Making Business Decisions

Heuristics vs. Optimization The optimization vs. heuristics argument often comes down to dollars and cents. To be sure, spending the time, money and other resources to come to the best overall number of goods/services to order and thus allow for optimal performance is best. However, there are many situations where doing so is not allowed for because of time constraints, overall opportunity for success and/or money.

While there are benefits to using heuristics rather than optimization techniques, the preciseness of the outcome is more likely to be off-base unless the person making the approximation is rather sharp and observant about the factors that are known at the time the decision is made.

Analysis Making an informed and educated decision is always the right call when there is ample time and resources to make it worth the trouble and this presumes that the opportunity cost of making a more expedient decision would sway what is done and why.

The benefits of using heuristics include less time spent on making a decision, a reasonable approximation can be used based on recent months and the same time period in prior business years while taking growth/regression into account and an approximation is no worse off in general than optimization techniques because no analysis can predict the future without some evidence and tendencies to back it up. However, the downsides to using heuristics is that optimization techniques often tend to be more accurate and they lead to more informed decisions overall.

Many people, although certainly not most, have a knack for making an educated guess that is at least reasonably close to being accurate. However, moving too quickly and making a decision that does properly weight all the factors and conditions involved can lead to gross errors in judgment and this can certainly hurt the bottom line of a business in demonstrable ways.

One major factor that pushes this decision one way or another is the fact that business opportunities and ways to grow the business often do not stick around all that long and sometimes a quick snap decision has to be made. Calculate correctly, and a business can realize strong growth and/or sales. Calculate wrongly, and it can hurt the prospects and performance of a business in many ways.

Obviously, any decision of major import should be deliberated about as long as is possible and necessary so that the right decision is made. However, being complacent and slow to act can also be dangerous and there are some snap decisions that are not hard to make even if the hard data to support the decision is not already assessed and analyzed.

For the reasons mentioned above and for others not mentioned here, there needs to be a balance between discretion and haste when it comes to what decision is being made, how much money/time is involved and the consequences of guessing rightly or wrongly whether.