But more recently, I was thinking about the well-known SWOT paradigm, in which you examine a situation from the point of view of your Strengths, Weaknesses, Opportunities, and Threats. It’s a good way of thinking about certain situations, and I started wondering if there could be some kind of similar paradigm for looking at important decisions. Eventually, I came up with HOLD, which stands for Hazards, Opportunities, Losses, and Dividends.
(OK, maybe the terminology is a little forced, but I believe the concept is worthwhile.)
Let’s take a look and see how this HOLD paradigm might help you next time you’re facing a complicated situation calling for you to make a decision:
The first thing to consider when you’re contemplating a course of action is what could go wrong. This must come first because if you choose a course of action and something does go wrong, the people who see the problem and those who come to help you clean up your mess are going to wonder why you didn’t anticipate this hazard.
Hazards come in all shapes and sizes, of course, and while there are “first order” hazards – like making a left turn going the wrong way on a one-way street – there are also “second order” hazards, like acquiring a company that looks healthy until a year later when its market collapses and the company becomes worthless.
Obviously, there can also be “third order” and deeper-level hazards – which naturally tend to be extremely difficult to foresee. You probably can’t anticipate and avoid them all. But at a minimum, you should look far and wide for “first order” hazards to consider before you settle on a specific course of action.
Assuming your contemplated course of action is not going to result in you stepping on a rake or walking into a lion’s den, the opportunities associated with it are probably uppermost in your mind.
But opportunities will often appear much larger than they really are. One classic mistake occurs when selling a new product into a large market. “If we capture only one percent of a huge market,” have been many decision-makers’ last words, “we’ll be sitting pretty.”
The problem here, too often, is that capturing one percent will turn out to be a lot more difficult than it appears.
Opportunities are generally based on many factors, including assumptions, conditions, quality of implementation, and future events. For the opportunity to pan out as anticipated, most if not all of these underlying factors must conform to rosy expectations during the time your decision is in effect.
That’s one reason it’s helpful to perform enough due diligence to make fair and accurate appraisals of the opportunities and their risks.
Speaking of risks, every course of action contains within it the seeds of loss: opportunities that don’t work out, known hazards that arise, “perfect storms” of conditions that overwhelm your plan, wild-card factors that work against you, and so forth.
Of course, it’s impossible to know the likelihood of any particular unwanted event. But that doesn’t mean you shouldn’t identify, investigate, and consider them.
Because each unwanted event carries with it a price tag, it’s important to recognize the highest and lowest prices likely to come due if your chosen course of action runs into one or more specific problems.
A classic case of this kind of calculation, the Ford Pinto, is discussed here.
It’s fun and sexy to contemplate the payoffs if the opportunities associated with your chosen course of action pan out. But just as potential losses need to be considered in context, the potential dividends that could flow from your decision should also be viewed in relation to some measure of their likelihood.
In other words, the rewards you would receive from capturing that hypothetical “one percent of a huge market” should not blind you to a realistic appraisal of your chances for that level of success.
All things considered, the most fruitful course of action may be quite conservative: a “middle of the road” plan that stands a good chance of producing a satisfactory outcome under a wide range of possible events, responses, changes to current situation, and eventualities.
It turns out decision-making can be as much an art as a science. You will frequently face unknowns and ineffable factors that simply do not yield to numerical or rational analysis. But this HOLD approach can help you deal with enough of the tangible factors so the intuitive matters remaining reveal themselves clearly.
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