A friend recently gave me a copy of a new book that’s out now, The Price of Everything by Eduardo Porter. As someone who loved taking economics in college (Thank you Dr. Nelson.), I found Porter’s book to be a fun and thought provoking read. He basically takes some of the principles you learn in microeconomics to discuss why we pay what we do for different things in life. Some of the chapters include The Price of Work, The Price of Free, The Price of Faith and The Price of the Future.
As an economics geek, I figured Porter had to discuss my favorite principle, opportunity cost, somewhere early in the book. Sure enough, he says this about that in the first chapter:
“Our most important currency is, in fact, opportunity. The cost of taking any action or embracing any path consists of the alternatives that were available to us at the time.”
Easy to say, harder to do. My observation in working with leaders is that there is often a short circuit in their decision making process. Especially for leaders with a lot on their plate, it can feel like there is a premium on making decisions quickly and moving on. What gets lost is a thoughtful consideration of the opportunity cost of pursuing one decision over another. This is especially true for smart leaders who seem to get to “the answer” faster than everyone else.
So what can you do to improve the quality of your decision making? Or, what can you do to coach someone through a more robust decision making process?
Here are four step by step questions to either ask yourself or encourage others to ask themselves to make better decisions:
- What are the observable facts in this situation? What impact do these facts have on our goal?
- What might we be missing here? What other options do we have for reaching our goal?
- What criteria should we use for making a decision? What are the pros and cons of the decision?
- What’s the likelihood that we can successfully implement this decision with key stakeholders? What will it take to do that? Does this decision still seem best or do we want to reevaluate the opportunity cost and alternatives?
Obviously, this is not the decision making process you would use if your house or office was on fire. But, for decisions with a strategic and long term impact, slowing down enough to consider the opportunity costs makes a lot of sense. In my experience working with high output executives and managers, steps 2 and 4 are the ones that most often get skipped. (Hat tip to lots of people who have written about the MBTI over the years for inspiring the questions and their sequence.)
What do you notice about the quality and process of your own decision making? What have you done yourself and what have you seen others do to make better decisions? How do you assess and factor in the opportunity costs of the decisions you make?