Choices Driven by Emotion Drive up Costs
Warren Buffett is one of the best at looking at things rationally before making any decisions. One of the things he always says when talking about investing is that choices that driven by emotion and the ensuing transaction costs are in reality enemies of the investor.
How much more so when management does the same thing.
This post isn't about all the things that we need to do in connection to emotion; all the things related to due diligence apply there. What this is about is the tremendous costs to a company or division that emotion-driven decisions can cause.
The costs are not just connected to money or revenue, it's probably much more of a burden upon the cost of time that these types of wrong decisions create.
Thing of not only the time it takes to right a problem, but then to go from there and build things the right way. Depending on the nature of what it is that's been done, it could be years.
Look at the fiasco that emotion-driven decisions connected to the American auto industry have produced. It costs over a thousand dollars a car to produce in America because they promised pensions that they could never really finance. Who knows where that will all end. Now everybody has to try to make changes that will take years, if they're ever righted, because somebody made an emotional decision that they threw on somebody else to fix in the future. Well the future has arrived for the American auto industry.
Many times decisions are made based upon good intentions, but good intentions in the past have had some of the most devastating effects on people because somebody felt good doing it. So everybody else has to pay because that person had a nice emotional, privately satisfying moment for themselves.
The costs for some of these types of decisions as they relate to business probably can never be counted. The key is to not make decisions without counting the cost as accurately and with the best information and data available. Emotion is never what tells the story, honest numbers do. Look there for reality.
This doesn't mean that we become fearful of decision-making, rather it means to take care that we don't see things that aren't there because we've developed an emotional attachement to what we may want to do. Getting another opinion from outside the business can help here a lot.
Other Buffett Resources:
Warren Buffett: The trouble with being a legend
Warren Buffett: 'I told you so'
Sponsored link: The outsourcing every manager requires - Tampa Locksmith
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