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Decision Types

Jeff Bezos, the founder and CEO of Amazon, has a system for categorizing decisions that he believes is crucial for the growth and success of a company. The system is called "Decision Types" and it involves identifying two types of decisions: Type 1 and Type 2.

Type 1: Also known as one-way door decisions, these are irreversible and have long-term consequences. These are the decisions that set the direction and strategy of the company, such as opening a new fulfillment center or acquiring another company. These decisions are made slowly and deliberately, with a great deal of consideration and analysis.

Type 2: Also known as two-way door decisions, these are reversible and have short-term consequences. These are the day-to-day operational decisions, such as deciding on a new product feature or how to handle a customer service issue. These decisions are made quickly, with less analysis and more experimentation.

Type 1 decisions should be made slowly and deliberately, while Type 2 decisions should be made quickly and with a bias towards action. This system allows for a balance of cautious long-term planning and flexible short-term execution.

This decision making system is useful because it helps to ensure that a company is making the right types of decisions at the right time, and that it is not getting bogged down in endless analysis and indecision. This is why this method surfaces in the Speed Score.

Additional dimensions

We can build on these decision types to bring more nuance to the ‘speed and urgency’ model for understand when to address a decision and how long that decision should take.

Use these dimensions with decision types to build your own models for decision triage, prioritization, and delegation.

Consequence of decisions

One dimension decision types don’t cover is the consequence of a decision. A one-way door decision that is relatively inconsequential would be handled differently than the same decision type with a higher consequence.

As Shane Parish at Farnam Street highlights, the definition of ‘consequential’ and ‘inconsequential’ are relative to you, your team, or your business. Something that might be inconsequential to you, may be consequential to others.

For that reason, be explicit when defining what these terms mean and propose the action that needs to be taken when decisions fall in their respective quadrants. Below is an example of Farnam Street’s decision matrix that defines everything in the inconsequential quadrants as ‘delegate’

Source, Farnam Street

Cost of reversibility

The decision types themselves are binary - either a decision is reversible (two-way door) or it isn’t (one-way door). It fails to incorporate the dimension of cost. Between two reversible decisions, there are often varying levels of cost to reverse the decisions. One decision may just be lost time or opportunity cost, while the other may require costly work to unwind back to the starting point.

Adding the dimension of cost may be represented as a general label (e.g. high, medium, low options), a relative scoring method (e.g. 10 for high cost, 1 for low cost), or as true monetary cost.

For one-way door decisions, this is much trickier. Based on their definition, we may assume that they are truly irreversible and therefore there’s no need to define the cost of reversibility, but Annie Duke suggests the method of ‘decision stacking’.

Decision stacking is covered in the speed score as an option to improve the optionality of one-way door decisions. Here, it gives the opportunity of breaking down a potentially complex one-way door decision into smaller, less costly decisions. This exercise may surface reversible decisions, but at the very least, provides checkpoints or tripwires to revisit a one-way door decision before it becomes more costly.

Delegation, escalation, automation

When categorizing decision types, there’s an opportunity to continuously build a strategy for future decisions. With each new decision, the team can calibrate when decisions should be delegated or escalated and identify repeated decisions that can be automated.

For decision that are delegated: Could we have delegated this decision sooner? Is there a systematic way to determine who (or what team) this type of decision delegates to?

For decisions that are escalated: Could we have escalated this decision sooner? Which decisions should particular individuals make on their own vs decisions that are escalated?

For repeating decisions: Could this decision be automated? What information would we need to automate this decision? How much would it cost to automate this decision

Continuously building this rubric helps calibrate the triage to help the team only focus energy on decisions that are important and relevant in the long term