14 KiB
Chain Estimation → Decision → Storytelling Template
Workflow
Copy this checklist and track your progress:
Analysis Progress:
- [ ] Step 1: Gather inputs and define decision scope
- [ ] Step 2: Estimate costs, benefits, and probabilities
- [ ] Step 3: Calculate expected value and compare alternatives
- [ ] Step 4: Structure narrative with clear recommendation
- [ ] Step 5: Validate completeness with quality checklist
Step 1: Gather inputs and define decision scope
Clarify what decision needs to be made, identify 2-5 alternatives to compare, list key uncertainties (costs, benefits, probabilities), determine audience (executives, technical team, finance), and note constraints (budget, timeline, requirements). Use Quick Template structure below.
Step 2: Estimate costs, benefits, and probabilities
For each alternative, quantify all relevant costs (development, operation, opportunity cost), estimate benefits (revenue, savings, productivity gains), assign probabilities to scenarios (best/base/worst case), and use ranges rather than point estimates. See Estimation Guidelines for techniques.
Step 3: Calculate expected value and compare alternatives
Compute probability-weighted outcomes for each alternative, compare using appropriate decision criteria (NPV, IRR, payback, utility), identify which option has best risk-adjusted return, and test sensitivity to key assumptions. See Decision Analysis section.
Step 4: Structure narrative with clear recommendation
Follow storytelling framework: problem statement, alternatives considered, analysis summary, clear recommendation with reasoning, and next steps. Tailor level of detail to audience. See Narrative Structure for guidance.
Step 5: Validate completeness with quality checklist
Use Quality Checklist to verify: all alternatives considered, estimates are justified, probabilities are reasonable, expected value is calculated correctly, sensitivity analysis performed, narrative is clear and persuasive, assumptions stated explicitly.
Quick Template
Copy this structure to create your analysis:
# Decision: {Decision Question}
## 1. Decision Context
**What we're deciding:** {Clear statement of the choice}
**Why this matters:** {Business impact, urgency, strategic importance}
**Alternatives:**
1. {Option A}
2. {Option B}
3. {Option C}
**Key uncertainties:**
- {Variable 1}: {Range or distribution}
- {Variable 2}: {Range or distribution}
- {Variable 3}: {Range or distribution}
**Constraints:**
- Budget: {Available resources}
- Timeline: {Decision deadline, implementation timeline}
- Requirements: {Must-haves, non-negotiables}
**Audience:** {Who needs to approve this decision?}
---
## 2. Estimation
### Alternative 1: {Name}
**Costs:**
- Initial investment: ${Low}k - ${High}k (most likely: ${Base}k)
- Annual operational: ${Low}k - ${High}k per year
- Opportunity cost: {What we give up}
**Benefits:**
- Revenue impact: +${Low}k - ${High}k (most likely: ${Base}k)
- Cost savings: ${Low}k - ${High}k per year
- Strategic value: {Qualitative benefits}
**Probabilities:**
- Best case (30%): {Scenario description}
- Base case (50%): {Scenario description}
- Worst case (20%): {Scenario description}
**Key assumptions:**
- {Assumption 1}
- {Assumption 2}
- {Assumption 3}
### Alternative 2: {Name}
{Same structure}
### Alternative 3: {Name}
{Same structure}
---
## 3. Decision Analysis
### Expected Value Calculation
**Alternative 1: {Name}**
- Best case (30%): ${Amount} × 0.30 = ${Weighted}
- Base case (50%): ${Amount} × 0.50 = ${Weighted}
- Worst case (20%): ${Amount} × 0.20 = ${Weighted}
- **Expected value: ${Total}**
**Alternative 2: {Name}**
{Same calculation}
**Expected value: ${Total}**
**Alternative 3: {Name}**
{Same calculation}
**Expected value: ${Total}**
### Comparison
| Alternative | Expected Value | Risk Profile | Time to Value | Strategic Fit |
