You need information to take the risk out of decisions, but getting too much information has a real cost. Most normal business decisions can be made with 75 percent of the available information, focused on the right issues.
I have written before about people who have high information needs. You might call them “infomaniacs”. These are folks, or even organizational cultures, that prioritize making decisions using data, metrics, and plenty of analysis.
And don’t get me wrong, that’s often a good thing in the right situation. What you don’t want to do, however, is take that need for information to an extreme. That’s especially true when it comes to making normal business decisions.
You always want to have enough information to make the best possible decision you can. But how much is enough? And, just as importantly, how much is too much?
If you have 50 percent of the information you need, for instance, that’s probably not enough to make a sound decision. You’ll be guessing, which can make your decision quite risky. If it’s a choice that doesn’t have much impact, like where to have lunch, then 50 percent of the data is plenty.
But waiting until you have 99 percent of the information is also risky- and expensive in many ways. Accumulating that depth and breadth of data before you make your decision often:
A.) Costs a lot of money to acquire, and
B.) Takes a lot of time to gather.
Some people call this “analysis paralysis”
These are significant drawbacks, especially if you’re trying to run an agile organization that moves nimbly to stay ahead of the competition. The longer you wait to make a decision, the riskier it becomes, since you may be missing opportunities- allowing your competition to catch up or even pass you.
That’s why I’ve found that the solution is usually to make the decision when you have 75 percent of what you need to pull the trigger.
As an example, let’s consider that a potential customer is asking you to extend them a significant line of credit as part of signing on with your company. They are asking for enough money that it is significantly risky for your organization if the deal goes sour. So how much information do you need to make your decision?
To get 75 percent of what you need, you might need to establish that they are a reputable company with a solid history of being in business. You might also ask for a snapshot of their financials to help make sure they are solvent.
To get to 100 percent of the information, you might need to ask for their tax returns over the past two years and their profit and loss statements (P&Ls), while also setting up interviews with their CFO and their auditor and so on. If you do all that, you’ll have everything you need to know about this company and will make a clear and fully informed decision. But you will probably miss your chance to turn them into a customer.
Why? Because by pushing for 100 percent of the information, you may have opened up a window for one of your competitors to offer this company what they want without the hassle of providing all the information that you’re asking for.
Your company could also earn the dreaded label of – hard to do business with- which can be difficult to overcome in a fast-moving market.
The point is that you have to balance the risk level and potential payoff of whatever decision you’re pondering with your need for enough information to make that decision. Is this something above or below the waterline, in that it could truly put your company in jeopardy? If you’re building a new oil refinery, for example, that might warrant taking the extra time and money to make sure you get everything you need to know.
The book Blink reveals that great decision makers aren’t those who process the most information or spend the most time deliberating, but those who have perfected the art of “thin-slicing” – filtering the very few factors that matter from an overwhelming number of variables.
But for most business decisions, I’ve found that 75 percent of the data, focused on the right issues, is, as Goldilocks might say, just about right.