To make a decision, do you use your gut feeling, analytic skills or experience?

Good decision making has some of all three elements, gut feeling, analytics, and experience.

Recently on Quora, someone posted a really great question to think about. It is real life, topical, timely and can have profound consequences to you and your business. The question was “To make a decision final, business decision, do you use your gut feeling, analytic skills or experience?”

• Gut feeling - does this decision make sense? Does it feel right?
• Analytics - what data is there to support the decision or kill the decision? Do you have all the data you need to make that decision?
• Experience - in a similar situation, what happened? Who else might have some experience about it?

A good decision, I believe, is based on how much uncertainty you are willing to live with and then being able to commit to that decision without second guessing and endless reexamining.

And that comes before you start collecting data. More on that later. So to answer the question, let's talk about uncertainty analysis and then use the analogy of driving to work.

There is a science of determining uncertainty. One reasonable definition of uncertainty analysis is this - Uncertainty analysis aims at quantifying the variability of the output that is due to the variability of the input. Simply put, the less you know about the inputs to something, the less you can know or predict the outcome.

Every plan has a certain level of uncertainty.

Your drive to work is a plan. You work the plan to see if you get to work on time, on the route you had decided to take. Normally, your level of uncertainty is pretty low. Your experience is that it will take x minutes by taking y route. Now throw in some unknowns and the plans can then change - car won’t start, rain, snow, accident on your regular route, you have an accident, construction.

Even when your plan works as intended, these unknowns still exist but the chances of any or all of them happening is very low. In the summer, the unknown of construction actually increases. In the winter in Minnesota, the car not starting is an unknown that starts to increase in probability.

If one or more of those items - inputs - become a constant, like construction, what does your new plan look like? Now your level of uncertainty increases because, you may need to find a new route and you don’t know how long it might take? How many other cars will be on that new route? More than usual because of the construction? The variability of the inputs makes the prediction that much harder.

When you have more data, you have more options. Just don't get bogged down in the collecting of data.

You now have more data to help you and you have a gut feeling of what might be the right decision. Option 1 - take the same road and have a delay but adjust the original plan to estimate time to leave to arrive at an expected time. Option 2 - take alternate routes and estimate time to leave to arrive at an expected time for each route, but a lot more is unknown.

You can gather more analytics by looking at a map program that will give you estimated times and possibly times when you think you need to leave. You could go crazy with analytics by finding out the number of accidents on the different roads and how often they occur. The number of accidents in construction zones. You could go searching for different events pieces of data for a very long time. Is it worth your time and maybe some money to find, gather, collate all these various pieces of data to enhance your analytics? Or do you say, “I will look up these 2 things and make my decision based on that?” You have now bounded your analytics.

You have bounded how much uncertainty you are willing to live with.

You could have a group of people help you with the decision, your driving plan committee. This can provide additional experience values because Jim drives on road x and Jenny drives on road y. But in the end it needs to be your decision. Remember, just because you have asked for advice does not mandate you take it.

You have all three elements to contend with to help in the decision making process. You have your own guesses, gut, you have looked at maps and routes and times, data, and you have a committee of those that have taken different routes, experience. Now you need to commit to it. You could find out that on the start of your drive that it is taking a lot more time than you thought. Do you follow it through to see the end result? Or do you change directions mid route which has now introduced many more elements that were not even in either Option 1 or Option 2.

You may gather from my description that I am over simplifying and that it doesn’t work that way with some corporate decision that could be millions of dollars. In reality it is the same thing.

What changes with the different situations is the level of uncertainty to be tolerated. The risk reward conditions surrounding the decision. And the critical nature of the decision.

• I have seen people work so hard to gather so much data that in the end it may have moved the decision needle by only a couple of points, but they lost the opportunity to get to market sooner and lost the position as a market leader.

• I have also seen when the top person can’t make a decision and then everyone fights to persuade the decision. This causes delays, costs time and money, and diminishes the confidence in the final decision.

• And I have seen people work to stop everything when a roadblock appears in the early stages. Instead of working to remove the roadblock they convince everyone to change the decision. Result again is delays, time, money and not knowing if the original decision could work, which in itself could be another piece of data.

Every decision, major corporate expense, new product development, or driving to work, has elements of gut instinct, analytics, and experience, to a greater or lesser degree. But before jumping into the process of deciding, try to estimate how much uncertainty are you willing to tolerate for the decision.

- How much data is actually needed to influence the decision?

- Can you visualize some of the roadblocks from the market, from your development and from your team?

- Can you get everyone committed to following through on the decision?

Knowing the answer to these types of questions is vital to any decision.

What do you think?