Not Making Decisions IS a Decision

Author: Larry Chester, President

Every entrepreneur makes decisions. Some are significant, and some are inconsequential. The more difficult ones require more information, and shared input from other team members. All decisions come with some risk, and major decisions might involve risk that is unacceptable. But delaying the decision doesn’t necessarily make the final answer a better one.

Bringing Value Through CFO Insights

One of the most difficult lessons an entrepreneur – or any manager – learns is delegating responsibility. A recent blog on delegation brings up the issue of passing responsibility for decision making to other members of the team. “Leaders earn their keep by making smart decisions. But sometimes the smartest decision is to delegate that decision to someone else.”[1] If all decisions rest in the hands of the leader, then every activity must wait for their decision, delaying action throughout the company.

• Business – Outpatient surgical center
• Location – Suburban Chicago
• Sales – $17,000,000
• Ownership – One doctor

Initial Contact –

The business coach for the CEO reported that analysis paralysis delayed decisions in every area. This forced last minute judgements instead of a more deliberative, time sensitive process. Putting together a fact-based process, based on hard information, would bring decision-making to a timely conclusion. This would likely resolve a lot of issues that the company was facing, from personnel to operations.

Significant Findings and Recommendations:

Project Management

The project list was the subject of weekly management meetings. New projects were regularly added to the list. The doctor continually raised new questions, delaying decisions week after week. Staff delayed project completion, knowing that each project was continually being changed, and might be shelved. Weekly management meetings took more than 5 hours as the doctor regularly raised new issues on existing activities, sending managers back again for more evaluation.

Recommendations

• Assign decision making on projects to individual managers, giving them responsibility for completion, and taking them off the doctor’s desk.
• Develop an agenda for management meetings to address only those projects that are nearing deadline. Discuss only progress towards the goal, rather than reviewing each item from the beginning every week.
• Restrict fact finding inquiries to those that impacted everyone in the room. Perfect information is impossible. Minimizing risk is the goal.
• Plan resolution for the week before the deadline. End new information inquiries so everyone can provide input before critical decisions need to be made.

Personnel Management

The doctor, in private, complained about many long-term employees, while praising them as star performers when introducing them to outsiders. In addition, he insisted on performing all performance reviews himself. This led to unrealistic expectations and higher than planned payroll raises.

Recommendations

• Delegate performance reviews to the line managers. They have direct interaction with their employees and can relate more directly to their work quality.
• Begin quarterly performance reviews, providing more regular feedback for the staff. This will prompt performance improvement throughout the year, rather than a rush to improve performance right before raises were due.
• Set direct objectives for each employee, so that their job performance isn’t just based on “feelings” about their work, but on actual accomplishments throughout the year.

Financial Analysis

The controller provided not only monthly financial reporting but produced the company’s and the doctor’s personal tax returns as well. Separate departments managed invoicing, collections and insurance and Medicare payments. The company took an immediate write-down of all insurance and Medicare billings upon invoicing to eliminate large adjustments later.

Recommendations

• Provide segregation of responsibilities by having an outside accountant produce the tax returns. With the controller being responsible for all internal financial reporting and external filings as well, there was no cross check on her work.
• Develop a dashboard of Key Performance Indicators to provide standards whereby the doctor could judge the performance of the company and individual departments.
• Prepare individual monthly financial reports for each of the company’s surgery centers. Grouping all facilities together obscured individual results, not allowing the doctor to evaluate the performance of each center.

Cash Flow

Growing to multiple locations within 5 years strained the cash available to the company. Capital investment had grown, but not every center contributed its share to company profitability. A new bank loan provided additional credit that was quickly eaten up by the operating shortfall.

Recommendations

• A cash flow forecast for each facility would identify which were burning cash monthly, negatively impacting overall company performance.
• Reduce expenditures overall to achieve a positive cash flow for each location. Adding staff to resolve operating issues is never a solution.
• Develop a plan to pay down the operating line over time. Credit lines should be used to fill in the variances in working capital, not make up for operating losses.

Leaving things the way they are provides comfort to ownership. But changes can bring efficiency and additional profitability to the bottom line. Delaying those decisions because of the risk of choosing the wrong direction doesn’t solve the problem. Not acting to resolve an issue is still making a decision. But delay doesn’t move the business forward. There is never enough information to eliminate every risk your company faces. Delaying can affect employee morale, push customers to your competition, put your business at a competitive disadvantage, or ultimately increase your costs.

Carefully evaluate the decisions you make. Gather available information within a specific timeframe. Determine if you have enough information to minimize the risk involved. Realize that every business decision has risk. Make the decisions that you need to make to grow your business, and don’t let the remaining risk stand in the way of your progress.