Dear Coach,
As an organizational leader, I often have to make challenging decisions, choosing among different options. Do you have a suggested formula or approach to help me make sound decisions?
Best,
Susan
Dear Susan,
Believe it or not, I learned one of the most useful decision-making tools in law school. (You can groan now 😊)
I attended the University of Chicago Law School, known for its emphasis on economics. As a first-year student and an English Literature major, I was beyond befuddled by my professor, later federal judge, Richard Posner.
He cited a 1947 case, United States vs. Carroll Towing, as a method for determining negligence in specific cases. Professor Posner distilled things into the following formula: B = PL.
- B is “Burden,” or the cost of prevention.
- P is “Probability,” an assessment of the likelihood of a risk becoming reality.
- L stands for “Loss,” meaning the magnitude of the cost should the risk occur.
Posner turned this formula into a universal framework for decision-making.
For me, it was torture! I consulted Shakespeare, Dostoyevsky, Proust, and Joyce. They were of no help!
How ironic, then, that the B = PL method would show up many years later in my corporate leadership and HR coaching work. The formula creates a kind of discipline: when you’re contemplating an action, you consider the risk, its likelihood of occurring, and the magnitude of that risk compared to the cost or investment.
Professor Posner described three types of risk takers:
- Risk Averse: “I don’t want to take any chances, no matter what the cost.”
- Risk Preferrer: (While holding the dice at the gambling table) “Honey, I know this is our rent money, but I have a really good feeling!”
- Risk Neutral: A disciplined approach to assessing costs, benefits, likelihood, and magnitude of risks or opportunities in order to make the most rational economic decision.
In my coaching and consulting work, I often refer to these three types of risk takers. They help clients identify and assess options. The formula works in both directions: problem/threat and opportunity. For the latter, “B” represents your investment: money, time, energy, and potential opportunity cost. “P” represents the likelihood that your investment will pay off. And “L” represents the magnitude of the payoff, should it occur—generational wealth creation, or yet another Starbucks gift card?
Although my initial reaction to B = PL was “WTF!”, I’ve since incorporated many of its concepts and principles into my work as an executive leadership coach and organizational consultant. It only took a few decades 😊, but I now realize that the Posnerian approach is highly useful. No offense, Professor Posner (a prolific author); I still prefer reading Shakespeare, Dostoyevsky, Proust, and Joyce.
Best,
Jathan.
Jathan Janove is a Marshall Goldsmith Stakeholder Centered Coaching Master Coach and Practice Leader. You can learn more about him here.
