Should you accept a new project a potential customer is offering you? Should you hire an assistant? Should you buy a friend’s beach house as an investment property?
Should you accept a new project a potential customer is offering you? Should you hire an assistant? Should you buy a friend’s beach house as an investment property?
These are all examples of the Go/No-Go decision pattern. Go/No-Go decisions belong to a family of dual-choice decision patterns that are used when making a choice between two options. The Go/No-Go pattern deals specifically with dual-choice decisions where:
- The Go option involves an ongoing commitment of resources, e.g.: time or money.
- The No-Go option involves no additional commitment of resources.
- Choosing the No-Go option has the same effect as if the decision never occurred.
You can think of the Go/No-Go decision as deciding whether to stay sitting under a tree, or to walk down a path.
Related Patterns
Decision patterns similar to the Go/No-Go pattern include:
- Continue/Cancel
Where an ongoing commitment of resources has already been made and the decision is whether to stop the commitment. For example, the Go/No-Go decision might be used to determine whether to start a project, while the Continue/Cancel decision would be used to decide whether to cancel it. - Fork In The Road
Where the choice is between two paths, one of which must be taken. The Go/No-Go decision is between inaction and action while Fork In The Road is a decision between two actions. - Yes/No
Where there is no ongoing commitment of resources after the initial decision and implementation. For example, “Would you like fries with that?” is generally not a Go/No-Go decision since there’s no additional commitment to buy fries again in the future or additional direct costs after the decision is made and implemented.
Analysis
Some analysis techniques that can be applied to the Go/No-Go decision include:
- Cost vs Benefit
Create a model to determine the projected costs and benefits of the Go option. If the benefits don’t outweigh the costs, the No-Go option should be chosen. Specific types of cost/benefit analysis include Return On Investment, Pro-Con List and Weighted Pro-Con List. Cost/benefit analysis considerations include Net Present Value (NPV) of costs and benefits, projection accuracy risk in costs and benefits, completion risk for projects and liquidity risk for assets. - Opportunity Cost
Create a model that projects future decisions that will be restricted by the current Go/No-Go decision, e.g.: due to the commitment of resources. Then perform a cost/benefit analysis on each option, taking into account probability of the decision manifesting and the net present value of each decision. Essentially this analysis turns the Go/No-Go decision into a Select One Option decision where the options are distributed in time. - Portfolio Value
When multiple Go/No-Go decisions are being made with a shared pool of resources, the value of the decision relative to the rest of the decisions in the portfolio needs to be calculated. In these circumstances, the decision becomes either a Portfolio Allocation or Portfolio Selection decision. The analysis used in Go/No-Go decisions might be used in these decisions, but additional analysis need to be performed in this case to handle the additional issues of shared resources.
Variations
Go/No-Go decisions have several dimensions that affect the decision process.
When Benefits vs Costs Are Incurred
There are three main variations related to when benefits and costs are incurred:
- Costs occur before benefits
- Benefits occur before costs
- Costs and benefits are intermixed
The decision process changes under each of these scenarios. For instance, if benefits are occurring before costs, the overall decision risk should be lowered.
Abstract vs Concrete Implementation
The difference between “Should I buy an investment property?” and “Should I buy this investment property?” are fundamentally different. The first has an abstract implementation in that no commitment of resources will actually occur until the second decision has been reached, at which point the decision becomes concrete.
The abstract decision is really “Should I take this type of action?” while the concrete decision is “Should I take this specific action?”.
A common mistake when analyzing abstract decisions is forgetting to include the resources required to find specific actions to take and to choose one of those actions. For example, when analyzing whether you should buy an investment property, you need to account not only for the costs and benefits of your average or ideal investment property, but the costs associated with finding that investment property.
This is one of the things that makes the abstract decision fundamentally different, in that there are usually few or no benefits, only costs, until a concrete decision is made and implemented. Put another way, benefits generally come only from concrete decisions, while costs can come from both abstract and concrete decisions. (Technically, abstract decisions can have indirect benefits, like increased knowledge about an area, but often it’s only the direct benefits that are being used in the cost/benefit analysis).
Mitigation Strategies
In Go/No-Go decisions, there are several strategies to mitigate the risk associated with making the decision. These include:
- Defer
Wait to make the decision until a later time. Uncertainty, and thus risk, often decrease over time, changing the ratio of risk-adjusted cost versus benefits. - Option To Play
Structure a scenario where you defer the decision, but don’t lose the advantage of making the decision earlier. Rights of first refusal in contracts and making small investments in emerging market companies are examples of the Option To Play strategy. - Incremental Win
All Or Nothing situations occur when the entire benefit comes after most or all of the costs are sunk. By structuring the implementation of a decision so that benefits are “sunk” as you go, you reduce your risk. Using phases, milestones, triggers and short development cycles are all ways of converting All Or Nothing situations into Incremental Win situations. - Low Cost Exits
Keeping your exit costs from a Go/No-Go decision low reduces your risk in taking a Go decision. Low cost exits can be achieved by making a smaller upfront commitment, including escape clauses in contracts or ensuring a high resale value of an asset investment. - Control Timing
Controlling the timing of the implementation phase of a Go decision can reduce risk, especially in project-based implementations. By lengthening or rescheduling the time during which resources are used, you reduce your opportunity cost. - Control Success Definition
Controlling the definition of success allows you to manage time and costs. Reducing the scope of a project or readjusting expectations on a personal decision can provide little wins instead of big losses.
Challenges
Challenges that occur when making Go/No-Go decisions include:
- Estimating Costs & Benefits
- Calculating Indirect Benefits
In the future I hope to elaborate more on strategies to help mitigate these challenges.
Additionally, certain dilemmas can occur with Go/No-Go decisions that you should be aware of:
- Sunk Cost Dilemma
Occurs when most or all of the benefit occurs after most or all of the costs have been incurred. In these situations, there will be multiple decision points where the Continue/Cancel decision is made. The sunk cost dilemma occurs when you properly ignore sunk costs during each of these decisions, but ultimately wind up with a bad outcome. You can read more about the sunk cost dilemma here. The sunk cost dilemma can be mitigated using the Incremental Win and Control Success Definition strategies.
Examples
The Go/No-Go decision pattern occurs throughout our business and personal lives. Some examples include:
- Should I invest in a new opportunity?
- Should I hire this person?
- Should I go to college?
- Should I ask this person to marry me?
- Should we have children?
Not all of these decisions are going to be decided using detailed analysis. Some may be based on what your gut or heart tells you. But each decision is a Go/No-Go decision.
About This Article
This article is one in a series of articles defining decision patterns: reusable, named best practices that can be used to improve decision-making. Decision patterns are a work-in-progress and your feedback is always appreciated. To learn more about creating a pattern language for decision-making, click here, or to read an overview of the decision framework used by these patterns, click here.
Credits: The photo used in this article was taken by Rohit Gowaikar.
