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ExecuSpeak Dictionary: Analysis Paralysis

PHILADELPHIA ( MainStreet) -- So here's the challenge: There's either not enough information or there's too much information. Is there ever "enough" information?

Business school professors respond to student pleas for more data with the short and apt "Management is the art of making decisions with inadequate information," evading offering an opinion about a case study.

There is a never-ending supply of additional data -- the Internet as a whole and Google, Bing, Wikipedia, census data, government data, industry data, SurveyMonkey, etc., etc. What took months to compile and analyze 20 years ago now takes hours and days. But the challenge remains the same. When is there "enough" information?

The phrase "analysis paralysis" was already popular in the early '80s. But the way it was used, even then, made it clear it was neither a new expression nor a new problem. Management was avoiding the inevitable point of decision by asking for more information.

The absence of analysis can be evident to observers. Netflix (NFLX - Get Report) didn't do enough analysis before splitting itself into two companies (then reversing course). Apple (AAPL - Get Report) has a reputation for completing an intensive amount of quality analysis. Analysis paralysis isn't easy to see since the result is ... no action.

At its core, analysis paralysis is the inability or unwillingness to act because of an inclination to further analyze a situation. But when is it a stall tactic and when is there a serious need for additional research? It depends on two things: consequences and criteria.

Decisions frequently need to be made by a certain moment or there will be consequences. Examples include:
  • Buy equipment by a certain date or the price will go up;
  • Renew a contract by a certain date or the terms will change;
  • Accept a job by a certain date or the offer will be made to someone else.

Ideally, decisions are made based on criteria. Examples of decision-making criteria might include:
  • Hiring decisions based on experience, education and fit;
  • Equipment decisions based on price, functionality and quality;
  • Stock purchase decisions based on price-to-earnings ratio, dividend and performance.

But what if there are no consequences if a decision is not made? Or the "consequence" is maintenance of the status quo? What if there are no established criteria to provide the decision-maker with a notion of what a "good" decision might look like? In either case, there is no amount of information, data or analysis that will do the job and assist the decision-maker.

The perception of analysis paralysis is not always the answer to the why-can't-someone-make-a-decision question. It's just as likely a symptom of unclear consequences and outcomes or unidentified criteria. Sounds like more information might be useful.

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