Sunday, July 11, 2010

No Decision ... It's a Decision!

As Gary Collins states, “We can try to avoid making choices by doing nothing, but even that is a decision.” 

The landscape of business is ever changing and the ability to adapt and excel and lead transformation is a key to sustainable success of business and individuals.  It is important to analyze marginally along with benchmarking.  With numerous possible projects and changes it is important to identify and analyze the opportunity costs while moving past the sunk costs of operating.  Decisions to move the organization to the next level of profitability come from the employees of the organization and ensuring a vehicle to tap into this creativity is essential.

Marginal analysis entails the weighing of costs and benefits.  This reviews specific change opposed to an average.  Decisions made on marginal analysis will consistently add profitability to the bottom line and eliminate waste.

Benchmarking is a way to learn and measure against other practices and processes from anywhere in the world.  The benchmarking can be internal, industry, and world class.  This is a powerful way to achieve the best results.  It does require objectivity and honesty to move to the next level and compete on a world class basis.

“An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.” - Jack Welch

We have limited time and resources to accomplish all projects and this will leave open projects.  The cost of the activity not pursued is the opportunity cost that was not taken.  A cost of the project pursued and return on investment (ROI) would also need to factor the cost of the opportunity not pursued.  The goal is ensure that the optimal return is achieved with the resources available.  Optimization is achieved by prioritizing projects with the highest return.

Sunk costs are an unrecoverable past expenditure. They should not be taken into account because; they are irrelevant to what can be recovered. An example would be committed assets and contracts over the short term.

Every resource in an organization has an alternative use.  This would include assets, raw materials, and human resources.  By seeking the highest valued alternative for every resource the business will compete on a world class basis and stay ahead of the competition.

Decisions that lead to profitability come from all areas of the organization.  Every person in the organization is a leader.  The role you play in the organization - be a leader.  The corporation must allow for the creative thoughts of all individuals in the organization - and mean it - to move to the next level of profitability.

“Most discussions of decision making assume that only senior executives make decisions or that only senior executives' decisions matter. This is a dangerous mistake.” - Peter Drucker

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