- Be familiar with your company’s procedures and criteria for approving and managing capital expenditures. Your management will require a compelling return-on-investment (ROI) study (net present value, payback, breakeven, or internal rate of return estimates) vis-à-vis explicit or implicit hurdle rates.
- Establish clear links between your budget and corporate strategy. If your management can see the real benefits to the business, they’ll find the costs easier to absorb. Amazon’s customer-oriented culture requires every proposal for a new feature, product, or service to be pitched by means of a “Mock Press Release” arguing how a hypothetical Amazon customer would first learn about the feature and its utility.
- Don’t just roll your budget over from the previous year adding a certain percentage “and then some.” Many companies have adapted a cost-management tool called “Zero-Base Budgeting” that requires you to justify each line item in your budget as if it were an entirely new claim for an entirely new project.
- State your assumptions explicitly. Prepare worst-case and best-case scenarios to augment realistic forecasting of the future and help prudent decision-making. Keep your budgets ambitious but realistic.
- Allow room for contingencies. Avoid rigidities that could inhibit the quick and effective response to an unexpected event. Bring your contingency planning into the open for a careful review.
- Add some fat, but not too much. Keep this in your back pocket, but be ready to make some cuts by knowing what their impact can be. Be clear and confident when questioned about any of the numbers in your budget.
- Explain how true you were to the previous year’s budget. Make a distinction between controllable and uncontrollable budget variances. This will build your management’s confidence in your pitch for the year ahead.
- Put your budget proposal to test with your team and supportive peers. Encourage them to ask all the difficult questions they can imagine. They may not only know where the skeletons are hidden and help you with the answers you’ll need, but also become indispensable allies in getting your budget approved.
- To persuade each member of management, know what matters to him/her and link your budget to his/her objectives. Discuss your budget with the key decision-makers separately before a group discussion. (Management consulting firm McKinsey calls this technique “pre-wiring.”) By getting each participant’s buy-in, you can count on his/her support and avoid surprise reactions and disagreements.
In Venice: The Hinge of Europe, 1081–1797 (1974,) the eminent University of Chicago historian William McNeill outlined how the Venetian Republic shaped European history. Describing the notion of trans-cultural diffusion, he wrote,
When a group of men encounter a commodity, technique, or idea that seems superior to what they had previously known, they will try to acquire and make their own whatever they perceive to be superior, but only as long as this does not seem to endanger other values they hold dear.
University of Washington’s Roger Soder quotes McNeill’s remarks in The Language of Leadership (2001) and supplies a case in point:
This is best illustrated by the technique of Jesuits who brought “new math” [including astronomy and mechanics] to China in the 1600s. They created the myth that the new Western mathematics had in fact evolved out of ancient Chinese ideas. The new ideas, they felt, would be accepted much more readily if they were seen as a natural progression of previously accepted methods.
That’s an important lesson on how to sell change: as a natural progression of the status quo.
Idea for Impact: People find themselves unable or unwilling to make fundamental changes in their lives. They tend to be particularly unwelcoming of ideas that they fear will alienate them from their core values. Tread delicately if you want effective change.
Just about every interaction is about selling something, whether you realize it or not.
When you try to be persuasive in a pitch or a presentation, you may come to pass as being overconfident at best, or boastful at worst.
Here’s a method that can help you transform your boasts into benefits in support of a prospective customer.
“I have 15 years of experience in this field,” may sound boastful. Instead, say, “I bring to you 15 years of experience in this field, promising you that, should any problems surface, they will be handled promptly and proficiently.” This tolerable way to promote yourself also won’t make you seem forceful.
More to the point,
- Avoid self-superiority declarations such as “I am better than others.” Instead, couch your claims as endorsements from others: “My past clients have told me that … .” According to a study by organizational theorist Jeffrey Pfeffer, you’ll be regarded more likable and competent if you can get somebody else (even a paid agent) to sing your praises for you.
- Steer clear of humblebragging, i.e. masking a boast as a self-deprecating statement as in “I’m a perfectionist at times; it is so hard!” Humblebraggers appear less sincere than blatant braggarts do.
