gathering all this additional information as you go to make a major decision of entering a new geography is critical.

So if you find yourself in a situation of complete ambiguity, complete uncertainty, remember, the most important thing you can do is gather additional information in order to reduce that ambiguity which is going to reduce the ultimate risk that you face when you make your decision.

Want to learn more about decision-making strategies? How about taking an entire course on it? Go directly to the course and start learning decision-making strategies. The entire course is available at LinkedIn Learning. Enjoy!

Did you enjoy this post? If so, I highly encourage you to take about 30 seconds to become a regular subscriber to this blog. It’s free, fun, practical, and only a few emails a week (I promise!). SIGN UP HERE to get the thoughtLEADERS blog conveniently delivered right to your inbox!

Learn how to make a decision when you face a spectrum of outcomes.

The third state of ambiguity you might face is one where there’s a spectrum of outcomes.

Let’s imagine you’re playing cards and I give you four cards, eight, nine, 10, and Jack of clubs. And you see your opponent’s hand and they have five cards, two of which are nines. Now there’s 44 Cards remaining in the deck. And there are 22 of them that might beat your opponent’s hand if I give you that card.

Would you take that bet?

Would you bet $100 on your hand and the outcome of that next card if you knew it might beat your opponent?

The value of additional information in a situation where there’s a spectrum of outcomes is very high. Knowing what that next card is, knowing what one more of your opponent’s cards is, can fundamentally alter your bet in that situation. Gathering more information from multiple sources is highly valuable and helps you reduce the ambiguity you face.

The corollary here is in a situation at the office where you have a spectrum of outcomes, gathering additional input from multiple stakeholders is going to help you arrive at a better decision because you can reduce that ambiguity.

Allow me to offer a situation. Let’s say you have five open positions on your team, and you’re trying to figure out how many candidates do you invite to come onsite to interview for those five roles? How many should you invite? Because it’s costly to invite people in to interview. Some of the sources of ambiguity you might face are what percentage of candidates will pass the interviews, from 25 to 75% might pass, that’s a standard range, but it’s a very broad range.

And if they pass, what percentage of them will actually accept the role? Let’s say you knew that’s between 25 to 100% are going to accept the job offer. And as you look at all of these variables, it’s still not clear how many people to invite onsite for those five roles.

What are some ways that you can reduce all this ambiguity you face? You might do some rigorous resume and phone screening of these candidates. You could pre-screen candidates for knockout factors. You may do a background check on them. You would hate to make a job offer to someone, only to find out on the back end that they have something in their past that will prevent them from taking the role.

You might ask candidates if they have other job offers that they’re pursuing, because that’s going to help you reduce that uncertainty around how many are going to accept the job offer. You could even ask people what their salary requirements would be if they received an offer from you. Again, trying to reduce that ambiguity around how many people will accept the offer if you make it.

The value of additional information in this situation is very high. There’s a spectrum of outcomes, 25 to 75% might pass, 25% to 100% may accept the offer, but those are very broad ranges. And the value of that additional information that you can gather during the process is going to help you make a better decision on the front end, in terms of how many people to bring in.

So if you face a situation where you have a spectrum of outcomes, remember, the value of additional information is very high and it’s very worth your investment in gathering that data.

Want to learn more about decision-making strategies? How about taking an entire course on it? Go directly to the course and start learning decision-making strategies. The entire course is available at LinkedIn Learning. Enjoy!

Did you enjoy this post? If so, I highly encourage you to take about 30 seconds to become a regular subscriber to this blog. It’s free, fun, practical, and only a few emails a week (I promise!). SIGN UP HERE to get the thoughtLEADERS blog conveniently delivered right to your inbox!