How good are you at estimating?

Strategic decision-making often requires you to estimate current and future quantities. Here’s a quiz to see how good you are at it.

For each quantity below (2009 data unless noted otherwise), make your best guess. Don’t try to find the answers, just guess.

  1. World camel population
  2. Annual consumption of popped popcorn in the US (quarts)
  3. GNP of Belgium ($M)
  4. Number of cats in the US
  5. Population of Romania, 2007
  6. Amount of dog feces produced each day in the UK (tons)
  7. 2007 US corn production (thousand bushels)
  8. Value of all the tea in China (annual production) ($)
  9. Total amount of gold ever refined (kg)
  10. Acres planted in cotton in the US, 2006 (thousands)

Now how confident are you in your answer? Give a high and a low guess so that you are 90% certain that the true answer lies between high and low.

Don’t check the answers below until you’ve done this!

Businessman with Question

 

 

 

 

 

 

 

alternatives

 

 

 

 

 

 

 

 

 

 

Here are the answers. Give yourself a point for any question where the answer was between your high and low.

1          World camel population         18,871,000

2          Annual consumption of popped popcorn in the US (quarts)            16 billion

3          GNP of Belgium ($M)            $264,000

4          Number of cats in the US       76,430,000

5          Population of Romania, 2007 22,276,056

6          Amount of dog feces produced each day in the UK (tons)    992

7          2007 US corn production (thousand bushels)            13,073,893

8          Value of all the tea in China (annual production) ($)  $1,590,653,400

9          Total amount of gold ever refined (kg)           154,400,000

10        Acres planted in cotton in the US, 2006 (thousands)            15,274

 

How did you do? If you really were 90% certain, you’d expect to get a score of about 9.

I’ve never had anybody get that much. Most people will score maybe 1 or 2. Why is that? It’s the overconfidence bias. We tend to think we know more than we really do. We tend to lock into an answer and then have trouble thinking much beyond it. This is a natural human bias that stifles our imaginations and leaves us unprepared for inevitable changes.

You probably didn’t know the answers to any of these questions. Admit it! Give yourself a wide latitude for the possibilities. Have you ever been caught by the overconfidence bias, or seen others get caught up in it?

Choices for Change

Woman Riding Bicycle in BerlinYou always have more than two choices in any decision. A lot of decisions come out of a problem or dissatisfaction. The temptation is to jump in and do something right now, especially if you’re angry. Before you do that, settle down and make a list of possible alternatives that will remove, mitigate, or otherwise deal with the problem. Remember that the idea is to generate as many alternatives as you can. Some will be clearly ludicrous or even unsavory. Don’t worry about that now. You’ll get to throw those out later. Right now, open your mind to the full range of possibilities.

Here are some general possible alternatives.

  • Hope for someone else to change (Good luck with that!)
  • Help someone else to change
  • Remove the problem
  • Remove the source
  • Remove yourself
  • Change the problem
  • Change the way you deal with it
  • Accept it

— Hope for someone else to change

This is usually the first alternative people think of when they’re dissatisfied. “The problem is my boss.” If not your boss, it could be your spouse, your coworker, or some seemingly incompetent service worker. Even though this is the most obvious solution, it’s generally the least likely to succeed. Often people get stuck taking this as the only solution. Then the only action they can take is becoming increasingly annoyed with the other person. The result of your decision process must always be what you are going to do.

Here’s an example. My coworker Bob rides his bike to work and keeps it in the hallway outside his cubicle, making it hard for me to get to my own cubicle. One alternative would be silent resentment toward Bob for causing me inconvenience.

Help someone else to change

Come up with alternatives on how you can get the other person to change their behavior. This could be simply talking to them. Better yet, think of alternatives that you can undertake to remove barriers that they face. Remember that people are not going to change just because you want them to. You may need to offer to do something for the person in exchange. Here are some other alternatives for our example.

  • —  Ask Bob to keep his bike out of the hallway.
  • —  Help Bob find a better place to keep his bike.

