|
Word Gems
exploring self-realization, sacred personhood, and full humanity
John Arnold:
Make Up Your Mind
return to "Leadership" main-page
- from chapter 4 of Arnold's book, an overview and summary of the decision-making process
The Seven Building Blocks and What They Do
What is the purpose of a decision? A superficial answer is that a decision enables us to choose among two or more possible courses of action. But why make a choice at all? Basically, because we perceive a gap between what is happening -- or may happen -- and what we or someone else would like to see happen. There are several variations of this decision gap:
Something is wrong and needs to be corrected. Something is threatening and needs to be prevented. Something is inviting and needs to be accepted. Something is missing and needs to be provided.
The decision-making process begins with the perception of this gap and ends with an action that will narrow or close it. Like a pie, the process of decision making can be sliced into any number of pieces. But the experience of thousands of business managers, using the techniques I have developed and refined, demonstrates that the easiest way to learn and use decision-making skills is to break them down into seven components. I call these the Seven Building Blocks. As we shall see, they are as applicable to personal problems as they are to business problems.
The Seven Building Blocks are:
1. SMOKE OUT THE ISSUES: Why is a decision necessary? What are the consequences of doing nothing? (See Chapter 5.)
Answering these questions will tell you whether a decision is indeed called for and, if so, why. As we shall see in Chapter 5, many situations that appear to require a decision are found on further examination not to require any action at all. If the answers to these questions persuade you that a decision is necessary, proceed to Building Block No. 2.
2. STATE YOUR PURPOSE: What needs to be determined? What do you want to decide? Why? (See Chapter 6.)
Don't be satisfied with your first answers to these questions. Keep asking why until you have established your basic statement of Purpose. Try to state your Purpose as broadly as possible, rather than as an either/or proposition. In defining your Purpose, you may find it helpful to distinguish what the problem is from what it is not.
3. SET YOUR CRITERIA: What do you want to achieve, preserve, and avoid by whatever decision you make? (See Chapter 7.)
The answers to these questions become the standards or Criteria for evaluating possible courses of action.
4. ESTABLISH YOUR PRIORITIES: What are the Criteria that any solution absolutely has to satisfy? What other Criteria should it meet? (See Chapter 8.)
The first group of Priorities are called absolute requirements, because no decision is acceptable unless it meets them. Lesser Priorities are labeled desirable objectives and are ranked in order of importance, from 10 (most desirable) downward.
5. SEARCH FOR SOLUTIONS: How can you meet the Criteria you have set? (See Chapter 9.)
List all the possible courses of action open to you and-here or in Building Block No. 6-gather any information that may be helpful in making a final selection.
6. TEST THE ALTERNATIVES: How does each Alternative stack up against the Priorities? (See Chapter 10.)
Does one emerge a clear winner? Does this "best" Solution have significant weaknesses in some areas? How can they be overcome? Consider combining features of two or more Alternatives to devise an even better decision. In adversary proceedings such as negotiations, refining your Alternatives to create an advantageous situation for all parties is often the key to a better decision.
7. TROUBLESHOOT YOUR DECISION: What could go wrong? How can your choice be improved? (See Chapter 11.)
Create refinements that prevent, overcome, or minimize the dangers of the Alternative you select.
These are the Seven Building Blocks of creative decision making. They will be explored in the chapters that follow. Before considering them in detail, let's apply them to a problem to get a feel for how the process works.
Study the following example carefully. In the world of decision making, process is paramount.
Not long ago Ernie, a young business associate of mine, was taking care of the affairs of an aunt who was confined to a private nursing home. He was trying to sell her house on Long Island, N.Y. He hoped the proceeds, invested in Triple A corporate bonds, together with her private pension and social security benefits, would meet the monthly bill for her care. A realtor had suggested asking $80,000 for the house but selling it for $75,000 if necessary. So far, the best offer had been $70,000, but it included a stipulation that my associate, as conservator, accept a personal mortgage on the house. What should he do?