Reciprocity, as described below, is a manipulative technique. My aim for this article is twofold: firstly, it sensitizes you to one of the many things people can do to get you to do their bidding. Secondly, reciprocity is a handy technique for those circumstances where certain ends can justify certain means.
Reciprocity is treating other people as they treat you, or for the purpose of this article, as you wish to be treated—specifically with the expectation that they will reciprocate your favor in the future.
In other words, reciprocity is a sneaky trick that permits deliberate interpersonal influence. Do something for other people and they will be willing to do something for you, partly because they’ll be uncomfortable feeling indebted to you.
The concept of reciprocity is ingrained in human nature. As part of our upbringing, we are taught to give something back to people who give us something. Reciprocity and cooperation are the underpinnings of a civilized society—they allow us to help people who need it and to hope that they will help us when we need it. Research suggests that the desire to repay goodwill is hard-wired in the human brain.
Jack Schafer’s The Like Switch: An Ex-FBI Agent’s Guide to Influencing, Attracting, and Winning People Over (2015) offers a clever technique to put reciprocity into action:
The next time someone thanks you for something, don’t say, “You’re welcome.” Instead, say, “I know you’d do the same thing for me.” This response invokes reciprocity. The other person is now predisposed to help you when you ask them for a favor.
The effects of goodwill are short-lived. A long-forgotten reputation for helpfulness gets you nothing. You have to renew your reputation by helping others regularly.
To learn more about reciprocity, read social psychologist Robert Cialdini’s Influence: The Psychology of Persuasion (1984.) He identified reciprocity as one of six principles that can help get others’ compliance to your requests.
One of the realities of the human condition is that we’re all operating our lives by trying to make the settings around us—the environments in which we live, work, and play—to be just the way we want them to be.
However, we share these settings with other people, who themselves are trying to make their settings just the way they want them to be.
And herein is the source of a great many conflicts: as we control our worlds and our lives with the purpose of making them transpire as we’d like them to, we intercede with the controlling of others.
Conflict is not necessarily bad. It is a normal, fundamental, and pervasive facet of life. It is a natural outcome of what happens when our expectations, interests, viewpoints, inclinations, and opinions are at variance with those of others.
Every relationship is a minefield of conflict, and each instance of contradictory viewpoints brings new challenges.
The key to getting along amicably and resolving the problems of the world is working out how we can wisely facilitate our control of what is important to us without interfering with other people’s efforts at doing the same thing.
Idea for Impact: Life is negotiation. Getting what you want out of life is all about getting what you want from—and with—other people. Learning how to engage in conflict to get what you want without inflicting damage on the opportunities and the relationships is one of life’s essential and practical skills.
“Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.”
—Charlie Munger, Investor
Doing One Thing Makes You Sacrifice the Opportunity to Do Something Else of Value
In economics, opportunity cost is the cost of not choosing the next best alternative for your money, time, or some other resource.
One of the foundational principles in economics is affirmed by the popular American aphorism, “There ain’t no such thing as a free lunch.” Resources are scarce. When resources (time, money, mindshare, autonomy, and all that) are scarce, selecting one opportunity necessitates forgoing other opportunities.
Life is all about values and priorities. You face trade-offs. Life requires of you to make choices among mutually exclusive alternatives. Every time you select something, you forfeit other alternatives and the concomitant benefits. The cost of something is what you will give up to get it. This is opportunity cost.
You Can Do Anything but Not Everything … What Will You Sacrifice When You Choose One Option Over the Others?
When mulling over multiple choices, the quality of any option cannot be assessed in isolation from its alternatives. The price you pay (or the sacrifice you make, or the benefits you give up) for doing what you’ve chosen to do instead of doing something else is the opportunity cost.
In sum, an opportunity cost is the cost of passing up the opportunities that a different option would have afforded.
Many costs are calculated in terms of money. However, just because you don’t have to spend money to do something does not imply that the options you face are without their costs. For example, you don’t have to spend money to go for a hike or watch a sunset, but there is an opportunity cost there too. You could have used that time to do something else you value—visiting a friend or reading a book, perhaps.
- If you decide to invest two years and some $100,000 getting an MBA at a brand-name business school, there’s an opportunity cost; it costs you lost wages and all the things you could have pursued during that time and with that money. But you anticipate that getting your MBA will pay off by way of a better job in a better company with a better salary.
