The Forest and the Trees in Decision Making
By: Cheri Lantz
Tags: Strategy, Business, Decision Making, Focus, Business Strategy

The Forest and the Trees in Decision Making: How to avoid getting bogged down in details that don’t matter, and focus on the ones that do.

Everyone has heard a version of the saying “don’t lose sight of the forest for the trees.” At the same time, we admire and respect those that have depth in a topic and know the facts. How do you find the right balance between the big picture and the right amount of detail? As a strategic advisor, I have spent the last two decades navigating this question in my own work and helping others find the right level of detail in their business or project evaluations. In this article, I’ll lay out a few thoughts on how to avoid falling into unnecessary research spirals and focusing your scarce time on the detail that matters most when making decisions for your business, and maybe even in life.

Why it matters: Getting to the right level of detail is important if you’re evaluating the business case for a new investment. It can also be critical if you’re embarking on a new custom home design, or even picking out a new washing machine. It’s important because inevitably, when you’re trying to make a strategic decision (aka, the “right” decision), there’s a lot of detail that could be had, but you have limited time to do the research, compare options, and move forward with your project. In the business world, you also most often have a team relying on you to help manage their scope and bandwidth across many commitments. Because time is almost always scarce, you need to make sure you are spending your time where it will have the most impact on the project’s success.

Also why it matters: On the other hand, you could go too far. In the quest to streamline, you could drop all of the detailed work and then you are left with a hollow shell of an evaluation that’s likely not enough. There’s a common negative stereotype of “the hand waving business consultant” that I’ve always tried hard to avoid. This is the consultant that walks into your business in a nice suit, maybe with a crew of fresh MBAs, gathers some surface level data (that the analysts may not even fully understand), talks with a few leaders, and then decides that they know enough to suggest wholesale changes to your business. This is not the goal. These “hand wavers” have not gathered enough context and information to truly understand the challenges and options before them, to build credibility, and to effectively advise their clients on the path forward.

In some cases, the right level of detail may be obvious. For example, if you’re evaluating investing in a new production facility that will cost you $10M to stand-up, it is not usually worth your while to get bogged down in any question that will impact only $10K in cost (that’s less than 0.1%). You need to focus on the pieces that will move the needle. In contrast, there are times when the last 1% is clearly critical — say if you’re finalizing a technical design for a shuttle to Mars. More often, getting to and maintaining the right level of precision is not obvious and can be a tricky series of trade-offs. Let’s talk through a few ideas on how to strike the right balance.

Litmus Test — What changes the answer? I recommend an impact-based litmus test for all bits of research or analysis you are pursuing on a project. However, before you can apply the test, you need to define what success is. In business, this is usually economic, typically some sort of a measure of return on investment. Companies have different measures and hurdle rates, so it’s important that you determine which ones apply to your project. For life’s many strategic decisions, the metric may have an economic element (e.g., a new purchase that fits in my budget) and often also has a more qualitative but equally critical experiential element. We can call this a “satisfaction” measure which captures how happy you are with a home design or your new washing machine as a result of your decision making.

Once you’ve defined what matters, you need to ruthlessly prioritize “nice to have” research, analyses, and detail based on their impact on your answer. For example, if you are working on a home design, you might prioritize decisions that have the biggest impact on the house budget (say whether you substantially expand the square footage or not). Additionally, you may prioritize some design elements that have the biggest impact on your experience of the house, perhaps focusing on those details in the kitchen or bathrooms (of course, this is very individual and I’m sure there are those for which laundry room design is top of the list). Once you are clear on what success is, you can draw a line and prioritize those areas of study that make the biggest difference. The other “nice to haves” can be de-prioritized and addressed as time and bandwidth allow.

The Litmus test can also help you pick your battles when differences of opinion surface. For example, does the faucet design in the kitchen make or break your experience of the kitchen? If so, dig in and make sure you research and fight for the right answer for the redesign. What about the floor underlayment? If a specification doesn’t really determine success for you (assuming they have experience and will pick something that will hold up), let the builder chose his preferred options and focus your time elsewhere. Similarly, if a business leader is arguing about a small component cost in your financial model that you believe (or know) is incorrect but it will not change the answer, perhaps it’s okay to let that one slide.

Be clear on what you know, and what you don’t. Given every analysis will include a combination of very reliable information and some less certain estimates, it’s important to know and to be transparent on which are which. This helps you focus your energy on tightening your understanding in areas that are highest risk. A tactical approach:

Break down the major inputs to your model such that you could build a case and/or argue about the right answer. For example, you might size the market for widgets and then argue about the % share your company can reach based on competitive comparisons. It would be much harder to argue about a specific number of company widgets you expect to sell without breaking it down to market units and share metrics. Define the top and bottom end of your estimates (the range) and rate the level of uncertainty for each. This will raise awareness of the biggest risk to your business case. Any detailed work to lower risk should focus on tightening the range and increasing confidence in the least certain, highest variance areas. Document the “must believes” for your evaluation to be right. Share this risk assessment with your stakeholders and formulate a plan to monitor these inputs periodically. Going forward, you’ll want to keep an eye on the biggest risks and update your study as new information surfaces.

