OPERATIONS
DECISION MAKING
Decision-Making in a Volatile Environment FOLLOWING A STRUCTURED, DOCUMENTED PROCESS—THAT BOTH INTERNAL AND EXTERNAL STAKEHOLDERS CAN UNDERSTAND—HELPS SUPPORT HOW AND WHY DECISIONS ARE MADE.
By Scott Lewis
uring the last two years, the world of investing and
learn lessons from this framework. Any decision-making process you use should be well-documented and graphically depicted so that every part of your team can execute it. In addition, any decision-making process should include a stage during which decision-makers analyze the situation to build a shared understanding. This is where teams can go wrong. Many try to make decisions with siloed information, creating inconsistencies in the knowledge decision-makers have about the situation and leading to suboptimal outcomes. DEVELOPING COURSES OF ACTION The analysis stage provides a holistic picture of the scenario and operating environment. This paves the way to develop different courses of action for achieving whatever end state is most beneficial. As you devise potential courses of action, ensure you don’t come to the decision-making process “knowing” the correct answer. Be open-minded and challenge preexisting notions of what “right” looks like. Finally, any decision-making process needs to define how you de - cide. Is it through voting? A scoring
system? Or rock, paper, scissors? While some methods are better than others, it’s important to use the same method each time.
D
operating in real assets has been turned upside down. Rates soared, competition from new players entering the industry increased, and institutional investors poured unprecedented levels of capital into the space. The military has a term for this: VUCA, or volatile, uncertain, complex, and ambiguous. Given the realities of the current VUCA envi- ronment, how can any real estate operator or investor hope to get ahead? One sure way is to optimize your decision-making process. CREATING A SHARED UNDERSTANDING The Army has a military decision- making process, or MDMP, that uses facts and assumptions to develop various courses of action that are compared against evaluation criteria. The goal is to make the best possible decision. The MDMP has hundreds of steps designed around entire bodies of staff making decisions, which is necessary for a combat setting. It is unrealistic for most business scenarios, however. That said, investors, owners, and operators can
DISCERNING BETWEEN FACT AND ASSUMPTION
Every decision must be made with both facts and assumptions. The key is knowing when something is a fact and when it is an assumption. A fact is generally known to be true and is backed by evidence or support from a key stakeholder. Let’s say you are on a team that identifies and purchases self-storage facilities, and the CEO says the maximum the firm will pay for a property is $10 million. From the perspective of the acquisitions team attempting to win the deal, the $10 million cap is a fact. On the other hand, an assumption has not been proven to be true, but it can reasonably be counted on. A good example here is a term sheet from a lender. If you have ever been re-traded by a lender at closing, you know that nothing is set in stone until that loan is finalized.
REDUCING RISK When using a decision-making process, it is vital to discern which
70 | think realty magazine :: september – october 2023
Made with FlippingBook Online newsletter