Putting your life on autopilot

The benefit of decision rules

I started writing this article about 5 years ago. At that time I was watching my second-eldest son Alex play a lot of schoolboy soccer, and it got me thinking about how to make decisions under pressure.

He played striker in a couple of under-14 teams (one for school and one club), and everyone had an opinion on whether he should pass or shoot for goal. No matter what he did, at least half of the parents on the sideline thought he did the wrong thing — and they were not shy about expressing their views!

The outcome was paralysis. Whenever Alex got the ball he struggled to think which group of parents to please… which inevitably was none, as he just stood there.

My solution was to propose a simple ‘decision rule’. It started off very simple:

“If there is nobody between you and the goal, then run and shoot. If someone is between you and the goal, then pass.”

Prior to this rule he would consider things like: ‘Have I passed to my mates lately?’, ‘Is Sam really in a better position to shoot than me?’, ‘If I take this shot and miss, will the parents call me a ball-hog again!?’

Our proposed rule was simple. It was never going to be the most appropriate decision in all cases, but it was a good place to start. My guess was that over time it would prove to be more effective than dithering. It was also going to be more effective than always shooting for goal (i.e. “goal hogging”), or always passing (i.e. “dithering”).

The reason I’ve come back to this article today is that I’ve had to make a number of impactful decisions lately as to how to preserve my business during the COVID-19 outbreak — and falling back on my decision rules has helped enormously.

Why do you need decision rules?

There are a number of benefits to a decision rule:

1. They enable quick decision making under pressure — because you have already decided what to do at an earlier time when there was no pressure;
2. They remove a lot of the emotional angst associated with making a decision — you just do it and move on — you don’t over-analyse the outcome in each case; and
3. You know what you did, and can therefore make considered adjustments over time, and when the pressure has subsided.

It is the last of these qualities that ultimately makes decision rules so powerful.

What are the key decisions?

The first step in designing decision rules is to think about the key decisions you are likely to face on a consistent basis throughout your life, or that will need to be made under pressure.

This involves an analysis of your ‘game’ — whatever that may be.

In Alex’s case his game was soccer. There are a number of ‘plays’ that he consistently encountered on many occasions throughout each game — the centre kick-off, the throw-in, the opposing team’s kick-out from goal, and the run for goal itself. As to rarer decisions under higher pressure, his game included the corner kick and penalty shot.

There are obviously a lot of other aspects to each game, which are unpredictable and simply flow, but when you really analyse it, performing consistently for a number of discrete plays can have a big impact on your overall performance.

Letting your decision rules mature

You need to give a decision rule time to mature, rather than changing it all the time. Applying a decision rule is all about letting the ‘law of averages’ work its magic.

There is no point in applying a decision rule once or twice, observing that things didn’t work out as planned, and then looking for another rule. You need to ‘invest’ in a decision rule long enough to be able to read the valuable ‘signal of feedback’ through the noise of randomness.

But you also need to collect timely, honest and unopinionated feedback along the way to improve the decision rule over time. This is where data, self-reflection time, and good coaching come into play.

Updating your decision rule

There is no point doing the same thing over and over again and expecting a different outcome. This is both the blessing and the curse of a decision rule.

At first doing the same thing over and over again may result in seemingly random outcomes (noise), and undermine the perceived benefit of a decision rule. It may also be the case that the first few applications of the rule produce exactly what you are trying to avoid — a missed goal, or an intercepted pass.

But over time the signal should become apparent, and it is the signal that you need to focus on to assess and improve your rules. If the signal starts to tell you that things aren’t working out as planned, then you need to make considered adjustments.

You will only find the signal if you are looking for it, and you need unbiased data for that. Decision rules without relevant data are worthless. Rules without feedback are better described as ‘dogma’, ‘blind faith’ and ‘obstinance’.

Deciding what you will measure is as important as deciding on the rule itself.

In Alex’s case, we settled on a combination of ‘goals’ and ‘assists’. At the end of each game as we walked to the car, Alex would previously only focus on his own goals — ‘Dad, I scored 3 goals today!’. But after we implemented the decision rule, we would talk about the total of the goals he shot, plus the number of goals he assisted other people shoot (‘assists’). This enabled us to measure how the decision rule was impacting the team’s overall performance — something everyone cared most about.

So how did things work out?

Although he was the smallest player on the squad, and certainly wasn’t the most skilful — that season he won Best Player for the Adelaide Uni Juniors squad. He also ended up one of the most popular kids among the parent-supporters.