- If you spend your weeklong vacation taking your parents to a beach destination in Florida, there’s the opportunity cost of not going to Paris with your spouse.
- If you decide to wake up twenty minutes earlier in the mornings to leave home sooner to work and beat the horrendous traffic, there’s the opportunity cost of twenty minutes of extra snoozing.
- When the refrigerator at home breaks down and needs replacement, you will have to give up buying that latest big-screen TV you’ve been coveting.
- There’s an opportunity cost to even reading this article at this moment. You could have been watching TV, taking a nap, calling up a friend, or moving on to another article in the time you’re devoting to reading this article.
In a nutshell, even decisions that appear to be no-brainers carry the hidden costs of the options you will decline. Thinking about opportunity costs may not change the decision you make, but it will give you a more rational assessment of the full implications of your decision.
Opportunity Costs Apply to All Your Choices—Big and Small
Opportunity cost is a concept of great magnitude. It is one of those apparently simple concepts in social sciences that are difficult to master and tough to put into consistent practice. Tim Harford, the British author of The Undercover Economist offers a particularly instructive example of appreciating opportunity costs in his Financial Times column:
Consider the following puzzle, a variant of which was set by Paul J Ferraro and Laura O Taylor to economists at a major academic conference back in 2005. Imagine that you have a free ticket (which you cannot resell) to see Radiohead performing. But, by a staggering coincidence, you could also go to see Lady Gaga—there are tickets on sale for £40. You’d be willing to pay £50 to see Lady Gaga on any given night, and her concert is the best alternative to seeing Radiohead. Assume there are no other costs of seeing either gig. What is the opportunity cost of seeing Radiohead? (a) £0, (b) £10, (c) £40 or (d) £50.
Answer: Going to see Lady Gaga would cost £40 but you’re willing to pay £50 any time to see her; therefore the net benefit of seeing Gaga is £10. If you use your free Radiohead ticket instead, you’re giving up that benefit, so the opportunity cost of seeing Radiohead is £10.
Charlie Munger’s Wisdom on Opportunity Cost
- On the subject of making choices in life based on opportunity costs, Munger stated at a 2010 lecture at Harvard-Westlake preparatory school, “The right way to make decisions in practical life is based on your opportunity cost. When you get married, you have to choose the best spouse you can find that will have you. The rest of life is the same damn way.”
- Explaining how Warren Buffett and Berkshire Hathaway use opportunity costs to make investment decisions, Munger detailed stated at the aforementioned Harvard-Westlake lecture, “Berkshire Hathaway is constantly kicking off ideas in about two seconds flat. We know we’ve got opportunity X, which is better than the new opportunity. Why do we want to waste two seconds thinking about the new opportunity? Many of you come from places that don’t do that. You’ve got to have one horse, one rabbit, one something or rather, and that rabbit is going to be thinking about something which would be ruled out immediately by an opportunity cost available generally to the place—but, it’s a different department. You have to be diversified and so on and so on. It’s easy to drift into this idea that opportunities don’t matter, you’ve got so many different ways of doing things that are better. It isn’t better.”
- Putting the concept of opportunity cost into operation requires benchmarking any prospective decision to other available alternatives. At the 2006 Berkshire Hathaway annual meeting, Munger advised, “In the real world, you have to find something that you can understand that’s the best you have available. And once you’ve found the best thing, then you measure everything against that because it’s your opportunity cost. That’s the way small sums of money should be invested. And the trick, of course, is getting enough expertise that your opportunity cost—meaning your default option, which is still pretty good—is very high…. Most people aren’t going to find thousands of things that are equally good; they’re going to find a few things where one or two of them are way better than anything else they know. And the right way to think about investing is to act thinking about your best opportunity cost.”
Learn to Evaluate Life Choices Via the Lens of Opportunity Costs—The Stakes Become Clearer
You live in a world of scarcity and must therefore make choices. You cannot avoid regret since there are opportunity costs for every choice you will make.
Everything in life is about opportunity costs. Every time you say “yes” to a choice, you are also saying “no” to everything else you may have accomplished with your time, money, and resources.
