Excel in Decision Making or Watch Your Business De-excel
“There are risks and costs to a programme of action. But they are far less than the long range risks and costs of comfortable inaction.”
John F Kennedy
JFK’s statement was dramatised to me in a book I recently found of interest; Charles H. Ford’s ‘Think Smart, Move Fast’. I’d like to share some of the information that is relevant to you as a business owner. In particular, when it comes to the decision making process.
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Businesses move ahead only by making decisions relative to new ideas.
The Decision Making Process:
1. Establish the subject (new idea)
2. Analyse the potential benefits
3. Analyse the problems and potential risks of implementation
4. Develop solutions to problems of implementation and steps to minimise potential risks
5. Make a final decision based on potential benefits of Step no. 2 versus costs of step no. 4
Positive and Negative Predispositions:
Predispositions towards new ideas are either positively or negatively charged, and most businesses are by nature somewhat negatively charged. This can be explained in part by the comforting sense that by not adopting a new idea, the status quo remains and with it little perceptible immediate risk.
Negativism is dangerous and can destroy the growth potential of the business, and in extreme instances can destroy the business itself.
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A major ingredient to decision making is relevant information. And relevant information needs to be current!
It should be the role of accounting to gather and cost the information and present an understandable and current report to the decision maker. For the life of me I cannot understand the relevance of comparing this year’s $sales against last year’s $sales as a business performance indicator! So many factors can impact on the variance. It could be a change in selling price, change in product mix, change in foreign exchange rates, loss of customers, loss of suppliers, a tragedy in the industry, and on and on it goes. Performance analysis must look at quantities as well as financial figures and must be compared against budget.
If you are ambitious and want your business to move ahead, you must look ahead and work with an accountant who is prepared to move ahead with you.
Remember that Step 5 in Chales H. Ford’s Decision Making Process compares benefit against cost. This is the crux of the decision. Cost refers not only to dollars spent, but also to lost opportunities as a result of actioning a decision. If the benefit from the decision fails to meet expectation then the action needs to be reviewed and a decision made as to whether or not to continue.
Peter Murray BBus
Professional Accountant, Small Business Advisor and designer of eclat.bos Accounting Software.