In an effort to help him, I suggested that we work through the problem using the Seven Building Blocks. "If it'll help me do what's best, let's try it," said Ernie. We got out a scratch pad and went to work.
1. SMOKE OUT THE ISSUES: Why is a decision necessary?
"I know you're having trouble managing your aunt's affairs, and I hope everything will turn out well," I said. "But have you ever asked yourself why you're involved in her affairs at all?"
"Well," said Ernie, "I've accepted the legal responsibility of power of attorney, so I do have a fiduciary obligation toward my aunt. Besides, I feel a personal and moral responsibility to help her. If I did nothing, I'd feel rotten. You see, she has no one else."
"About the $70,000 offer," I said. "Why not forget it? Why do anything right now?"
"I don't know how much longer I can go on making up the deficit. My aunt's pension and social security don't cover the cost of her care. On top of that, the taxes and insurance on the house cost $400 a month. The taxes are going to go even higher. Since the house is unoccupied, it's a target for vandals. The garage has already been broken into. Selling would produce an income and get the responsibility off my back. To top it all off, I'm having trouble sleeping at night and my doctor says I'm worrying too much about the house."
"Then why not accept the offer?" "The house is worth more than the offer, and if I take the mortgage the income won't be as much as good corporate bonds would yield."
I handed Ernie the pad I had been scribling on. It looked like this:
Why is a decision necessary?
You have a fiduciary responsibility toward your aunt.
You would feel bad if you did nothing.
You need additional money to maintain her health care.
It costs $400 a month not to sell her house.
Potential vandalism will reduce its value.
Taxes are climbing.
Responsibility for the house is a burden to you.
"It looks pretty complete to me," said Ernie. "Now what do we do with it?"
"Well," I replied, "let's look at the list from the perspective of Building Block No. 1. Do we have to make a decision?"
"I guess we do, for all the reasons you jotted down there."
I agreed and we went on to the next step.
2. STATE YOUR PURPOSE: What needs to be determined?
"I guess my Purpose is to sell my aunt's house," said Ernie, shrugging his shoulders.
At my suggestion, he wrote his tentative Purpose on the pad: "sell my aunt's house."
We continued the exercise. "Will you sell it at any price?" I asked.
"No, at fair market value, a minimum of $75,000."
Why?..
"So I can get out from under the $400 a month and invest the proceeds to make up the deficit in her monthly payment."
"Why?"
"So that my aunt will be properly taken care of for the rest of her life."
"Okay," I said. "Let's try to distinguish what your Purpose is from what your Purpose is not. At this point, what do you think the Purpose is?"
"Well, I suppose it's to determine the best way to use her house to insure that she continues to have superior health care."
"It's not to sell the house?" I asked.
"No, that's just one possibility, but a strong one."
"It's not to get top dollar for the house?"
"No. Top dollar would be nice, but all I have to do is make sure my aunt has an income that will keep her in the rest home she's in now, or one that's as good."
"Quick, Ernie," I said, "write down your Purpose."
After hesitating a moment, Ernie produced the following statement of Purpose: "determine the best way to use my aunt's house to finance her health care."
3. SET YOUR CRITERIA: What do you want to achieve, preserve, and avoid by whatever decision you make?
"You know my methods, Ernie," I said. "I don't solve your problems. I give you a process-a compass-to guide your search for a Solution. Now what do you want to achieve, preserve, and avoid by whatever you decide to do about your aunt's house?"
"Well, I want to be able to feel I've fulfilled my obligations, both legal and moral. She is short $550 a month right now. I need to find a way to provide that money for the rest of her life."
"Write those down under achieve. But don't forget that you want to be able to sleep nights again too. You couldn't, for instance, produce the $550 by investing your aunt's assets in soft-drink vending machines that you'd have to service."
Ernie jotted down several things. "I'm working on what I have to preserve now. I know I want to preserve my aunt's residence in the rest home and preserve the equity in her house for her benefit. I'm trying to think if there's anything else."