Double down where detail matters. Although your aim is to make an assessment on the forest, some trees are going to be really important to developing that picture. Which ones are they? In my experience, detail is critical in two places.

Some inputs are just that big. They sway the answer either with the finances or with your satisfaction. In a financial evaluation, you can always sort through a list of contributors from top to bottom and use the 80:20 rule. (This is typical but varies and will sometimes be 90:10 or 60:40.) What are the 20% of inputs that make 80% of the difference. Focus on getting this 20% as accurate as you can. Talk with experts, do market research or surveys, analyze data and triangulate different data sources, until you have a solid case. This is not unlike a court case you see on screen — you need to build the logic tree and gather evidence to make the case on the right value really compelling. Other details are critical for communication and to build credibility. This can mean, if you’re trying to decide what the manufacturing network needs to look like for widget X, you need to visit the plant and see what it takes to manufacture the product. You need to walk through the plant and get a deep dive on the processes and critical elements of how that widget is made well and what the pitfalls can be. It means if you’re working on an electrification program, you need to understand how the power is generated and transferred such that you could describe it in your own words. These type of details will help you have deeper conversations with experts and will help ground your work in the reality of the business.

Prepare for distractors. In my days as a young business analyst, aka, the one who was responsible for the financial model and base research, I often found myself in research and analysis spirals initiated by both my seniors and clients. It might look like this:

To evaluate my client’s new investment in China, I’ve built a massive financial spreadsheet that calculates the return on investment. This is mostly factual information that I’ve been able to gather from other examples of similar plants, either at the client or other reference companies. The key for the business return was the ability of the client to pull share for an already well-supplied China market that had a preference for local manufacturers. After presenting the results to the client team, we enter the Q&A period.

“I had a chance to look at your financial model and on tab 17, I see you estimated the cost of machine X as [$30K]. I’ve seen this component costing at least 10% more than that. Can you go out and re-test this data point, maybe gather some additional benchmarks and come back to the team next month?”

In reality, that component cost was not going to change the go-no go for the China plant. And, in fact, the right push back from this team was probably to dig into the market share question — this was a more uncertain and high impact variable that very well could change the answer. So, why did this happen and how can you shift the conversation back to what matters most?

Why did this happen? There are many reasons this happens, often innocent, and at times not. Sometimes, your audience may just find comfort in the detailed numbers. This could just be their DNA (often engineering and deeply technical types) or because it’s because it’s easier to check, compare and push on than more judgment-based topics. Another reason that you could end up in the weeds is because your audience does not actually understand what is most important and so is using a scatter approach to capture anything that could be wrong. And finally, you have the intentional distractors. This may be an effort to discredit an answer they don’t like or to delay an initiative that they would rather not do. At some point, you’re likely to encounter all of these types, which can certainly snowball into an avalanche for your evaluation. So how do you manage through this situation? Over the years, two things I’ve found very effective at managing the crowd:

Separate the fact base from the answer. You need to align on the level of precision and necessary assumptions before they impact the answer. You can do this in layers as you go. Share the detailed fact base and assumptions with the detail-oriented among your stakeholders early and often. You can use these reviews to align on which inputs have the biggest impact and make sure you collectively get those right. There is a side benefit that those that help you get the inputs right may also serve as supporters in a broader session. Create basic sensitivity analyses to have on hand for the stakeholder discussion. This tool is helpful as you are evaluating the answer, but also can be extremely helpful in managing the crowd. Imagine how you could use this if the question above on tab 17 surfaces. If you have already looked at how much the project value shifts with plant investment you will have perspective to offer the team real-time. If the sensitivity shows that the answer does not change for a +/- 10% change in plant investment, you can use this fact to deprioritize that line of questioning. Of course, this will also highlight what does matter and can shift the meeting to debate topics that can really improve your evaluation.

Overall, I suggest a systematic approach to getting the level of detail right: litmus test the impact, be clear on what you know, double down where it matters most, and prepare for the distractors. There will always be a tug between the forest and the trees, both from your internal set-point as well as those of your stakeholders. With a bit of forward thought and effort to be intentional, you can be better prepared to deep dive those details that matter, skim those that don’t, and to convince others to prioritize with you. So now that you have an idea of how to see the forest AND the trees, go out there and evaluate your next tough question with just the right amount of detail!