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How Decision Criteria Can Improve the Quality of Decisions

By:   |   Jul 08, 2018   |   Views: 17   |   Comments: 0

I often hear people say, "I'm logical and I make decisions based on logic." The interesting thing, many of these people have advanced degrees and are extremely bright, some even brilliant. What I do notice, however, is that not all of these people drive the same types of cars, eat at the same restaurants, or vacation in the same places. Perhaps, everyone has some bias and emotional ties to their decisions. When you ask people why they chose a particular car for example, they will often list the features (safety, JD Powers rating, etc.) A few will say, "It really makes me feel cool when I'm driving XYZ car." Even the best investors can make the mistake of buying based on emotion. This leads me to the use of decision criteria.

Prior to making any big decision: investing in a property, stock, or choosing the final 3 MMM Challenge candidates, one should list the things that are important. The MMM Challenge for example: desire, experience, hard working, ability to network, how they fit on the current team and the list goes on... List those important attributes then rank them in order of importance. The decision and ultimately the discussion will be about the candidate compared to the criteria. This helps everyone derive the same conclusion based on the pre-set criteria. Emotions are kept in check.

This little technique will also help in making better investment decisions. Investments will be acquired based on the numbers and the desired outcomes. It will prevent investing because the house reminds you of your childhood or the owner is a real nice guy. It is a well known fact that once emotions enter into the decision making process, the process quickly gets bogged down and the outcome skewed. Especially in the case of Real Estate and other similar investments, emotions can lead to disastrous decisions and terrible pains of loss. Thus it is vitally important to have a system for decision making that can coral emotions (emotions cannot be totally eliminated).

Next time you have a big decision to make, put aside some time to list the criteria you will use for making that decision. It will increase the speed with which you make decisions and increase the quality of those decisions. Especially as Real Estate Investors, we need to quickly sort through tens, even hundreds of leads of potentials investments before we can find one that fits our profit/risk profile. This can be a daunting task unless we structure our decision making. Having a standard set of criteria upon which to compare potential projects - is the safest and most reliable way to go. So take the time to create that list of attributes and rank them in order or importance. Now you will be able to compare apples to apples with a more precise scale to rank them on.

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