Opportunity cost is a commanding tool that you should be wise to apply to all decision-making. If you integrate this concept into your thought process, you will not only make judicious choices, but also better understand the world in which you live.
Idea for Impact: Whether you’re choosing graduate school, mulling over switching careers, starting a business, investing your money, buying a car, or frittering away your evening watching TV, considering the value of forgone alternatives will help you make better choices. Make the lens of opportunity costs the underpinning of your decision-making processes.
Understanding Others’ Motivations is a Key to Building Better Relationships
Understanding others’ deep-held motivations involves recognizing what drives them, why and how they want to work, work styles they may adopt in various circumstances, and what levers you have to motivate them.
Take for example Abraham Maslow’s Hierarchy of Needs, a motivation hypothesis used widely for several decades now. Represented as a pyramid, this hypothesis proposes that people are motivated to fulfill basic subconscious desires such as food and shelter before trying to fulfill higher-level needs such as affection and prestige. Even though academics have extensively debated its specifics, Maslow’s Hierarchy of Needs has provided a handy framework to value the multifaceted composition of human motivation and to understand how to engage others.
The Relationship between Your Own Vision of Success and Your Parental Influence
One less-known framework for understanding the provenance of people’s life goals—their deep-seated aspirations for want to achieve in life—is the “Psychic Contract” hypothesis, a concept that dominates The Anatomy of a Great Executive (1991) by John Wareham, a leadership psychologist from New Zealand.
According to Wareham, a psychic contract is a set of “deals” we subconsciously strike with our parents early in life. Our life-goals are defined primarily by our own vision of what our parents achieved—and what they failed to achieve:
As we grow we absorb the values of our parents, and are conditioned to improve (albeit marginally) upon their achievements. We strike a psychic contract with them whereby “success” in life is defined by the attainment of a similar social positioning, which we later embark upon attaining, sometimes very consciously, but often entirely unconsciously.
Throughout our lives, we unintentionally adhere to our psychic contracts, despite the limitations they place on us. We use our psychic contracts to not only define and approach our life goals but also think about how we measure success.
We consciously measure success in terms of milestones and standards instilled by our parents.
As a rule of thumb, about three quarters or more of people in westernized culture seek first to equal, then marginally to improve upon the lifestyle or status level perceived to exist in the childhood home.
Psychic Contract Theory: Children are Programmed to Want to Do as Well as or Better Than Their Parents
In The Anatomy of a Great Executive, Wareham goes into depth explaining how we can know our own psychic contracts and how we can reset our goals to give ourselves permission to succeed. Here are some other prominent learning points:
- Our psychic contract is based on our birth order, our parents’ birth order, and roles we play relative to our parents in our families.
- The so-called “prime parental injunction” sits at the heart of our conscious. We go through our lives trying to become the people our parents wanted us to be. Even people who spend their lives trying to become exactly the opposite of what their parents wished are still influenced by this injunction.
- Every person has a pre-programmed financial comfort level. Most of us strive to reach this level; but once there, we slow down—not because we are lazy, but because we have fulfilled our inner desires and don’t need more. Wareham cites the example of commission-based sales people who, after earning adequate commission to reach their financial comfort level, tend to be less aggressive in selling cars to customers for the rest of the month.
Idea for Impact: “Psychic Contract” is a handy and thought provoking—if unsubstantiated—hypothesis to understand how your and other people’s deep-seated life goals are established. It can give you one more data point in trying to figure people out.
Benjamin Franklin, America’s founding father, statesman, and polymath, was a doyen of the self-improvement movement. His methods for self-mastery are worth taking a serious look at if you’re interested in getting better at anything in life.
In his wonderful Autobiography (1791,) Franklin discusses his once-foolish delight in spinning artful arguments and doggedly winning over his opponents.
Winning an Argument Aggressively is but a Short-term Ego Victory
I found this method safest for myself and very embarrassing to those against whom I used it; therefore I took a delight in it, practis’d it continually, and grew very artful and expert in drawing people, even of superior knowledge, into concessions, the consequences of which they did not foresee, entangling them in difficulties out of which they could not extricate themselves, and so obtaining victories that neither myself nor my cause always deserved.