"Good," I said. "But haven't you overlooked the fact that during the five months you've had the house for sale you've already watched the equity erode by $2,000? I figure that's what the taxes and insurance have cost you so far."
"It's worse than that. To keep the plumbing--and the prospective buyers--from freezing, I've had to keep the heat on. And you and I both know how the price of fuel oil has skyrocketed lately."
"So there's one more thing you have to achieve. You have to minimize the time it takes to do something about the house. What's the longest you can hold out?"
"It's been too long already. Another two months would be the outside limit."
"Put that down. Now let's consider what you have to avoid, and then let's take a look at your list."
"Well, even though I'm under pressure, I want to avoid selling at a distress price. I want to avoid excessive fees for realtors and lawyers, and of course I want to avoid vandalism."
When Ernie got through writing, he presented me with this list:
PURPOSE
Determine the best way to use my aunt's house to finance her health care
CRITERIA
Achieve
A feeling of having fulfilled my responsibility An additional $550 monthly for the rest of my aunt's life Freedom from worry about the house Freedom from excessive responsibility for any investment Minimum risk in any investment or Solution Quick action (two-month limit)
Preserve
My aunt's continued residence in the rest home or its equivalent The current equity in her house
Avoid
Selling at a distress price that would not produce sufficient income for my aunt's care
Vandalism Excessive professional fees
"That's a pretty good list, Ernie, but in this world you don't usually get everything you want. Shakespeare didn't want to, but he wrote some flops. Babe Ruth didn't want to, but he struck out now and then."
"I can see what's coming," said Ernie. "You're now talking about setting Priorities."
"Right," I said. "We're talking about going on to Building Block No. 4. Before we do, though, do you remember what the first three were?"
"Well, first we had to decide if we needed a decision at all, so No. 1 was smoking out the Issues: `Why is a decision necessary?"'
"Very good."
"No. 2 was a statement of Purpose: `What are we trying to determine?' And I remember that the more we probed our tentative statement, the broader our Purpose became. We thought first the Purpose was to sell my aunt's house, but we ended up deciding it was to determine the best way to use it."
"And No. 3?"
"That was setting our Criteria, listing what we wanted to achieve, preserve, and avoid by any decision we made."
"Excellent, Ernie. Now let's see how important all those Criteria you jotted down are."
4. ESTABLISH YOUR PRIORITIES: What are the Criteria that any Solution absolutely has to satisfy? What other Criteria should it meet?
"Are there some things on your list," I asked, "that are essential and some that are only desirable?"
"Only two things are really essential. One is to obtain the $550 monthly and the other is to keep my aunt in that rest home or a comparable one. The first makes the second possible."
"Suppose the most you could get from the house was $500 a month? Could you manage?" I asked.
"I suppose I could make up the difference."
"Then the $550 a month is not essential, but $500 a month is. Or, to use my terminology, $500 a month is an absolute requirement; anything more than that is a desirable objective. Place a star beside your two absolutes and then take a hard look at all the other items on your list. How important are they on a scale of 10 (the highest) to 1? Maybe if you can get your two absolutes, the others won't be as important as you thought."
Here is Ernie's revised list of Criteria, with values assigned to the desirable objectives:
PURPOSE
Determine the best way to use my aunt's house to finance her health care
CRITERIA
Absolute Requirements
Continue aunt in rest home
Obtain $500 monthly from the house
Desirable Objectives
10 Minimum risk in any investment or Solution
9 Quick action (within two months, if possible) 8 Preservation of current equity in her house
8 More than $500 monthly for the rest of her life ($550 if possible)
7 A feeling of having fulfilled my responsibility
7 Avoid selling at a distress price that would not produce sufficient income for my aunt's care
6 Freedom from worry about the house
6 Freedom from excessive responsibility for any investment
5 Avoid vandalism
4 Minimum professional fees
"Okay," I said, "now let's review the list. Are there any objectives that the Solution absolutely has to satisfy?"
"Just two," Ernie concluded. "I could live with worrying about the house and continued vandalism, I suppose, and all the others that we called desirable objectives, but we have to find a way to get $500 a month out of the house and keep my aunt in her rest home. I guess that's why they're absolute requirements and the others aren't."
