In 1968 the Roskill Commission was established to conduct an enquiry into the location and timing of a third London airport (Yes, the debate has been running that long!).  The Commission focused on assessing the relative merits of four locations in the South East (from an initial list of 78 sites), before recommending that a site at Cublington, Buckinghamshire, should be developed.

The Commission undertook significant cost-benefit analyses of all four sites. As a result, they had to use assumptions about the underlying impacts of the development. For example, they decided that the cost of moving tourist activities (e.g. campsites) should simply be a replacement cost for the fixed activities, while the cost of demolishing historic buildings was based on insurance values. In terms of benefits of the sites, any journey time savings for businessmen was set at £3.50 per hour (as this was the 1960s, no value for businesswomen was given!), while for tourists the value dropped to £0.40 per hour.

At the end of two years’ work and having undertaken a myriad of painstaking analyses, Cublington came out on top. The only problem was that, using the Commission’s own techniques, there was a much better location. My old Geography professor, John Adams, worked out that the airport should be located across Hyde Park. Yes, you would have to knock down the Palace of Westminster, Westminster Abbey, quite a lot of Kensington and much of Hammersmith, but using the Commission’s cost-benefit approach and assumptions, the best solution was ‘Westminster Airport.’

Adams’s proposal was a joke, of course, highlighting the danger of using too many simplifying assumptions in complex decisions.

But many good managers make poor decisions. The bosses of Blockbuster, for example, turned down the chance to acquire Netflix, while Nokia’s executives did not believe that the iPhone represented a serious threat to their range of market-leading smart-phones.

Some bad decisions are just unlucky, but others are driven by overconfidence (ignoring the downside risks) or groupthink (with little effort made to check assumptions or consider alternative points of view).

How do you make sure that your big decisions effectively balance risk and reward? After all, to answer the question posed in the title of this week’s post, you don’t want to make an ‘ass’ of ‘u’ and ‘me’!

Off The Record: Waterloo Sunset by The Kinks

Millions of people swarming like flies ‘round

Waterloo Underground

But Terry and Julie cross over the river

Where they feel safe and sound

And they don’t need no friends

As long as they gaze on

Waterloo Sunset

They are in paradise