However, Franklin ultimately recognized that his take-no-prisoners approach of arguing was by no means endearing him to other people. His realized that his brash way of outwitting his challengers had been self-defeating.
Arguing, if it is to Be Constructive, Must Be Done Tactfully
In an attempt to develop amenable character traits, Franklin radically improved the way he interacted with others. He let go of all expressions of conceit and bold self-confidence. He stopped using words such as “certainly” and “undoubtedly” in his speaking and replaced them with phrases that signified personal opinions—for instance, “It appears to me, or I should think it so or so for such & such Reasons, or I imagine it to be so, or it is so if I am not mistaken.”
I continu’d this method some few years, but gradually left it, retaining only the habit of expressing myself in terms of modest diffidence; never using, when I advanced any thing that may possibly be disputed, the words certainly, undoubtedly, or any others that give the air of positiveness to an opinion; but rather say, I conceive or apprehend a thing to be so and so; it appears to me, or I should think it so or so, for such and such reasons; or I imagine it to be so; or it is so, if I am not mistaken. This habit, I believe, has been of great advantage to me when I have had occasion to inculcate my opinions, and persuade men into measures that I have been from time to time engag’d in promoting; and, as the chief ends of conversation are to inform or to be informed, to please or to persuade, I wish well-meaning, sensible men would not lessen their power of doing good by a positive, assuming manner, that seldom fails to disgust, tends to create opposition, and to defeat every one of those purposes for which speech was given to us, to wit, giving or receiving information or pleasure. For, if you would inform, a positive and dogmatical manner in advancing your sentiments may provoke contradiction and prevent a candid attention. If you wish information and improvement from the knowledge of others, and yet at the same time express yourself as firmly fix’d in your present opinions, modest, sensible men, who do not love disputation, will probably leave you undisturbed in the possession of your error. And by such a manner, you can seldom hope to recommend yourself in pleasing your hearers, or to persuade those whose concurrence you desire. [Alexander] Pope says, judiciously:
“Men should be taught as if you taught them not,
And things unknown propos’d as things forgot;”
farther recommending to us
“To speak, tho’ sure, with seeming diffidence.”
Learn to Resolve Important Issues through Sensible Discourse
Franklin realized that this measured conversation and gentler interactions was helpful in preventing conflicts and softening resistance in those he wanted to influence. He writes, “This Habit, I believe, has been of great Advantage to life, when I have had occasion to inculcate my Opinions & persuade Men into Measures I have been from time to time engag’d in promoting.”
This rule of skilful conversation and interpersonal relationships later became one of the foundational principles in Dale Carnegie‘s masterful self-help manual How to Win Friends and Influence People—specifically, that our ticket to success in life is the ability to make others feel good about themselves.
Persuasion is Not About Outmaneuvering Others and Proving Them Wrong
The ability to communicate effectively, plead your case, and influence others is one of the most useful skills for succeeding in the modern world.
- Learn to resolve important issues through sensible and mindful discourse.
- Be assertive where you must, but never aggressive.
- Be open-minded, understand the other person’s perspective, and keep your emotions under control.
- Never insult, disgrace, or cause the other person to lose face.
Views, opinions, and judgments can differ, and these can and should be discussed civilly. However, to debate such differences vigorously so as to cause bad feelings toward is not necessary and is almost always counterproductive.
Kindness Can Be a Weakness
I’m currently reading Swedish oncologist Stefan Einhorn‘s The Art of Being Kind (2006.) Arguing that being a good person is the key to a happier and fulfilled life, Einhorn stresses (watch his TED talk) the need to distinguish ‘true’ kindness from ‘false’ kindness.
Einhorn describes three forms of false kindness:
- Manipulative kindness where deceitful kindness masquerades as goodness. This superficial kindness is driven by some ulterior motive—to shrewdly obtain something, rather than to be genuinely helpful.
- Stupid kindness that lacks appropriateness—trying to help someone who doesn’t want to be helped, for instance.
- Weak kindness is thinking that being kind sometimes means yielding and being a doormat to others’ demands.
Weak Kindness Will Make You a Doormat
The doormat phenomenon is the outcome of weak kindness where a doormat bends over backwards to desperately satisfy others, often resorting to do whatever it takes to try to make others happy, no matter how badly the others treat him/her. In the name of kindness, the doormat allows others to walk over him/her due to lack of strength, fear of conflict, or fear of rejection.
