Every day, we make countless decisions, from small, routine choices to life-altering ones. Yet, despite the frequency with which we face decisions, few of us are taught how to make them well. Whether in business or personal life, the ability to make thoughtful, well-considered decisions can significantly impact our success and happiness. Most importantly, it’s often not about making perfect decisions, but about avoiding costly mistakes. By approaching decision-making with consideration and structure, we can improve our chances of success and better outcomes in life and business.
I think there would be a lot of benefit in teaching people from as young an age as possible how to approach the decision-making process. Some decisions matter more than others. Most people struggle with making long-term decisions. Often in life, people make big decisions on a whim or without considering the consequences properly. This might include starting a business without understanding the market or buying shares in a company just because a friend did. The opposite is also true, people who don’t make a decision even when it makes sense to do it and it's something they want to do. If you don’t pull the trigger and do it, then the opportunity is lost.
I watched a speech by Warren Buffet where he explained that we don't get 500 great opportunities in our lifetime, he says we get perhaps 20. Buffett suggests we give kids finishing high school a punch card with 20 punches for the major financial decisions in their lives. When you make any investment that's a punch on the card and you only get one card for your whole life. This paradigm will dramatically change your thinking. He argues that you will become successful much more quickly because you’ll spend more time identifying the truly great opportunities and eliminating the ill-considered investments. It is a fantastic mindset to adopt when it comes to making decisions in all areas of life.
Interestingly, success doesn’t always hinge on making the best decisions. Sometimes avoiding major mistakes is enough to move you forward. Decisions that reduce the likelihood of negative outcomes are extremely underrated. We talk about good and bad decisions but in many cases what we are really talking about is the outcome they lead to. Making the right decision can still lead to a bad outcome but that doesn’t change the fact it was the best decision. Similarly, an ill-considered decision doesn’t always result in a bad outcome. If someone drives their car home after too many drinks and they get home safely it doesn’t make the decision a good one. But if you make enough unwise decisions the probability of a poor outcome will eventually catch up with you.
Following are a range of decision-making tools and methods that are simple to use in life and business.
A pros and cons list is a straightforward way to list out the reasons for and against to allow you to see what the list of factors looks like when considering all the positives and negatives that apply.
The Covey matrix categorises tasks into 4 quadrants according to whether they are urgent and important or not. It is an extremely effective tool to decide where you need to spend your time.
Pareto's analysis or the 80/20 rule as it is better known, applies across so many areas. It suggests that 20% of your decisions result in 80% of your happiness. In business, 20% of your effort produces 80% of your outcomes. In investment, 20% of your portfolio may well produce 80% of your returns. This is particularly useful in helping you to decide where to focus your time and effort in almost any endeavour.
Cost-benefit analysis is useful in assessing the trade-offs between your investment and the gain.
A SWOT analysis will help you decide whether to enter a market or even start a business in the first place as you assess the strengths, weaknesses, opportunities and threats.
Scenario planning is extremely useful in making decisions where variables can change the outcome significantly. It helps you prepare for the future and reduces the uncertainty where there are a range of possible outcomes that may eventuate.
Having a process for making decisions makes a world of difference in our ability to make well-considered decisions. While no single method guarantees success, using a structured approach can help you avoid common pitfalls and make better, more informed choices. By incorporating tools like pros and cons lists, SWOT analyses, and scenario planning into your decision-making process, you will have a clearer perspective on the options in front of you. As Warren Buffett suggests, it’s not about making lots of decisions or chasing every opportunity – it's about making a relatively small number of carefully considered decisions count. Whether in life or business, by focusing on reducing mistakes and improving our decision-making frameworks, we set ourselves up for long-term success in the face of uncertainty.
General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.