|-------------|----------------|--------------|---------------|---------------|
| {Alt 1} | ${EV} | {High/Med/Low} | {Timeline} | {Score/10} |
| {Alt 2} | ${EV} | {High/Med/Low} | {Timeline} | {Score/10} |
| {Alt 3} | ${EV} | {High/Med/Low} | {Timeline} | {Score/10} |
### Sensitivity Analysis
**What if {key variable} changes?**
- If {variable} is 20% higher: {Impact on decision}
- If {variable} is 20% lower: {Impact on decision}
**Most sensitive to:**
- {Variable 1}: {Explanation of impact}
- {Variable 2}: {Explanation of impact}
**Robustness check:**
- Conclusion holds if {conditions}
- Would change if {conditions}
---
## 4. Recommendation
**Recommended option: {Alternative X}**
**Reasoning:**
{1-2 paragraphs explaining why this is the best choice given the analysis}
**Key factors:**
- {Factor 1}: {Why it matters}
- {Factor 2}: {Why it matters}
- {Factor 3}: {Why it matters}
**Tradeoffs accepted:**
- We're accepting {downside} in exchange for {upside}
- We're prioritizing {value 1} over {value 2}
**Risks and mitigations:**
- **Risk**: {What could go wrong}
- **Mitigation**: {How we'll address it}
- **Risk**: {What could go wrong}
- **Mitigation**: {How we'll address it}
---
## 5. Next Steps
**If approved:**
1. {Immediate action 1} - {Owner} by {Date}
2. {Immediate action 2} - {Owner} by {Date}
3. {Immediate action 3} - {Owner} by {Date}
**Success metrics:**
- {Metric 1}: Target {value} by {date}
- {Metric 2}: Target {value} by {date}
- {Metric 3}: Target {value} by {date}
**Decision review:**
- Revisit this decision in {timeframe} to validate assumptions
- Key indicators to monitor: {metrics to track}
**What would change our mind:**
- If {condition}, we should reconsider
- If {condition}, we should accelerate
- If {condition}, we should pause
Estimation Guidelines
Cost Estimation
Categories to consider:
- One-time costs: Development, implementation, migration, training
- Recurring costs: Subscription fees, maintenance, support, infrastructure
- Hidden costs: Opportunity cost, technical debt, switching costs
- Risk costs: Probability-weighted downside scenarios
Estimation techniques:
- Analogous: Similar past projects (adjust for differences)
- Parametric: Cost per unit × quantity (e.g., $150k per engineer × 2 engineers)
- Bottom-up: Estimate components and sum
- Three-point: Best case, most likely, worst case → calculate expected value
Expressing uncertainty:
- Use ranges: $200k-$400k (not $300k)
- Assign probabilities: 60% likely $300k, 20% $200k, 20% $400k
- Show confidence: "High confidence" vs "Rough estimate"
Benefit Estimation
Categories to consider:
- Revenue impact: New revenue, increased conversion, higher retention
- Cost savings: Reduced operational costs, avoided hiring, infrastructure savings
- Productivity gains: Time saved × value of time
- Risk reduction: Probability of bad outcome × cost of bad outcome
- Strategic value: Market positioning, competitive advantage, optionality
Quantification approaches:
- Direct measurement: Historical data, benchmarks, experiments
- Proxy metrics: Leading indicators that correlate with value
- Scenario modeling: Best/base/worst case with probabilities
- Comparable analysis: Similar initiatives at comparable companies
Probability Assignment
How to assign probabilities:
- Base rates: Start with historical frequency (e.g., 70% of projects finish on time)
- Adjustments: Modify for specific circumstances (this project is simpler/more complex)
- Expert judgment: Multiple estimates, average or calibrated
- Reference class forecasting: Look at similar situations
Common probability pitfalls:
- Overconfidence: Ranges too narrow, probabilities too extreme (5% or 95%)
- Anchoring: First number becomes reference even if wrong
- Optimism bias: Best case feels more likely than it is
- Planning fallacy: Underestimating time and cost
Calibration check:
- If you say 70% confident, are you right 70% of the time?