The doormat phenomenon is perpetuated primarily by an inability to say “no” effectively. Here are the consequences of being too gullible, too empathetic, and too timid.
- Doormats neglect their own self-interests.
- Doormats often resort to passive aggression and/or resentment. Eventually, they find themselves silently annoyed by others.
- Doormats don’t enjoy spending time in a social context, since they resent the people they assist.
- Doormats often face more demands than they can handle. Hence, being fully conscious of how they’re taken advantage of and unable of standing up for themselves, they suffer from stress and depression.
Don’t Be Duped by your Own Kindness
The key to leading a wise and purposeful life is to balance kindness with strength. To be wise and kind,
- Be profusely kind and obliging but never weak. Don’t give up your power to another person. Don’t become a people-pleaser. Don’t put everyone else before yourself.
- Be vigilant for nefarious people and their hidden motives. Be alert and aware of the many negative ploys and manipulations you could confront.
- Be assertive and stand up for yourself. Don’t say “yes” when you really want to say “no”. Don’t be so desperate to please others as to ignore your own priorities. Keep your own interests at the forefront of your mind.
- Be on the lookout for win-win opportunities to be kind and giving. Don’t always prioritize other people’s needs above your own; seek opportunities to help out where you can expect some reciprocity. Successful people tend to ask for what they want.
The Chinese use a “flower and sword metaphor” to illustrate the need to balance kindness with strength. For the most part, present the world a flower—a symbol of kindness and compassion. However, when people try to take advantage of your kindness, that is to say when they try to crush the flower, wield the sword—a sign of protection and strength. The sword exists to protect the flower.
Idea for Impact: Wise kindness entails judiciously subjugating some of your self-interests sometimes in aid of others’ welfares, while still having the courage to stand up your values when necessary. Be kind when you can, and tough when you must. Remember, a wise person’s own happiness matters as much to him or her as the happiness of others—no more and no less.
Agreeableness Can Go Too Far
Consider the case of Sherry, a discontented claims adjustor at an insurance firm. She is a star employee and an excellent team player. In a bid to be seen as obliging, Sherry always agrees to do everything she is asked to do by her supervisors and her colleagues. She ends up taking on a lot of extra work.
Sherry gets much praise for helping out as much as she can. However, she feels constantly overworked. This excessive dedication has left her with neither the time nor the energy for leisure or family. Her discontent materializes from the fact that her inability to say “no” is actually holding her back from some of her primary priorities.
Too Much Congeniality Can Be Counterproductive
We live in an era in which self-interest is contemptible. People who aren’t generous and altruistic are branded as uncaring and greedy—even evil. At work, one mark of a high-performing employee is the ability to bring discretionary effort at work. This implies willingly dedicating energy and attention beyond the basic requirements of the role. Employees who are agreeable and helpful are much favored to those who are not so obliging.
Nonetheless, as a whole, there are dangers of being too helpful in a workplace. Employees like Sherry frequently find themselves overloaded with tasks that aren’t really part of their responsibility, tasks that are difficult to execute well, and tasks that that others don’t want to undertake because they are uninteresting or low-status in the organization. These supplementary tasks may stop obliging employees from doing their own work to the expected standard. Eventually, they get branded with humdrum work and may even be overlooked for higher-status work assignments or for promotion to senior roles.
If you’re one of those employees who is accommodating or strives to be seen as such, curtail your impulse to say “yes” to whatever people ask you to do. Don’t change abruptly from being a friendly, accommodating employee into an obstinate, unhelpful person.
Be judicious in undertaking extra work if it is only desirable in light of your priorities and the personal image you want to sustain. If the prospective task conflicts with your priorities, you are within your rights to say “no” (see my previous article on nice ways to do so.)
Idea for Impact: There is a Limit to the Results Being Nice Will Get You
Addressing your own needs first is not only incredibly beneficial for your well-being, but also vital to your ability to care for others. Be prudent. Stand up for yourself. Be mindful of your priorities. Be attentive to your own needs. Practice saying “no.” Learn to be assertive.