How on earth did we get here?

No not sitting at home in our slippers on our laptops. I mean back at over 1,000 deaths per day, locked down in our houses, home schooling our children and all those other things that we thought we had got past in the Spring of last year.

The answer of course is “decisions”. Poor ones. It always is.

And not just the decisions of those who make the big ones in our national lives but also the decisions of all of us as business owners, employees and just general citizens.

Every decision made has an impact. Some more than others granted, but all the decisions you make today and tomorrow will change something. Get the majority of those decisions right and the outcome will probably take care of itself. Get most of them wrong or get some of the big ones wrong and it won’t.

And I’m not just talking about the Pandemic but about your business, your finances, your life. Outcomes you’ll have to live with.

But are you making the right decisions? Are the decisions you make based on logic or emotion?

The political strategist Lynton Crosby who is widely credited with helping a number of election victories for various political parties across the world is alleged to have said “in a straight fight between emotion and logic, emotion will always win”.

He makes a very good point especially in these times when the tiniest issue and worry can be magnified and multiplied many times over, via social media. “The lie is halfway round the world before the truth has got it’s pants on” as they say.

As a result, we’ve seen Russian bots sending out millions of messages to encourage the spreading of false rumours about all sorts of issues to create divisions in Western democracies. And then we’ve seen divisive politicians use that to their advantage to achieve power. Meanwhile, good people ignore those abuses if it means “their side” wins.

And we also see the advent of conspiracy theories about all sorts of things. The best definition of conspiracy theories that I’ve heard is that they are “false stories spread by stupid people pretending to be clever”. Yeah, I know, you’ve got friends like that. Haven’t we all? Should we call them out or say nothing for fear of causing offence? There’s another decision you have to make.

But what does all this have to do with our role as accountants and advisers to a wide-ranging group of owner-managed businesses?

Well because inside businesses, emotion can often cloud the judgement of business owners just as much as it can cloud the judgement of an American voter. And it’s our job as accountants to be objective and yes at a push “unemotional” (as long as it doesn’t slip into lack of empathy) and separate the unemotional logical facts from the emotional and often illogical fiction.

At A4G and at an increasing number of clients, we have weekly, monthly, quarterly and annual KPIs (Key Performance Indicators) that we can compare to previous periods to identify trends, problems and successes. Depending on what industry you are in and the degree that you’ve been impacted by the Pandemic, your KPIs may be holding up nicely or reflecting total carnage.

But these KPIs are only a reflection of the most important KPI in our business. Because the most important KPI is impossible to measure. The most important KPI in our business (and perhaps any business) is….

The percentage of correct decisions that are made across the whole firm

Only one problem. That percentage is impossible to measure. Although eventually the impact of a good or bad score will find its way through into the next layer of KPIs (efficiency of work, new customers).

Let me give you a much, much bigger example.

Every night on the news, we see the statistics reporting on Coronavirus. I wrote an article on this back in May last year.

The headline number is the number of deaths. But this is a consequence of several things including the number of hospitalisations and, the standard of care (also impossible to measure).

The number of hospitalisations is a consequence of the number of infections.

And the number of infections is effectively a formula based on how many people had it last week and what the R number is. The R number is the number of people that each infected person on average infects. If R is over 1, infections are increasing. If its below, 1 they are decreasing.

The R number is a consequence of the collective lifestyle of the country. If we all seal our doors, grow our own food and have no contact with the outside world, R would be zero and the virus would be gone.

But that’s impossible. All sorts of things have to continue. There will be some kind of contact between people.

So the critical thing was to get the R number below 1. And we achieved that.

The R number is still massively misunderstood. The R number changes immediately that people’s behaviour changes. Immediately.

But it can’t be measured until later and so there’s a time lag of a couple of weeks before we understand the impact of our collective behaviour. And that time lag creates uncertainty and a vacuum into which emotional voices can influence our decisions.

Of course, the first lockdown was so hard that the R number was well below one. And arguably we locked down too hard in those panic-driven weeks. But the case numbers fell dramatically and therefore hospitalisations fell and consequently deaths fell.

Now I’d read quite a bit about pandemics and apparently there is always a second wave. This is not a phenomenon of viruses. It’s a phenomenon of human behaviour because people got complacent. But previous pandemics were in less sophisticated times when there was no test and trace and no way of measuring R numbers. I thought that in more sophisticated times we would not make the same mistakes again.

But we did.

As deaths fell, all sorts of things re-opened and somewhere along the line our collective behaviour caused the R number to go over 1. But no-one cared. Because the numbers of deaths were very low. So the schools opened then restaurants and people went on holiday. And even though the rules were relaxed everyone wanted to push it a little bit further.

Be honest, how many of us followed the rules to the letter? Because the emotional part of our brains justified all those little decisions because we had “lockdown fatigue” or needed to bend the rules a bit for our mental health.

And here we are.

Ever had a problem in your life that you thought had been solved but then came back again? Because whilst you’d buried it, you didn’t kill it off. And when that problem came back it had mutated and came back bigger the second time. Problems and viruses have a habit of doing that.

It’s a subject I broached this week with Steve and Roger of BackleyBlack in our latest video. As they explain, procrastination is often the biggest enemy.

It’s the same in any business. And yours is probably no different.

That problem employee who you thought was an industrial tribunal waiting to happen so you didn’t tackle and ended up causing you to lose one of your best customers.

The business partner whose shortcuts and failure to follow processes you ignored who turned out to be stealing from you.

The problem with your product that you agreed to patch up, but which broke down and resulted in a 2-year legal case costing you a six-figure sum.

And the management accounts which indicated falling margins which you left to your bookkeeper to deal with whilst you extended the overdraft over what you’d been told was a cashflow crisis, but which turned out to be a trend of losses that caused the company to end up going bust.

Think about a problem you had that you properly focussed on. It almost certainly got better. But human nature causes us to get complacent and then the problem comes back. There are all sorts of things you can decide to do this weekend or next week.

If there’s a complication on a customer order, you can decide to sort it out yourself (which is what you usually do) or you can explain to one of your team how to deal with it.

If you’ve got a task that repeats regularly, you can continue correcting your staff whenever they get it wrong or you can write out a system and checklist and train them using that and put someone in charge of quality control.

If you need some help, you can ask a friend or relative to help out or you can put an advert on a job site like Indeed and get someone more qualified.

You can decide to send back work that’s not good enough in order to raise standards.

All these decisions make a difference.

Or will you decide to make the wrong choices? Because you don’t want to upset someone. Or because you don’t like doing the thing that your business really needs you to do. Or because you’d rather do something else.

At a national level, all those wrong decisions made for those reasons is exactly how we ended up here. All those small decisions about wearing a mask, shaking hands, going on holiday, attending a party all added up in the end to 1,000 deaths a day. That’s how we got here.

And when businesses go bust and the owner pins the blame on one thing, remember it isn’t one thing. It’s not “one” and it’s not a “thing”. Its an accumulation of poor decisions and indecision.

So, if the outcome for 2021 is to be what you want it to be then your first decision is to start making better decisions.

Have a good weekend.

Making better decisions

Interview with Steve Backley and Roger Black 

Contact me today!

Malcolm Palmer

FCA

Managing Partner

01474 853856

Send me a message

Share this article