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34 Coquito Court, Menlo Park • California 94028 • Phone 650.854.1914 • www.litigationriskmanagement.com • [email protected]
Management–the act, art, or manner of managing, or handling, controlling, directing, etc.
Decisionmaking
Implementation
Most of us are taught implementation (how to take a deposition or write a brief). If we are really good at it, we get promoted to decision-making, which is a different set of skills.
Strategic decision-making requires a different mind-set / perspective from operational decision-making.
For strategic decision-making, we need to focus on those uncertainties that can change the decision.Most operational/implementation issues are unimportant for strategic decision-making.These operational/implementation “details” may be very important and must be taken into account once the decision has been made and is being implemented.
Risk — the chance of injury, damage, or loss; dangerous chance
The art of business-like decision-making is the art of balancing risk and reward.Few lawyers or business people understand Risk.It requires a statement of likelihood like:
CouldMightWillOr, most effectively, a probability (quantitative)
And requires a statement of consequence:Hit by a carLose our shirtsOr, most effectively, lose ten million dollars (quantitative)
We define Risk as UncertaintyAnd that doesn’t necessarily imply a chance of lossIt is risky if you get $5M when you might have gotten $100M
Most attorneys and business people do not think properly about the rewards either.
We almost always focus on the risks, the downside.• There is someone’s name on the check.• The accounting system knows exactly how much was misspent.The potential upsides are never precise or well defined.• Very few people get fired for increasing sales by 30% when they
should have increased them by 40%.• Very few attorneys are criticized for settling a case for $20M
when the expected loss was $10M.The upside too requires a statement of likelihood and a statement of consequence.
A probability is the quantification of judgment, based on knowledge and experience. (continued)
• Do not confuse probability with frequency• Frequency is what is taught in classical statistics• Frequency of heads in a coin toss is 50%.• Frequency is accessible for a coin, not for a unique case.
• Correct probability is an accurate reflection of judgment.• Not always easy to assess.• We all have biases in thinking about probabilities.
• Probabilities change with new knowledge• Quantification does not imply precision