Type 1 and 2 decisions

As I’ve been tasked with more responsibilities from work, I’ve had to become more explicit with my decision-making process when communicating with coworkers. Usually a decision analysis is framed in an excel workbook for quantitative work or written in email format for qualitative work. As more and more decisions come my way, I realized that the ones I struggle with the most involve qualitative judgements:

• What color should the plank wood floors be in our newly renovated clubhouse?
• There is a leak somewhere on the property and there are about 30 crawlspaces that it could be in, how do we go about finding it?
• How do we prevent leaking issues in the future?
• This cast-iron pipe just broke but we were able to patch it quickly with PVC straps, should we break the concrete and replace the entire pipe? Or leave it as is?

When I am asked these questions, I hesitate a lot. Because there isn’t a clear yes/no, I am never sure what to choose. What if I am focusing on the wrong thing? Should I get the team to spend 10 minutes being 90% correct, or 120 minutes being 100% correct? There is a constant tug of war between different courses of action, and never an immediate clear answer. I still get flustered when I’m in these situations.

A method that I’ve adopted through trial and error is asking the property teams what they think they should do. I always start with that because of two reasons: they are the ones closer to the problem, and they are the ones that will execute the decision. Because they are closer to the problem, they understand property operations in a more nuanced way and will often have a more specific answer. When I look at the same problem from 600 miles away in an email or on a spreadsheet, (very) important factors like execution speed, manpower, and logistics are abstracted away in an email or spreadsheet. Since the property teams are more aware of these specifics, they can fill in more of the details. People take ownership of their ideas, so if I ask the team that will execute the decision to implement their ideas, they will work harder. Being told what to do has always felt constricting and demotivating to me because there is less ownership, and I’d imagine that’s probably how many other people feel too.

But what if the team suggests something that is clearly not going to work? Typically, I aim for a compromise. For example, when I ask the team what we should renovate in the clubhouse, and they respond with “everything”. In my head I think: “That’s not going to fit with our budget.”, and explain to them the constraints of the project: “We have $x to send here, what if we fix some of the most visible items like the desks, chairs, and flooring? The other furniture looks fine.” and eventually, the decision becomes synthetic back and forth between me and the teams.

Sometimes, neither side has a good answer. In this instance, it’s up to me to figure out something. Usually this occurs maybe an hour later, where I’ll draft a plan and ask them to sign off on it.

The underlying focus in decision-making is understanding the implications of the decision in the framework of those who will ultimately execute. The decision has to be framed correctly for the executor, or vice versa.

Alright, this is pretty straightforward - but what about decision-making speed?

Type 1 and 2 decisions + Scale

At the same time, an important thing to remember is to not delay the decision-making process. Jeff Bezos has a great framework for decisions, which he categorizes as Type 1 and 2:

“Some decisions are consequential and irreversible or nearly irreversible — one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency.”

While investing in assets is a Type 1 decision (hard to reverse, 1 large decision), real estate operating decisions are typically Type 2 decisions (infinite duration, relatively reversible). As a result, iterating as much as you can on Type 2 decisions in small steps, and incrementally improving via trial and error often leads to good results. Sometimes the indecision resulting from deep contemplation is more harmful than making a small, wrong decision in the first place. A small error provides the opportunity to course correct earlier, whereas a delayed decision becomes the bottleneck to many other decisions. Feedback from small errors is often more useful and leads to better outcomes. I’d argue that our lives are comprised of more Type 2 decisions than Type 1 decisions, so there should be a bias for speed.

Marshmallows and iteration

If you majored in business, you have probably done the Marshmallow Tower challenge before:

“The challenge seems simple enough: small teams have to build a structure in 18 minutes using 20 sticks of spaghetti, 1 yard of tape, 1 yard of string and 1 marshmallow. The winning team is the one that can construct the tallest freestanding structure with the marshmallow on top within the time allowed. The point of the exercise is to collaborate very quickly in order to respond to the task. It reveals some surprising lessons about the nature of collaboration.”

Based on hundreds of Marshmallow Challenges, the results are surprising. From Li Whybrow from elearningindustry.com:

“Who performs poorly? Recent business school graduates. Why? They cheat and get distracted. They try to find the single correct plan and then attempt to execute that. They run out of time and when they put the marshmallow on top, it’s a crisis. Sound familiar? Who performs well? Kindergarten kids. Why? First of all, none of the kids spend time trying to become CEO of Spaghetti Inc.! More importantly, they start with the marshmallow and then build successive prototypes, all the time keeping the marshmallow on top until they find a solution that works.”

What should we unlearn to become more effective? We should optimize less, prototype and iterate more. Emphasize action over inaction, and be open to small errors.

Moving fast compounds more than people realize.