TOWNSEND’S RULES OF DECISION MAKING (CROWN AS KING)
Use to remind you of the need to make decisions quickly.
Robert Townsend was CEO of Avis Rent-a-Car and wrote the biggest selling management book of the 1970s, Up the Organisation. His book was an irreverent look at management practices in the USA at the time. But behind his humour was a sharp business brain honed by years of experience.
TOWNSEND’S RULES OF DECISION MAKING
Rule 1: Decisions should be taken at the lowest level possible in the organisation.
Rule 2: There are only two types of decisions: Those that can be made quickly because they are cheap and easy to correct and those that should only be taken after due consideration because they are expensive and difficult to correct.
Rule 3: All decisions are made on the basis of incomplete data, so either learn to live with this fact or get out of the game.
Rule 4: A good manager gets 1/3 of their decisions right, 1/3 wrong and the other 1/3 would have turned out just as they did whatever decision was made.
HOW TO USE IT
- Don’t pass decisions up the line that you have the authority to
make – it will make you look indecisive. - Delegate decisions that are below your pay grade to staff and monitor that they are dealt with.
- Have the confidence to take decisions that are cheap and easy to correct quickly and with minimal information. Or better still delegate them (see Theory 72)
- Delay taking decisions that are expensive and difficult to correct until you have adequate, but not complete, data. Use both quantitative (hard) and qualitative (soft) data and your own tacit knowledge (see Theory 73). What constitutes adequate data will depend on the nature of the decision/project and your own risk profile.
- Never take into account what has already been spent when making a decision. Such money has gone for good. Look only at future cash flows. If you have already spent £4m on a project and need to spend a further £1m to complete it, only compare that additional £1m with future cash flows not £5m (£4m + £1m). If future revenues are predicted to exceed £1m you might decide to proceed, but if they are below £1m you fold. Never think ‘God we’ve got to get something in return for the £4m already spent’. That’s the equivalent of a gambler chasing their losses.
- While you can never have complete data when making a decision, you should subject the data you do have to critical evaluation. Ask if the data has been affected by incorrect assumptions, wishful thinking, errors in calculation, over-optimistic projections of customer numbers and cashflows or an underestimation of risk.
- Always carry out a post-decision review (see Theory 61). If you don’t you’re missing a great opportunity to identify errors, weaknesses and strengths in your decision-making process, information which will help you make better decisions in the future.
QUESTIONS TO ASK YOURSELF
- How often do I ‘pass decisions up the line’?
- Am I happy to make quick decisions on little information when they are cheap and easy to reverse?