Doximex.Com: When more analysis brings more risks

Wednesday, June 24, 2009

When more analysis brings more risks

It is frequently equated that more analysis reduces the risks in decision making. However, there exist cases that the more analysis is done, the more risks are produced.

1. When analysis slows down decision making

Excessive analysis can slow down decision making.

Early mover advantage is shattered and thus, more risks are introduced in the rivalry.

Excessive efforts for analyzing data and networking for relevant information increase costs and make the firm less competitive.

The longer it takes for analysis especially networking, the higher the probability of information leakage is.

2. When analysis increases sunk investment

Investment in R&D, analysis and innovation initiatives become sunk investment.

While these practices are increasingly seen in strategic perspective as opportunities drivers, they are still viewed as fixed costs in traditional accounting perspective.

Accounting risks are reflected in risk assessment of the firm nevertheless.

3. When analysis conflicts with intuition

Imagine you’re an ambitious entrepreneur and your intuition whispers so powerfully “go for it!” while analysis shouts “don’t!”.

Conflict in communication and conflict in roles (especially in startups) are inevitable.

4. The risk of structure and process

More mature enterprises have structures, processes, role definition and division of labor in place. The risk of this is people fulfiling their roles can lock themselves within their frames and aggressively defend their ideas.

Analysts might hinder certain innovative, risk-taking efforts. The risk of politicking decision making is also a concern.

Insights

In short, these examples prove that analysis and risk taking are not mutual exclusive. They are not on the two ends of a string, but intertwines at some points.

What to do

Roles

Know your roles and your workmates roles. Respect their standing and seek mutual understanding.

Some smaller firms don’t hire professional analysts, so one person can take multiple roles. In this case, techniques like the six thinking hats can be helpful.

Blended decision

In the blurry literature cases of uncertainty, an advice is often to balance different views. This does not recommend a ’straight’ balance of determinant factors. What should be aimed for is a wise mixture of practices in lights of the situations. At the end of the day, your logical mind and judgement are best.