Sunday, January 6, 2013

Decisions - Impact and Consequence

In making a decision, it is certainly important to know what we are changing from, what we are changing to, and why. The impact and consequences gives us information about the “why”. First, let’s define our terms because lots of people confuse “impact” and “consequence”, or fail to see a difference. In this discussion, we need to be able to distinguish them.

“Impact” will be the term we use to describe the direct effect of a problem. The direct effect of a bad design, for instance, could be a safety problem. A different direct effect could be reduced sales. Same cause, two different impacts. “Consequence” will be the term we use to describe the result of the Impact. The consequence of a safety issue could be a law suit OR a loss of reputation OR guilt from causing injury – OR all three. The consequence of reduced sales could be cash flow problems OR distributor defections OR unattractiveness to investors. So we have a cause (bad design) that impacts us in two ways and those impacts have a variety of consequences. We want to avoid some or all of the consequences, so we need to mitigate the impacts that bring those consequences about.

Determining the impact and potential consequences arising from a current situation helps us estimate the importance (or “size”) of the issue that we face. This estimate will guide us to a better understanding of the resources we are willing to commit to correcting it. By the same token, estimating the impact and consequences associated with any proposed solutions or changes to the current situation will help us determine the value of the proposal relative to the “size” of the current situation.

It is important to discuss the impact and consequences upfront. As we all know, crises seem to come in waves at times, and if we must keep the critical issues visible until they are contained, else we will find ourselves “swamped” with issues that all “Top Priority”!

One would like to be able to estimate and express the amount of impact and likely consequence and benefit from a problem scenario (“current state”) and a solution scenario (“proposed state” or “future state”) in order to assign the correct priority and resources.  A perfect decision making process would completely and correctly predict all possible consequences from all possible outcomes of a decision. This is seldom possible, so we try to get as close as is practical.

The first thing to do is to understand the universe of CONSEQUENCES that we face. If they are trivial, we may choose not to expend any resources at all in mitigating the impacts. If they are significant, then we will determine the impacts for them.

The next things I talk about are the impacts that carry the consequences we just discussed and NOT the potential solutions. I do this for several reasons, and here are two: first, it gives us an idea of the kind of work it will take to repair it. If we have the kinds of resources required already in-house, we can control when to begin working on a solution. Secondly, it makes the issue far more real to have a realistic discussion of how it harms us. Before anyone decides we aren’t going to do anything about it at this time, I like to remind them that we all said it carried a certain impact. Are we willing to live with it? Usually, if we have discussed it openly and fully (and I try to make sure we really explore impact), we look at things very carefully before moving on. Impact of not being sufficiently profitable, for instance, is that we don’t have money for training or internal research and development, or other important things.

I then move to a discussion about the “Ostrich Consequence”. This is the impact to us if we don’t do anything. For instance, if we don’t do anything about our profitability, and don’t train our people or do sufficient research and development, we will certainly become less competitive and will likely go out of business. I cover this so that everyone that is working on the problem has an explicit understanding of what we think will happen if we do nothing.

I like to let everyone that can do something about the problem participate in the “Impact and Consequences” discussion so that things can be very real. This has a strong emotional charge to it.

Insist on great business results! Go to Pathfinder Communication

No comments: