How far into the future do you need to look to determine whether the decision you’re about to make is a good one?
Or perhaps framed another way, what responsibility (or credit) should we take for the unintended consequences of poorly considered decisions?
Decisions might be made “in the moment”, but their impact can play out over days, years, or even decades. And the further into the future a decision has impact, the less we can assume the conditions is made in will be the same as those it plays out in.
As leaders, what is our responsibility for thinking through the long-term impacts of our decisions? And how far do we need to be thinking if we want to make a good decision today?
Did I mention my work at Rio Tinto*?
* I’m just as self-conscious of sharing Rio Tinto stories as I am about ocean analogies… but I’ll stick with them both until I come up with something better.
My last role at Rio Tinto Iron Ore was working in a dedicated scenario planning and strategy team. Along with six colleagues, my job was to support executives in making long-term, high-stakes investment decisions such as railway, port, and mine upgrades.
These decisions could cost billions of dollars or more, with their impact being felt over decades or even centuries. So how do you ensure these decisions are made with rigour, and how far into the future do you need to look to ensure a good decision is made today?
As mentioned earlier, decisions are made in a moment, but their impact is only in the future. Ultimately, it doesn’t matter what the demand for iron ore looks like in the moment a construction contract is signed. It doesn’t even matter what the demand is at the moment the project is commissioned a few years later. At the first point, money is committed; at the second, money has been spent. But until a return is generated from the investment, it’s impossible to know whether the investment decision was a good one.
The half-life of a decision
If we want to know how far into the future we need to look to determine whether a decision is a good one today, we need to first consider how long it will take for us to generate a return on our investment. Once we know approximately how far into the future we need to be looking, we can then explore how conditions might change and the impact these changes might have.
The uncertain nature of the future means we can never really be sure how long it will take to generate a return, but one useful way to think about it is “the half-life of a decision”.
The idea of something having a half-life is to acknowledge that its impact or usefulness reduces over time. In asset management, “half-life” refers to half of the usable life of a vehicle or piece of machinery. In chemistry, “half-life” is used to describe radioactive decay*.
* Plutonium has a half-life of roughly 24,000 years. If you owned a kilogram of plutonium now and stored it safely in a box, you’d only have about 500 grams left after 24 millennia, and 250 grams another 24 millennia after that. Importantly, you will never have no plutonium, even after a billion years. It will never quite disappear—it just decays steadily over time.
Most decisions behave the same way.
There is often a big impact immediately after a decision is made. Resources are mobilised, money is spent, organisational charts are redrawn, and people are hired (or fired). But with a long enough time horizon, the impact of any decision fades to almost zero. Another restructure happens, the organisation pivots its strategy, a new leader is brought in to “shake things up”.
The half-life of a decision is a practical way of asking:
- How long will this decision have meaningful consequences?
- How long before we can reasonably judge whether it was a good decision?
And on a slightly more commercial level:
- How long before we make a return on our investment?
Why does this matter?
The research of Daniel Kahneman, captured in his book Thinking, Fast and Slow, shows that our brains are inherently lazy, and if possible, we will replace hard questions like “will hiring this person with semi-unverified skills and experience still be considered a good decision in the context of the future direction of the organisation?” with far easier questions like “do I like this person now?”
This process of “attribute substitution” is so common and so automatic that we have given it names like “gut feeling” and “intuition”. In fact, many would happily elevate this heuristic-based decision-making approach over one involving meaningful analysis and genuine consideration, believing that “intuition” involves tapping into some form of deeper “knowing” that analysis won’t uncover.
At the risk of getting a little woo-woo, I definitely believe that our minds and our bodies hold knowledge that our thinking brain isn’t aware of, and that this can turn up in the form of a feeling in our gut. At the same time, I also know we are flawed and biased decision-makers who gravitate towards hiring people who look and sound like we do.
I’m also aware that the patterns we learnt yesterday aren’t always a good reflection of what we will experience tomorrow. And the more strategic and long-term the decision we are making is, the less we can rely on the past being a reflection of the future.
Strategic thinking starts with the future (not the present)
So how far into the future do you need to look to determine whether hiring someone is a good idea today? When I ask this question in workshops, the most common answer I get is six months.
Why six months?
The most common response I get next is “that’s the length of the probationary period” or “that’s a reasonable amount of time for me to judge how good they are”. Notice these are both almost entirely “fast thinking” responses based on a previously understood pattern, and they ignore the bigger complexity.
If there was an organisational restructure and the role was made redundant after eight months, or if the new hire stayed for their probation and then left after a year, would you still be comfortable with the time and cost associated with hiring them?
From work I’ve done previously with HR professionals, it costs between one and two times a new hire’s salary to fully onboard them. This means it will take between 18 and 24 months to get a return on the resources invested in hiring them. If you had to keep rehiring the same role every six to twelve months, it would be a costly exercise.
To determine whether hiring someone is a good idea now, the first thing you need to know is what that role and your team might look like two years from now.
What this means in practice
I appreciate there is a massive gap between Rio Tinto spending a billion dollars on infrastructure upgrades and a mid-level manager deciding to hire a new team member. You could argue that the first is a deeply strategic investment and the second is largely operational.
For the most part, I would agree. Yet one of the most common frustrations I hear from senior executives is “our people aren’t operating strategically”. It is often at the mid-level of organisations where strategy is turned into action. And if, at this level of the organisation, managers and people leaders aren’t given the skills and the space to think strategically, they most definitely won’t be able to operate strategically.
Organisations don’t need everyone to be thinking strategically all the time, and they most definitely don’t need everyone thinking in the 20-year horizons associated with long-term infrastructure investments. But they do need people thinking beyond the next week, the next quarter, and even the next year (for more on the structural limitations of strategic thinking you can check out more in a previous post here).
In an increasingly dynamic operating environment, getting people to think strategically three or four times a year, with a horizon aligned to the half-life of the decisions they make, is the foundation of good operational decision-making today.
Simon