—Remove the problem

Focus first on the problem, not the people. Once the problem is well framed, think about how it could be removed. Ideally the problem can be solved to the satisfaction or all.

In our example, the problem is the bike in the hallway. Here are some possible alternatives (clearly, some better than others, but right now we want a rich list).

  • —  Throw the bike out the window.
  • —  Get management to institute a rule against storing bikes in the building.
  • —  Put the bike in Bob’s cubicle.
  • —  Find someplace else to store the bike.

—Remove the source

Think about what is causing the problem, then how it could be mitigated. Do a causal analysis. That is just a fancy way of suggesting that you look for the causes of the causes. In our example, Bob has caused the bike to be in the hallway, so he is the source of the problem. But if we dig deeper, we find that Bob stores the bike in the hallway because there is no other safe place to keep it. Also, the problem arises simply because Bob rides a bike to work. Perhaps he has no car or he wants the exercise. Here are some more alternatives:

  • —  Get Bob fired.
  • —  Have the company install secure bike storage.
  • —  Buy Bob a car.
  • —  Buy Bob a gym membership.

—Remove yourself

It’s sometimes more effective to avoid the problem than to fix it. Leave a bad relationship. Check out early from a dirty hotel. Quit a dead-end job. Avoid a business that gives your poor service. Often this is hard to do, especially if you’ve put a lot of yourself into trying to fix the problem. We don’t like to be quitters. That’s why it’s especially important to add this option to your list of alternatives. Empower yourself to walk away if it makes sense. Here are some more alternatives for our example:

  • —  Quit your job.
  • —  Work exclusively from home.
  • —  Ask to be moved to a cubicle in a different location.

— Change the problem

Try to think of ways that the problem can be less of a hindrance. Suppose you can’t solve or remove the problem and you’re unwilling to leave. Can the problem somehow be contained or reined in?

In our example, if we accept that Bob will always be leaving his bike in the hallway, is there anything we can do to make it less of a hindrance to those walking by? Here’s a possibility:

  • — Find a way to mount the bike to the side of the cubicle or otherwise get it out of the flow of traffic.

— Change the way you deal with it

Again, suppose you won’t be able to remove yourself or the problem. Can you change your own behavior to keep it from bothering you so much?

Accept that Bob will always leave his bike in the hallway next to your office. Is there a way that you could avoid it or make it easier for you to get by it?

  • —  Find a way to approach your cubicle from the other direction, avoiding the bike.

— Accept it

This should always be on your list of alternatives. It’s remarkably liberating. Accept that people won’t change their behavior and the problem will persist in its current form. Choose to live with it.

—Accept the fact that Bob will always leave his bike in the hallway and you will need to squeeze past it to get to your cubicle.

Two of these alternatives, the first and last, are superficially the same. You can wait for someone to change or you can accept the situation. In either case you do nothing at all about the problem. But there is a world of difference in how it makes you feel and how effective a decision-maker you can be. In one case, you waste a lot of energy on something that may not change, resenting the person causing the problem and building stress. On the other, you have the peace of knowing that you made a conscious choice for acceptance and can focus your energies elsewhere. On one hand, you are at the mercy of someone else’s choices. On the other, you have taken charge by making your choice after considering all of your other options.

When you put together your list of alternatives, you’ll be tempted to drop some of them immediately. Many of the alternatives in the example are intentionally ludicrous. Buying Bob a car or destroying the bike is clearly overkill. For now, resist this temptation to throw out options. You want to keep yourself in a mode of divergent thinking. Evaluating the options is convergent thinking, which inhibits the open-mindedness you need right now. A good list will include one or two preposterous ideas. You’ll get to evaluate your options later.

Some of these options appear ridiculous when looked at dispassionately in an exercise. For example, it would be stupid to wait passively for Bob to move his bike and build up a level of resentment and anger to the point that you throw the bike out the window. Yet people do things like this all the time. You can probably think of several examples in which a petty problem led to rage and destructive behavior far out of proportion to the original annoyance. Take charge of your decisions before the rage builds.