"Exactly," I said. "You learn fast."
5. SEARCH FOR SOLUTIONS: How can you meet the Criteria you have set?
"How many courses of action are open to you now, Ernie?" I asked.
"Well, I could accept the $70,000 offer or reject it and wait for a better one. That makes two."
"That's true," I said, "but remember that old Jack Benny routine where the robber sticks a gun in his ribs."
"Yes, what about it?"
"Well, the thug says, `Which will it be, mister, your money or your life?' And Benny answers, 'I'm thinking it over.' Benny hesitated because he was a skinflint. He couldn't decide which of the two was more important. A choice that seems obvious to you and me wasn't obvious to him. He questioned it. Maybe you should question your choices too. There may be more Alternatives than at first meet the eye."
"Such as?"
"You try to think of some," I said. "Think about what you want to achieve, preserve, and avoid. Think about your Purpose-to use your aunt's house to finance the level of health care she needs. What ways can you think of to fulfill it? List them all, no matter how improbable they appear. Nothing is barred right now. Later we'll study them and get the information we need to decide how well they meet your Criteria."
Ernie worked for a few minutes and handed me his list.
"Good," I said, "but haven't you overlooked at least two possibilities: donating the house to a charitable institution in return for an annuity and investigating government assistance for your aunt?"
He made the additions, then gave me this list of Alternatives:
POSSIBLE SOLUTIONS
Accepting the $70,000 offer and taking the mortgage
Rejecting the offer and waiting for a better one
Making a counteroffer
Renting the house
Moving into the house myself and applying my present rent money to my
aunt's bills
Donating the house to a charitable institution in return for an annuity
Investigating government assistance for my aunt
"Well, Ernie, you've increased your possibilities from two to seven. Good work."
"Yes," he said, "but how realistic are they all?"
"That's what we have to explore now."
6. TEST THE ALTERNATIVES: How does each Alternative stack up against the Priorities?
"Building Block No. 6 measures the possible solutions against our Priorities," I said. I showed Ernie how to prepare a table to test his Alternatives. It looked like Chart A, shown on the next page.
When the table was completed, I said, "It appears to me that you lack a lot of the information you need to make a wise decision, but that's all right. One of the purposes of testing is to show you where you need to develop data. About this counteroffer, you're certainly going to have to find out more about the prospective buyer before you can make one."
"I don't see much chance of getting him to go higher," Ernie replied. "You see, he has already come up from $66,000 to $70,000."
"Why does he want you to take the mortgage? Why doesn't he get a bank mortgage?"
"I don't know," said Ernie.
"Well, if you're going to get the information you need, you can begin by calling the realtor."
Ernie came back into my office a few minutes later, looking dejected. "It doesn't look good," he said. "The buyer is a freelance journalist and photographer with two children. He says he makes good money, but the realtor suspects he wants me to take the mortgage because banks don't like to make loans to people without steady jobs. He is short on cash. He made the low offer so that he would have some money left to modernize the house and put in a new kitchen. My aunt never spent a dime on the kitchen."
"How much money are we talking about for improvements?" I asked.
"When he made his first offer of $66,000, he offered a $10,000 downpayment. When he came up $4,000 to $70,000, he raised his downpayment offer by the same $4,000. He's not apt to go any higher, because then he wouldn't have enough cash left to make the necessary improvements."
"Let's go to lunch," I said.
Seated in a restaurant, nibbling on Greek olives, I said, "Ernie, do you remember when I left for that business conference in Detroit? One of the visual aids I took with me was that mathematical symbol that looks like a double lens. In each lens we had written the word 'win.' It's a reminder that in negotiations you have a much better chance of
striking a deal if both parties win. If this freelance journalist gave you $75,000 for your aunt's house, you'd win and he would lose. If you accepted his $70,000 offer, he'd win and you would lose. Let's find a way you both can win."
"Do you mean we should split the difference?"
