How to compare apples and oranges

apples and orangesToo many conflicting goals! This is where many decision makers give up and make do. I’m looking to buy a car. I want low price, good mileage and a roomy trunk, among other things. But how do you compare dollars, miles per gallon and cubic feet? Sometimes more is better (trunk capacity) and sometimes less is better (cost). How can you choose? It’s like comparing apples and orange, and everyone knows you can’t compare apples and oranges.

Believe it or not, you can compare apples and oranges. In fact, as an effective decision maker, you must.

The simplest way to help you think about multiple alternatives and multiple goals is to make a grid with alternatives being the columns and goals, constraints and considerations being the rows. (or vice versa. I’ve done it both ways.)

Then fill in the blocks with some assessment, number or information. Here’s an example of choosing an office supply source for your business.

Business Resources Store The Office Center Acme Office Supply Mega Office
Prices 10% quantity discounts Full price Some special deals 15-20% discount on everything
Inventory Sometimes out of stock Complete No toner Complete
Delivery Free 5-day Guaranteed next day, free Unreliable None
Service Good Very good Good Poor

Sometimes this is all you need to get the answer to pop out or at least eliminate some poor choices. Even if all your choices still look good, this grid is a good start on just about all the effective techniques for making a choice with multiple goals. Some of these I’ll discuss in more detail in future posts.

The simplest is a weighted score. You’ve probably seen it before, because it works.

Weight Business Resources Store The Office Center Acme Office Supply Mega Office
20 Prices 4 1 2 5
10 Inventory 3 5 4 5
5 Delivery 4 5 2 1
10 Service 3 4 3 2
Total score 160 135 120 175

Put a numerical score (more is better) in each block. Here we’ve used a scale of 1 to 5, with 1 being very poor and 5 being excellent.

Some of your goals are more important than others. Give each one a weight proportional to its importance. It doesn’t really matter how you do this. Here, we decide that prices are twice as important as inventory. We also consider service and inventory equally important and twice as important as delivery. Put those numbers in a new column at the left.

Now get a total score for each alternative by multiplying each score by the corresponding weight and adding them together. For example, the score for Business Resources is 20*4 + 10*3 + 5*4 + 10*3 = 160. By the way, if you use Excel, you can do this with the function SUMPRODUCT.

In our example, Mega Office comes out the best, mainly because they have good prices and that’s important to us.

This grid can be used for more precise comparisons, such as Even Swap or SMART. More about that later.

Leave a comment. I’d love to hear your experience. How do you balance multiple conflicting goals?

The great balancing act for decision makers

How often have you given up on making a decision because your goals were pulling you in opposite directions? Any decision worth your time will have conflicting goals. Cost vs. benefit. Risk vs. reward. You can’t have it all, even if you had unlimited money. My ideal house is on a lake in the woods, surrounded by quiet, natural beauty and within walking distance of world-class theater and gourmet restaurants. It doesn’t exist! Something has to go.

One of my former engineering colleagues had a sign in his office that said, “Good. Fast. Cheap. Pick two.” My experience is that often you can’t even get two. Usually it’s good enough, fast enough and cheap enough. It’s all about balance.

Here’s a common technique for making a decision with multiple goals that is almost always guaranteed to give you the wrong answer. Choose the most important goal and optimize for that. I’ve worked on many Smart Highway projects, applying digital technology to improve the use of the roadways. There are many goals and considerations here, including safety, roadway capacity, shorter travel times and minimal environmental effects. Anyone you ask will tell you that the most important of these is safety. Suppose you design a highway focusing on this goal alone. Simple solution. Close all the roads. Perfect safety. Perfectly useless.

Facing conflicting goals is probably the biggest hurdle for decision makers. You need to balance the interests of various stakeholders as well as near- and long-term costs and benefits. In my next post, I’ll have a quick technique for balancing conflicting goals for the best decision possible.

How do you handle conflicting goals?

The Myth of the “Right Decision”

The Myth of the “Right Decision”

stock crashSometimes bad things happen to good decisions. A few years ago my husband found a car that he really liked, but he wasn’t sure whether he could afford it. This was a difficult decision because he’s retired and living off his 401(k). He has no steady stream of income, just some savings that have to last the rest of his life. What he can afford depends on unknowns such as how long he will live and what will happen to inflation and the stock market over that period. I offered to help him out. I made a financial model of his spending and assets over the next forty years, taking into account such factors as investment mix, mortgages and tax consequences. Then I ran it as a Monte Carlo model to examine the possible effects of fluctuations in inflation and the market. This was probably the most complex analysis of a car-buying decision ever made. Maybe it was overkill, but it convinced me that he could afford the car.

