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Take a broad view in selecting options. Considering the wider impact of a decision will help ensure that the right choice is made and implemented. Avoid tunnel vision and consider the effects of the decision on others.

Understand the factors that influence how the decision will work in practice, and acknowledge expectations and the environment in which the decision is being made. The danger of paralysis by analysis is outlined above, but the opposite is also hazardous: the belief that research is unnecessary or irrelevant, or that you don’t have time for it.

Minimise risk. Consider how the level of risk can be reduced, by increasing the likelihood of success but also by considering what can be done if things start going adrift. Developing the sensitivity and ability both to take risks when needed and reduce risks when required is difficult. There are several questions to ask when managing risk:
– What might be the consequences of failure (worst case)?
– What is the likelihood of failure?
– What are the alternatives – and the consequences and likelihood of them failing?
– How can the element of risk be minimised?

Because the very nature of critical decisions brings unusual pressure, those who have to take them may find the following techniques useful:

Balance detail with an overall view. That is, pay constant attention to detail while keeping in mind the overall objective.

Trust your intuition. When making critical decisions you must trust your judgment, accept responsibility and avoid any temptation to shy away from making the decision or to shift responsibility.

Stay committed. It is always worth considering contingency measures and fallback positions, but it is important to remain committed to a decision. Critical decisions are often subject to indepth analysis and criticism because they matter so much, and any wavering in commitment can quickly cause the decision and
its implementation to unravel.

Avoid paralysis by analysis. Avoid the mistake of endlessly analysing the options and never reaching a decision. When the risk factor is high, decisions can drift. Although it is perfectly acceptable, and even advisable, to take your time and analyse, consider and discuss, there comes a time to act and this point needs to be recognised by the leadership. There may be reasons to be risk averse, but fear of failure should not be one of them.

Critical decisions are those that cannot afford to be wrong or to fail. They may be part, perhaps a vital one, of a larger process or a sudden crisis, or they may simply be in an area that is critically important. The 1962 Cuban missile crisis is an example. The Soviet Union was installing nuclear weapons in Cuba, 90 miles from mainland America, prompting a naval blockade of the island. The two superpowers were at a dangerous impasse. After a tense stand-off, President Kennedy received a message from Nikita Khrushchev, the Soviet leader, saying that the weapons would be removed. This was followed within hours by a second message saying that the withdrawal was conditional on America’s removing nuclear weapons from bases in Turkey, which was unacceptable to the Americans. Kennedy decided to ignore the second message. He quickly wrote to Khrushchev accepting the withdrawal outlined in the first letter. Although Kennedy did not know it at the time, the second message had been sent first. One of the outcomes of this crisis was the establishment of a hotline, a direct telephone link between the leaders of the two countries, to ensure that such potentially disastrous misunderstandings were never repeated.

For a commercial enterprise, knowledge of its actual and potential customers informs a wide range of decisions. But markets and the customers that comprise them are constantly subject to change. Thus leaders need to understand where, how, when and why developments are occurring in order to ensure that the decisions they make are not wrong or undermined by changing circumstances. Several things make a difference:

A clear vision promotes a shared sense of purpose, making it easier to act with flexibility, adapting to changing circumstances.
It is important to ensure that bureaucracy does not constrain decisions or the need for action.
People’s skills should be developed so that they can meet the challenges created by developing circumstances.
Confronting problems and their root causes early prevents frustration and preserves the momentum for change.

A powerful vision also helps to motivate people. A comment by John F. Kennedy, a former American president, is a good example: We choose to go the moon in this decade and do the other things – not because they are easy, but because they are hard. Because that goal will serve to organise and measure the best of our abilities and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win. People respond best when they understand what they are doing and why they are doing it. An effective leader must have the ability to create and communicate a convincing and realistic vision that will sustain an organisation and its people through both good times and bad. Such a vision encapsulates a set of values that will guide decisions and action and build confidence, teamwork and consistency As well as being convincing and realistic, a vision should be powerful if it is to excite and inspire. It must also be easy to get across to everyone and it must be specific enough to be genuinely useful in decision-making. It must also be flexible enough to allow for individual initiative and changing conditions.