"No. What I mean is that he probably can't get a mortgage from a bank. That means there are very few houses he can purchase. He would like to have your aunt's. He is also strapped for cash to modernize the house, but he wants it so badly he has already agreed to take $4,000 of his improvement money to increase the downpayment. That means he is going to have to skimp and delay on improvements, a plan his wife probably won't like very much. What would it take to make him a winner?"
"A mortgage and $4,000 extra in his pocket to make improvements."
"What would it take to make you a winner?"
"The $75,000 and a quick sale."
"Well?"
"I'll call the realtor back and tell him I'll take the mortgage and reduce the downpayment by $4,000 if the prospective buyer will come up to $75,000. Since he is making good money, he'll barely notice the difference in the monthly payments for the increased mortgage. Besides, they are deductible. He'll win and I'll win."
"Hold on now," I said. "Haven't you overlooked something?"
"What's that?"
"What if something goes wrong?" I replied. "Remember our final Building Block?"
Ernie looked puzzled, so I repeated it for him.
7. TROUBLESHOOT YOUR DECISION: What could go wrong?
Ernie thought a moment. "I don't really know what could go I wrong," he confessed.
"Well, let's look at your Criteria again. One was a minimum-risk investment. Now, selling a $75,000 house to a man without a steady job is not a risk-free deal if you hold the mortgage."
"When you look at it that way, I guess not."
"For example," I continued, "suppose your buyer defaults after a
month or two and you have to foreclose on the house and sell it again.
The lawyer and realtor fees would be doubled and you'd again have to
put out $400 a month, maybe more by then, for taxes and insurance.
Avoiding excessive professional fees and preserving the equity in the
house were also on your list of Criteria. Have they suddenly become so
unimportant that you're willing to ignore them? If so, why did you rate
them so highly?"
"But what can I do?"
"Do what you are doing now. Tailor your counteroffer to satisfy
your Criteria."
Ernie came up with the idea of running a professional credit check
on his buyer while the buyer ran a title search on the house. If the sale
fell through because of a defect in the title, the buyer's deposit would
be returned. But if the sale fell through because Ernie found the credit
report unsatisfactory, the expenses of the credit report would be
deducted before the deposit was returned.
"Suppose he does have a good credit record," I said, "but through no
fault of his own he is still unable to meet the payments. The money
would not be coming in for your aunt and you would have the extra
expense of reselling. What is the realtor's commission?"
"Six percent. On a sale of $75,000 it comes to $4,500. If I have to
foreclose and resell, it would be $9,000."
"What can you do to minimize the risk?"
Ernie pondered and then spoke tentatively. "If, after the journalist
moves in, he puts in a new kitchen and makes other improvements, the
house will be worth more than it is right now. I believe he would
modernize, because a family with children couldn't live in the house
the way my aunt left it. Then if I had to foreclose, I might get a better
price on a second sale. But with the time lag and the extra commission I would probably still suffer a loss. Maybe I can get the realtor to reduce his commission if he has to sell the house a second time."
"Put your win/win spectacles back on again, Ernie. This time it's you
and the realtor who have to win. The buyer is not concerned. What
does the realtor want?"
"He wants to earn a commission for both sales."
"What do you want?"
"A reduction in the commission on the second sale, if any. I have to
preserve the equity."
"What guarantees does he have that you would even do business
with him on a second sale?" I asked.
"I'll make it a condition of the first sale that he gets exclusive right of resale if there is a foreclosure."
"Suppose he were to agree to a reduced commission on the second sale, collect his full commission on the first sale, and then not try very hard to sell the house the second time because of his reduced commission. You would have to get another realtor at full commission."
"I could ask for my reduction on the first sale and pay full commission on the second sale," said Ernie.
"Suppose there is no second sale. Remember, you want to make him a winner."
"I've got it. I'll pay him half his commission for the first sale on closing and put the other half in escrow. If there is no mortgage default within a year, he'll get his money with interest. If there is a default, he'll waive the amount in escrow but still get full commission on the second sale. So if there is no foreclosure, he gets both halves of his commission, plus interest, but it will take a year. And if there is a foreclosure, he gets three halves. There's no way he can lose."
