Most judgments
are snap decisions without formal analysis. The decision-maker somehow
consults her or his “intuition”—a seemingly mysterious brew of
accumulated mental material that actually is neither mysterious nor “irrational”
—and quickly arrives at an answer.
Indeed, formal cost-benefit analysis is done in only a tiny fraction of
the decisions we make; the process costs too much time and thought.
Systematically working down the series of steps must be reserved for
the tough decisions when intuitive thinking seems inconclusive, or when
the decision-maker asks someone to perform a formal analysis as a check.
Making good intuitive decisions about when you need, and do not
need, to make formal cost-benefit decisions is a valuable skill. It follows
that bright, young graduates often err grievously in their contempt
for higher-level managers who do not often bother with fancy analytic
techniques. It also follows that experienced managers should not be so
complacent of their intuition that they scorn a formal analysis of the
important decisions.
If we could record the lightning-quick operations that occur inside
our heads when we think “intuitively,” we probably would be able to
deduce a series of controlling instructions analogous to the program of a
computer engaged in what is called “artificial intelligence”—say, a program
that develops a medical diagnosis and treatment for a patient with
a complex and exotic disease. From the outside the computer looks
mysterious, but inside the black box, the operations are quite logical
and unmysterious.
The information used in cost-benefit analysis is always imprecise,
sometimes ridiculously crude. And the more important the decision, the
less reliable is the information that is likely to be available, because
very important decisions arise infrequently. The machinery provided
later for dealing with uncertainty helps us deal with lack of information.
Yet imprecision necessarily remains.
Our desires and goals also are imprecise and often muddled. Sometimes
it seems as if we first make our decisions, and only afterward
decide which goals fit the decisions. The organization buys an airplane
because the CEO thinks it should have one, and then tries to figure out
what to use it for. The messiness of decision-making is not a sound
reason to forswear cost-benefit analysis, however, any more than the
complexity of human relations is a reason to be a hermit.
Careful and imaginative cost-benefit thinking often reveals conclusions
quite opposite to “common sense.” For example, at first thought it
makes sense that vaccinating all children in the United States against
smallpox is good. But vaccination programs across the United States
typically resulted in 6 to 9 fatalities each year, plus 400 to 500 “serious
complications.” And the United States did not suffer any cases of smallpox
from 1949 to 1971. Hence the U.S. Public Health Service recommended
in 1971 that routine smallpox vaccination be ended.
Cost-benefit analysis is not the whole of managerial thinking, by a
long shot.
Much managerial energy goes into fitting together the resources of
an organization—both the people and the physical assets—so that they
will meet particular needs and accomplish particular goals. An example
is scheduling the operations in constructing a skyscraper. This sort of
problem-solving is a matter of techniques rather than evaluation, more
akin to engineering than to business.
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