Opportunity knocks. Are you just going to sit there?

baby handsMy husband Jerry and I decided after a few years of marriage that we would have a baby. We thought this was our decision to make. We figured it would be easy. People do it all the time. In fact, a lot of people do it by accident.

But nothing happened, and there were no babies available for adoption. Eventually after several years we decided to put that dream aside and make the best of our situation. We settled into a comfortable child-free life. After 15 years of marriage we had two interesting careers and our own high-tech business on the side. We traveled, enjoyed theater and fine restaurants. We certainly were not faced with any decisions. Even our families had stopped asking us about babies.

But then one day we saw someone on TV talking about independent adoption, an agreement between a pregnant woman and adoptive parents. Our conversation began, “That’s interesting, but it doesn’t have anything to do with us.” Then we realized we had an opportunity. That’s when we decided to plant a signpost, bam, right in our comfortable path. And we weren’t moving until we decided. We visualized both paths. On one side, continue on the path we were on. Of course, we were in the middle of a product launch. We had our jobs, our little business. It was all very orderly and comfortable. Or, on the other, we could adopt a baby. A baby. We visualized ourselves being a real family. As soon as we asked the question we knew the answer. Two years later we had a newborn daughter. People even said she looked like me. And she grew up to be a beautiful and talented young woman. We’re so proud of her. She’s a teacher, and the most amazing thing is she even knows how to teach teenagers. She’s really good at it. What a great decision.

Think about your opportunities. Should you seize any of them? Opportunities are an impetus to get you started on the first of the seven steps to positive action. You have decisions to make. Opportunities don’t wait around for you. Plant your own signpost. Make a list of opportunities you have right now or that might appear in the future, opportunities for personal or business growth, financial rewards, dreams fulfilled or exciting changes. Now, for each one, ask, “What should I do with this opportunity?”

Have you ever recognized an opportunity and had it move you to action? What do you do to make yourself more aware of the opportunities around you?

 

Are you a decision-maker or just a choice-maker?

Female hand lifting the lid of a small cardboard box

You mean there’s a difference between making a decision and making a choice? Absolutely!

First of all, a decision-maker is a decision-seeker, always searching for the questions that need to be asked. I had a colleague who thought she was a great decision-maker since people were always coming into her office with choices to be made, and she gave them quick answers. She herself admitted that she was often a little too quick, that her approach tended to be “ready, fire, aim.” She would sometimes make decisions without all the facts, or would run off to solve non-problems, embarrassing the people who actually had everything under control.

But that was not why I saw her as less than a great decision-maker. It was that other people were defining the decisions to be made as well as the alternatives. It’s so easy to get caught up in the thicket of urgency, all those little decisions that are thrown at you every day and need answers right now. A great decision-maker examines problems, opportunities and goals and discovers the truly important decisions that need to be made. Those are the big questions that nobody is asking because we’re all inundated with the little ones. It’s easy to lull yourself into thinking that you are a powerful decision-maker when people are running into your office with petty problems and you are sending them out with advice.

Here’s another major difference between a decision-maker and a mere choice-maker. A choice-maker selects from the given alternatives. A decision-maker first asks, “What are we trying to accomplish?” All decisions are made in a context of needs and constraints, and the right choice for me might be the wrong choice for you. A decision-maker then asks,  “Are there other alternatives?” The obvious choices may not be the only, or even the best, options. A decision-maker visualizes the consequences of each alternative and balances the often-conflicting goals surrounding the choice. Only then does he or she make a choice.

Here are the seven steps of effective decision-making. Notice that making a choice is way down at number 6.

  1. Discover the decision to be made
  2. Set a deadline to decide and to act
  3. Identify the full range of goals and constraints
  4. Identify the full range of alternatives
  5. Visualize the consequences of each alternative
  6. Choose the best alternative
  7. Act on your decision

I’ll have to admit that my colleague was good at number 7.

I’ll be talking more about these steps in the posts to follow.

Take charge of your decisions and your life. Live intentionally.

How do you handle decisions? I’d love to hear from you.

Excel formulas. No, you don’t need to be a math geek.