"Ernie," I said, "you're ingenious."
He smiled. "I know it, but do you think he'll agree to these terms?"
"What does he have for his work right now?"
"Nothing. In fact, he is out of pocket for the advertising."
"I think he'll agree."
When we got back to the office, Ernie called the realtor to make his counteroffer. He was promised an answer within 24 hours.
The next day when he came into my office he was jubilant. "The realtor called me at home last night. He couldn't wait 24 hours. Both he and the journalist agreed to everything we worked out at lunch yesterday. I'll get $75,000 for the house, the journalist will get his mortgage and new kitchen, and the broker will get his commission. Everybody wins."
"Sounds great," I said. "But just to check, let's test this Solution against your Criteria. Will it meet your two absolutes?"
"Yes. The realtor worked out the monthly payments for me last night. The mortgage payments and the yield on the downpayment will amount to even more than the $550 we put down as desirable. The mortgage runs for 25 years. It's just as though my aunt had purchased an annuity. So she is a winner too. I have preserved the equity, put an end to the fear of vandalism, avoided selling at a distress price, minimized the risk and the professional fees, and gotten the responsibility off my neck."
"You still have six more possible Solutions to test against your Criteria. Perhaps one of them will be even better."
He stared at me. "Haven't you overlooked something?"
"What's that?"
"One of my Criteria is to do something about the house as quickly as possible. It will take a lot of time to develop data on the other Solutions, especially the one about moving into the house myself. The journalist, on the other hand, is willing to sign the sales agreement and give me $2,000 deposit tomorrow."
"So you rule out the other Solutions because they don't meet the time requirement?"
"I throw into the balance that time costs me $400 or more a month, that its passage increases the possibility of vandalism and jeopardizes the sale to the journalist. Quick action rated a 9 on my list of Criteria." He paused, smiled, and said, "Besides, I don't feel like moving to New York to live in my aunt's house and I don't feel like looking for another job. I like it here."
"Then your decision satisfies your feelings as well as your thinking?"
He stared at me again. "John," he said, "your method is as important to you as my Solution is to me, isn't it?"
"Of course," I said. "The method helped you think your problem through. It clarified your Criteria and widened your search for Solutions. It showed you that $500 a month was sufficient to keep your aunt in the rest home. If you'd found a way merely to do that, you probably would have been satisfied. But what happened is that this particular system of decision making released your creativity. It forced you to train your mental searchlight in corners where you never would have ventured. And in one of those corners you found a truly innovative solution to your problems."
The story of Ernie and his aunt's house is true. I did not concoct it just to explain the Seven Building Blocks. The house was sold on the terms Ernie developed. The realtor, who had been in the business 40 years, commented: "I thought I had seen everything, but this was a new one to me." When he gave a speech before a group of realtors, he used Ernie's counteroffer as a creative case history. To this day, he does not know he was on the receiving end of the Seven Building Blocks.
Innovative Solutions are characteristic of the Seven Building Blocks. Some people, of course, are more creative than others, but experience suggests that most people have more creativity than they suspect. ExecuTrak helps bring it out. It doesn't give you what you don't have. But it helps maximize what you do.
Remember the seven steps by asking yourself these questions:
Why is a decision necessary? SMOKE OUT THE ISSUES;
What (1) am I trying to determine? STATE YOUR PURPOSE; (2) do I want to achieve, preserve, and avoid? SET YOUR CRITERIA; (3) criteria are essential or absolute and what criteria are only desirable? ESTABLISH YOUR PRIORITIES
How (1) can I meet the criteria? SEARCH FOR SOLUTIONS; (2) does each Alternative stack up? TEST THE ALTERNATIVES
What could go wrong? TROUBLESHOOT YOUR DECISION
Knowing what the Seven Building Blocks are is merely an introduction. Discovering how to make them work for you is the subject of the next seven chapters...
|