What decisions are amenable to a decision rule?

In my view, there are two sorts of decisions that benefit from decision rules:

• Decisions you make often and in similar circumstances. Here the consequence of a single decision is low, but over time the consequences of many decisions defines your overall performance; and
• Decisions you make rarely, but in circumstances of great pressure and consequence.

The value of rules to the first category of decisions is a reduction in decision fatigue, and the benefit of feedback, iteration and improvement over time.

The value of rules for rare and consequential decisions is that you have planned ahead and can still make them under pressure, when paralysis would otherwise take over.

In both cases, you have the benefit of knowing how to act, measuring the outcome in a meaningful way, and learning over time.

Why am I thinking about decision rules now?

When I was 12 my father closed his business during one of Australia’s most notorious credit crunches. We lost everything. Our house, car, holiday home. For many years I thought those traumatic events had scarred me, held me back. But in the midst of this crisis I can now see how in fact those childhood events prepared me.

For 20 years now I have maintained a decision rule in my business of always maintaining a material cash buffer, and only taking on small amounts of debt to buy assets that increase efficiency or produce cash. This has been a decision rule of the first category — one that I make almost daily. The hardest part of the past 20 years has been holding off going into debt for assets that I would have really liked to buy, while everyone else appeared to be loading-up on cheap debt to buy more and more assets going up in value. I almost folded so many times.

Come March this year, everything changed.

I drew on my network of divergent views (which will be a topic for another blog at some point) and reached the conclusion that we were headed for a major economic storm. This was not a test-drill (like the GFC), this was the real thing.

This is where my decision rule of the second category has now come into play. Since I was 12 I have planned for such an event, and my decision rules are very clear to me:

• Always accept the brutal reality. Do not invest in ego or mourn the ‘what was’ state of affairs. Be prepared to accept that everything has changed.
• Stay ahead of the curve. Cut costs immediately and deeply. Preserve a cash buffer. Do not take on debt.
• As soon as we see genuine and confirmed green shoots in the economy (but not a moment before), put our foot down and invest like crazy on the upswing.
• Keep everyone informed as to what we are doing, and why.
• If you run out of cash, close the doors before you have lost everything.

I liken this strategy to a race car going around a corner: brake early and heavy, navigate the corner, and then accelerate strongly. I could push the analogy by also saying to keep your car light and plenty of tread on your tyres!

I have felt surprisingly calm during this crisis.

Why doesn’t Government use decision rules?

What has really shocked me is the apparent lack of decision rules within Government — and most importantly, the bureaucracy that supports it. A key role of our expensive bureaucracy should be to maintain and develop decision rules of both categories.

For so many decisions in public life, there already is a tried and tested rule book. There is no need for invention or politics. It is simply a matter of following the script — and maybe, after unbiased reflection, making a small improvement here and there. They should have these rules ready, no matter who is in power. They are part of good governance, not politics.

Plagues have been recorded since 430BC. The rulebook is simple and universal: immediate confinement of the sick, and broad, immediate and strict social distancing. There is no conceivable justification for any Government to dither on these measures. The rule book also states that even if Government does dither, they will ultimately be forced back to these rules…

As for economic management, it is well recorded throughout thousands of years of history that no real economic recovery is possible until the health issue is under control. Empires have been destroyed by uncontained plagues — the treasury coffers literally run dry. Why did our Government spend 90% of its energy during the first weeks of this epidemic formulating and announcing economic plans? As if we cared while the Grim Reaper was wondering our streets. At the same time they heavily debated when to close sporting events, churches and schools.

Next, with economic output severely constrained, any stimulus needs to be on the supply side, not the demand side. Fuelling demand for goods and services that simply are not available will lead to shortages, frustration and inflation. There is no point providing us with an incentive to invest at a time when the shelves at Officeworks are already empty, and the factories that would be producing equipment and goods are all closed.

I am no expert on these matters, I’m just Googling what experts in each field have been saying for the past hundred odd years. I’m just reading about what countries that have experienced epidemics most recently have done. There is nothing magical about this. There is very little room for genuine and productive debate.

This is all fertile ground for effective decision rules.

The good news is our Governments seems to be coming around to our brutal reality and implementing measures that look closer to the rule book and less like politically-led knee-jerk reactions. It can’t be easy leading a State or country through a crisis, but age-old decision rules are a great place to start.

In times of crisis, decision rules put strategy on autopilot and leave your hands free to lead.