Writing formulas is the number one Microsoft Excel skill that decision makers need to know. Formulas give Excel its power and flexibility. They let you answer the questions you want to ask, which usually go beyond adding columns of numbers or making charts of a bunch of data.

Don’t freak out with memories of high school algebra. Excel formulas are even more intuitive than using a calculator. Just start with “=” to let Excel know you’re entering a formula. Then click on numbers in the spreadsheet and put arithmetical operations between them. For example, say you’ve typed in your current salary and the raise percentage you expect in cells B1 and B2. (Type “5%” so Excel knows this is a percentage.) You want to know how many more dollars you will make and your new salary.

Type “=” in call B3 and then do the calculations. The raise amount is the current salary (click on “$104,000”) times (type “*”) the raise percentage (click on “5%”). Then hit Enter. There’s your answer in the cell and the formula in the formula bar above the spreadsheet. Now to get your new salary, you add the current salary and the raise amount. =$104,000 (click) + $5200 (click).

As you go along, you immediately see the results and can do sanity checks. You can click on any calculated cell and see where the answer came from. Double-click on the cell to see the formula highlighting the cells used. Hit Esc to go back.

The real power of formulas is in playing “what-if.” What if you got a raise of 7%? Enter 7% in B2 to get the answers. Now imagine a big future-oriented spreadsheet, Change the inputs–things you control and things you can’t–and visualize the outcome. This is a powerful tool for planning for the future.

How do you use formulas? There’s an art to writing compelling formulas that give you real insights. Most Excel books skim over this topic. I’ll be sharing some of my techniques here. What are yours?

Excel: It’s not just for bean counters anymore

As a decision-maker, you probably see a lot of Excel charts. They may be produced by people who work for you . This often takes the form of a dashboard that summarizes the current status. Because of this, you probably think of Excel as a tool for “number crunchers” or “bean counters.” These are the people who keep track of all those tedious columns of numbers and then summarize them in pretty graphs. Why would you be bothered with that sort of thing?

This common use of Excel fails to tap Excel’s greatest feature—interactivity. The very first spreadsheet program was called VisiCalc, short for visible calculator. It was touting its ability, remarkable in an age when spreadsheets were made out of paper kept in big books, to let you change anything and see how it changes the answer. Now we’ve lost sight of that legacy. We’re back to thinking of a spreadsheet as rows and columns of numbers, but now we can slice and dice them and show them in pretty graphs.

Business is not static. If you’re looking only at this month versus last month, this quarter versus last quarter, you are not looking ahead. Build a spreadsheet to look into the future, then change inputs and see what happens. Play what-if with things you can control to maximize your chance for success. Play what-if with things you can’t control so that you’re ready for whatever comes your way.

Here are some examples of future-focused spreadsheets you can easily build yourself.

  • How much start-up capital do I need?
  • How soon will my business break even?
  • Do I have enough money saved to retire?

Here are some of the what-if questions on things you can control that you might want to explore for that third question.

  • What if I move into a less expensive house?
  • What if I work another 5 years?
  • What if I take a lump sum rather than an annuity?

Here are some of the what-if questions on things you cannot control:

  • What if I live to 90? 95? 100?
  • What if inflation is high?
  • What if the stock market is erratic?
  • What if the capital gains tax rate changes?

Why would you want to build these spreadsheets yourself if there are people working for you who do this sort of thing? Because you’re the only one who knows exactly the questions you want to answer. And answering those questions will raise more questions, questions that you can answer by expanding the spreadsheet. Keep Excel open on your computer to jot down ideas or do quick calculations. Many of these doodles develop into spreadsheets that give real insights.

With just a few simple techniques you can build your own spreadsheets to answer questions like these. Excel is full of features, many of them powerful and complex for sophisticated analysis, many of them to help your bean counters bring you beautiful spreadsheets and charts. In future posts I’ll talk about these key techniques for Excel for decision makers. It turns out that 99% of the stuff you find in those big Excel books you don’t need to know.

How do you use Excel for future-focused decision making?