Are you focused more on the magnitude or the probability of your plan?

Size isn't all that matters.

THINK ON IT: Are you focused on the magnitude or the probability of your plan?

Psychologists tell us that we are more likely to base our decisions on the magnitude of an event than the probability of an event. In other words, if we think there's great upside, we'll spend more energy pursuing an option than the probability of its outcome may warrant. This may explain, in part, why so many businesses fail in their first year. Expectations of success blind the entrepreneur to the need to evaluate their chance of success.

The flipside is also true: if we are certain that an action has a big downside — even if it’s only a slim chance — we won’t take the risk. We rather miss out on a more certain opportunity than take the risk of loss, even as improbable as it may be. 

This has huge implications for your strategic actions. Are you assessing the probability of success or failure of an option independently of its degree of gain or loss? This isn't to say magnitude isn't an important consideration. It most certainly is. The larger the magnitude of success or failure, the more critical your analysis must be.

But size isn’t all that matters.

Good strategy starts with an assessment of the most probable outcomes. While we can never be 100% sure about any outcome, consideration of its probability should have more weight than its magnitude. 

But there’s more to this than just assigning probabilities to outcomes. You can’t do it in isolation. To get a meaningful assessment, you’ve got to involve your team. But there will be those that will have a harder time with this exercise than others. Paid subscribers, read on for some tips on bringing along your most reluctant team members. Become a Paid Subscriber.

“No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be." — Isaac Asimov

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