For people to implement decisions successfully and to have the confidence to make decisions themselves, they must be motivated. In a team, the leader should understand exactly what motivates individual team members to act, what external influences are affecting them and what the leader’s role is in the process. There are eight rules of motivation:

Be motivated yourself, setting a clear example and driving progress forward.
Understand what motivates people and choose people who themselves are highly motivated.
Treat each person as an individual and avoid making assumptions about them.
Set realistic and challenging targets.
Remember that progress motivates, because it reinforces confidence.
Create a motivating environment. How you do this depends on the task and the individual, but it might, for example, mean pressuring or stimulating people to act, or removing obstacles to action.
Recognise success. This helps sustain momentum and contributes to continuing success.
Provide fair rewards. They are a form of recognition and can encourage as well as develop trust and commitment.

Empowerment goes further than delegation and is a way of letting people exploit their potential more fully. In essence, it means letting individuals get on with their jobs, encouraging those people closest to the action to make their own decisions. It requires support, trust and a willingness to remove obstacles and bureaucracy, encouraging and enabling people to put their ideas for improvement into practice.

Empowering people to make decisions and then implement them requires leaders to:

set a clear direction and ensure that people remain on course;
encourage people to be innovative and use their initiative, usually within agreed boundaries;
retain a full understanding of what is happening;
create a positive, supportive and blame-free environment;
offer support and clear the way for action without taking over from those doing the job;
make decisions which others cannot, because of lack of time, information or knowledge;
continuously assess performance and reward progress, supporting individual and team development;
build trust through shared information and knowledge whenever possible.

Confusion is built into many aspects of the investment scene. Investors experiencing confusion often shut down or make quick, poor choices. Stocks are the most confused asset class. Thousands of mutual funds and stocks cause mass confusion. Few people know how to compare all the funds and how to distinguish among all the companies, much less how to fit different funds or stocks with different investment goals and different investors.

Many investors buy nothing or buy whatever is most hyped. They are baffled by brokerage statements and tax implications. Few know if they are making money or losing money, much less how they compare to market averages.

While some investment professionals use confusion to sell a product, some are also genuinely confused. Confused advisors give confused advice. For example, many brokers are excellent at customer relations and sales, but inexperienced at economic analysis. Your broker may not understand the correlation of return for different asset classes to different economic conditions including booms, recessions, depressions, high inflation, low inflation, and deflation. Your confusion may be caused by your advisor’s confusion.

This compromise budget is what makes my Three Budget System so effective. It is where you take what you think you spend, compare it against what you actually do spend, and begin making compromises. These compromises will become the foundation of the choices you make to hopefully increase your discretionary income, and in turn allow you to pay down debt.

Because you are putting the numbers from all three budgets on one piece of paper, with each category compared side-by-side, it becomes easy to begin going through and making adjustments. But before you make any actual compromises between what you want to spend and what you really can spend, you need to remember your goal to eliminate debt by a certain date or age.

As you are making compromises, the most important one to make is the size of your “excess debt” payment. This is your personal goal for how much additional you will be trying to pay toward your debts each month. While you’ll get a better handle on what you want this amount to be in the next few chapters, I want you to get you used to the idea now. I’d hate for you to create a compromise budget that you love, only to be told you’ve got to cut it more if you really want to eliminate debt from your life!

Here are a few additional tips on constructing your actual budget:

Average three to six months’ expenses. If you only use one month’s expenses, there’s a good chance your numbers will be too high or low. This comes from the fact that certain months require you to spend more on certain items like cleaning and grooming supplies, occasional spikes in utility bills, and seasonal price differences. By adding up three months’ expenses for a category and then dividing by three, you’ll get a more accurate number.

Consider using software. I’m a big fan of programs like Quicken or Microsoft Money. These programs can greatly speed up the process by automatically downloading all your transactions from your bank. In addition, they print very handy reports that help you see exactly where your money went and when.

Keep an eye on your cash. One of the black holes of many people’s budgets is the ATM machine. They get out a $20 bill to pay for an $8 lunch, and the other $12 eventually evaporates. Make sure you save your receipts so you can accurately track your cash expenditures.