He was thrilled and went out immediately and bought it. The very next day, the stock market dropped more than 700 points and took much of his 401(k) with it. I was devastated. “You can’t afford that car. I was wrong! I made the wrong decision,” I wailed. For a while it knocked the wind out of my sails and made me question my decision-making abilities. I became overly cautious.

Eventually I snapped out of it. There was nothing wrong with the decision. It was thorough, took into account all relevant considerations and available information and balanced risk and reward. There was nothing else I could have done with what I knew at the time that would have made the decision any better. Nobody anticipated the Market Crash of 2008. This was a good decision. It just had a bad outcome.

Often people will laugh when I say “it was a good decision; it just had a bad outcome,” as though there’s some inherent inconsistency in the phrase. This shows how ingrained is our thought that a decision couldn’t possibly have been good if it led to a bad outcome.

Sometimes a bad decision will have a good outcome, but it’s still a bad decision. A while back, I read an article about a woman who had won the lottery and set up a charitable foundation in her name. While this is certainly better than what most lottery winners choose to do with their winnings, I was struck by the self-congratulatory tone of the article, as if to say, “My good decision in entering the lottery has allowed me to be generous.” The fact is that entering the lottery is a bad decision from a money point of view. There’s a greater chance you’ll be killed in an accident on the way to buy the ticket than there is that you’ll win. Maybe it’s worth it as a cheap form of entertainment, but financially it’s a bad decision. But every time someone has a good outcome.

The fact is that none of us makes just one decision during our careers or lifetimes. Of all the decisions we make, some will turn out well and others poorly. People who use good decision-making techniques will generally have more good outcomes than those who don’t. Focus on the big picture and accept that sometimes good decisions turn out bad.

I’ve seen the demoralizing effect of the “bad outcome = bad decision” myth on both individuals and companies. As happened to me, people will become afraid to make decisions, avoid necessary risks and shun innovation. They may even change perfectly good decision-making strategies in a vain attempt to avoid another bad outcome. Corporations will fire excellent managers who failed once because of unforeseeable circumstances, leaving a work force afraid to stray beyond rigid norms.

Every decision involves risk. There is no guaranteed “right decision.” It’s a balancing act and all part of the art of being an effective decision-maker. If you’ve never had a good decision go bad, either you are extremely lucky or overly cautious.

Have you had a good decision go bad?

Things Change: Finding Your Focus

Doctor in hospitalThis isn’t the type of thing I usually write about, but it speaks to one of the key characteristics of an effective decision maker, and that is recognizing what is really important rather than merely urgent.

I was freaking out. Why was I so stupid to decide to offer three different public workshops on three different topics in the space of a few weeks? I wasn’t ready. I hadn’t done any publicity and didn’t have enough people signed up. Should I cancel one or more? What about the venue I’d already paid for?

I noticed my husband Jerry, standing in the doorway of the room. He’s a great guy. He keeps my computer running. He can fix the most obscure problems. He merely has to place his hands on a computer and it starts playing nice. We call him the computer whisperer. He’s really handy to have around, but at that moment I was freaking out and I didn’t want to be disturbed.

He said, “It’s malignant.” Two words and things changed. The day before he was perfectly healthy and suddenly he has cancer. I thought putting this on top of all my other concerns was going to drive me into the ground. But a remarkable thing happened. All my concerns about the workshops, the signups, the venue all lifted off my shoulders, turned to vapor and floated away. Moments earlier I was fragmented, scattered, torn apart. Suddenly I was completely focused.

Jerry had cancer. Esophageal cancer. Fatality rate 85%. Things change. I decided I was going to do whatever I could to get him through this. In any case, we were going to make the most of whatever time together we still had. I canceled all the workshops and refunded everyone’s money, just like that. The money I spent on the venue? Doesn’t matter.

After two months of tests, procedures and major surgery, Jerry was home. He had a feeding tube coming out of his side. Part of his stomach was gone. Part of his esophagus was gone. All of his cancer was gone! He was home and he was alive. They caught it early before it spread. It’s a miracle.

I was so glad he was home that I wanted to marry him all over again. How is it the two of us found each other all those years ago? We were just a couple of kids. How did we know what we were doing? That’s a miracle, too.

I guess we don’t recognize the little miracles in our lives until things change. Step out of the thicket of urgency once in a while and look around. What’s really important?