The 40/70 Rule and How it Applies to You

40-70-rule

Our ability to become great marketers, managers, leaders, and business owners hinges on the fact that we are able to make confident, well-informed decisions on a regular, consistent basis. From designing a new product to sorting out accounting issues, our day-to-day ongoings are ripe with decisions.

You’ll notice that, when you think about it, management personnel like CEOs don’t do a whole lot of the steady, hard labor. Instead, they’re the ones directing the flow of traffic. They make the big decisions which then trickle down to the rest of the staff. The results can have monumental impacts down the line, making it even more important that the decisions they make are correct and with good outcome.

Research has shown that the best leaders are the ones who are able to make big decisions often as well as making those decisions with a resulting positive outcome. Anyone can make choices quickly, but to do so with efficacy is the key.

Cue: The 40/70 rule

Every decision you make is determined by a variety of factors such as your confidence, your knowledge, your experience, and your willingness to ‘pull the trigger’. The threshold for all of these pieces coming together to help in the creation of a decision is where things can get fuzzy.

So former Secretary of State Colin Powell came up with the 40/70 rule. This rule says that leaders should be making decisions when they have between 40-70% of the information needed.

Make a decision with less than 40%, then you’re “shooting from the hip”.

Wait until you have more than 70% of the information, and you’ve waited too long and may now become indecisive and overwhelmed, and you stand to risk the productivity of the entire organization.

Here are some of the critical questions that will come up:

Do I have enough information to make an informed decision?

Do I wait to acquire more information before proceeding?

Is there more critical information I need, or can I trust my gut with what I have?

Is my organization risking ‘analysis paralysis’ because of my inability to make a decision?

The 40/70 rule is a two-part approach to decision-making.

Powell begins by stating that you need to have enough information to make an informed decision but not so much that you risk the decisiveness to stay abreast of the situation. But his 40/70 rule is actually comprised of two parts.

Colin Powell’s Leadership Presentation from http://www.slideshare.net/guesta3e206

Colin Powell’s Leadership Presentation from http://www.slideshare.net/guesta3e206

Part I: Analyze Your Percentage

To get a better understanding of where you fall in the 40-70 range, Powell introduces the formula P=40 to 70. Here, P stands for the probability of success and the numbers indicate the percentage of information acquired. While this can be hard to judge, you’re the CEO…so you’ll need to estimate where you think you fall in this range based off of what information you have.

Part II: Trust Your Gut

When you’ve reached that sweet spot between 40 and 70 percent, then it’s up to your intuition to make the right decision. This is where the most effective leaders are born, because it’s not just about the facts — it’s also about your gut instinct. And those with an instinct pointing them in the right direction are the ones who will lead their organization to success.

The Consequences

Just as there are consequences for every action, there are also long-reaching consequences for inaction as well. In fact, this is what spurns the idea of the upper limits of the 40/70 rule. Let’s take quick look at the consequences of initiating a decision when you fall outside the parameters of 40-70%.

Making a decision when you have less than 40% of the information needed can result in:

  • Decisions that may have been correct but that don’t fully address the situation because you simply didn’t know about certain aspects.
  • Ill-informed decisions with negative ramifications for certain groups within the business.
  • Uneducated choices that may have seemed good for the business but were too hastily made to address the needs of your customers.
  • Simply the wrong decision that could have been avoided had you acquired more info before making it.

Making a decision when you have more than 70% of the information needed can result in:

  • Lost customers due to impatience.
  • Employees who have had to do unnecessary damage control while waiting for your decision.
  • Lost revenue from dwindling sales.
  • Potential implications from faulty products that you didn’t pull from the shelves because you were unsure of whether or not they were really a hazard. (Hint: Make these types of decisions as quickly as you can when you reach the 40% threshold to avoid lawsuits and other disasters)

And these types of ripple-effect consequences aren’t the only results. Even the smallest of decisions (like bumping an employee’s pay) can impact broader spectrums of your business. For instance, an employee who was promised a pay raise after X amount of time but who is delayed their raise because of indecision can begin to feel uncertain in their position. As a result, they may begin to discuss amongst their peers or you may see their quality of work begin to dwindle. Enthusiasm fades, and more people are impacted than the original group.

President Truman kept a placard on his desk that read ‘The Buck Stops Here.’

Everyone can ‘pass the buck up’, so to speak, from time to time. Decisions can get forfeited to the next higher rank, but at some point, the buck must stop — and, in all likelihood, it’ll stop with you.

When faced with issues that need a decisive answer, approaching these issues with the 40/70 rule ensures that you’re setting yourself up for the best results. You’re not always going to make the right call, but in using this formula combined with your gut instinct when it comes to pulling the trigger, you’re more likely to keep a consistent, efficient decision-making process rolling.

You tell us: How do you approach the endless array of decisions you’re approached with on a daily basis? Have you used the 40/70 rule before?