Hugh Courtney is the dean and a professor of international business and strategy at Northeastern University’s D’Amore-McKim School of Business and a former consultant at McKinsey & Company. Dan Lovallo is a professor of business strategy at the University of Sydney and a senior adviser to McKinsey & Company. Carmina Clarke is a senior manager at Macquarie Group.
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In highly complex, uncertain contexts, traditional decision-support tools such as discounted cash flow analysis are worse than useless. Nonetheless, exeuctives use them all the time.
Good analytic tools exist for all strategic contexts. If you use the right tool, the odds of making a good decision go way up. Here, the authors present a model for matching the decision-making tool to the decision at hand, on the basis of three factors: how well you understand the variables that will determine success, how well you can predict the range of possible outcomes, and how centralized the relevant information is.
The authors bring their framework to life using decisions
that executives at McDonald’s might need to make—from the very clear-cut (choosing a site for
a new store in the United States) to the highly uncertain (changing the business in response to
the obesity epidemic).
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these tools use the estimatee incremental cash flow from potential investment to estabish