- Test with past predictions if available
- Use wider ranges for higher uncertainty
Decision Analysis
Expected Value Calculation
Formula:
Expected Value = Σ (Outcome × Probability)
Example:
- Best case: $500k × 30% = $150k
- Base case: $300k × 50% = $150k
- Worst case: $100k × 20% = $20k
- Expected value = $150k + $150k + $20k = $320k
Multi-year NPV:
NPV = Σ (Cash Flow_t / (1 + discount_rate)^t)
When to use:
- Expected value: When outcomes are roughly linear with value (money, time)
- Decision trees: When sequence of choices matters
- Monte Carlo: When multiple uncertainties interact
- Scoring/weighting: When mix of quantitative and qualitative factors
Comparison Methods
1. Expected Value Ranking
- Calculate EV for each alternative
- Rank by highest expected value
- Best for: Decisions with quantifiable outcomes
2. NPV Comparison
- Discount future cash flows to present value
- Compare NPV across alternatives
- Best for: Multi-year investments
3. Payback Period
- Time to recover initial investment
- Consider in addition to NPV (not instead of)
- Best for: When liquidity or fast ROI matters
4. Weighted Scoring
- Score each alternative on multiple criteria (1-10)
- Multiply by importance weight
- Sum weighted scores
- Best for: Mix of quantitative and qualitative factors
Sensitivity Analysis
One-way sensitivity:
- Vary one input at a time (e.g., cost ±20%)
- Check if conclusion changes
- Identify which inputs matter most
Tornado diagram:
- Show impact of each variable on outcome
- Order by magnitude of impact
- Focus on top 2-3 drivers
Scenario analysis:
- Define coherent scenarios (pessimistic, base, optimistic)
- Calculate outcome for each complete scenario
- Assign probabilities to scenarios
Break-even analysis:
- At what value of {key variable} does decision change?
- Provides threshold for monitoring
Narrative Structure
Executive Summary (for executives)
Format:
- The decision (1 sentence): What we're choosing between
- The recommendation (1 sentence): What we should do
- The reasoning (2-3 bullets): Key factors driving recommendation
- The ask (1 sentence): What approval or resources needed
- The timeline (1 sentence): When this happens
Length: 4-6 sentences, fits in one paragraph
Example:
"We evaluated building custom analytics vs. buying a SaaS tool. Recommendation: Buy the SaaS solution. Key factors: (1) $130k lower expected cost due to build risk, (2) 6 months faster time-to-value, (3) proven reliability vs. custom development uncertainty. Requesting $20k implementation budget and $120k annual subscription approval. Implementation begins next month with value delivery in 8 weeks."
Detailed Analysis (for stakeholders)
Structure:
- Problem statement: Why this decision matters (1 paragraph)
- Alternatives considered: Show you did the work (bullets)
- Analysis approach: Methodology and assumptions (1 paragraph)
- Key findings: Numbers, comparison, sensitivity (1-2 paragraphs)
- Recommendation: Clear choice with reasoning (1-2 paragraphs)
- Risks and mitigations: What could go wrong (bullets)
- Next steps: Implementation plan (bullets)
Length: 1-2 pages
Tone: Professional, balanced, transparent about tradeoffs
Technical Deep-Dive (for technical teams)
Additional detail:
- Estimation methodology and data sources
- Sensitivity analysis details
- Technical assumptions and constraints
- Implementation considerations
- Alternative approaches considered and why rejected
Length: 2-4 pages
Tone: Analytical, rigorous, shows technical depth
Quality Checklist
Before finalizing, verify:
Estimation quality:
- All relevant costs included (one-time, recurring, opportunity, risk)
- All relevant benefits quantified or described
- Uncertainty expressed with ranges or probabilities
- Assumptions stated explicitly with justification
- Sources cited for estimates where applicable
Decision analysis quality:
- Expected value calculated correctly (probability × outcome)
- All alternatives compared fairly
- Sensitivity analysis performed on key variables
- Robustness tested (does conclusion hold across reasonable ranges?)
- Dominant option identified with clear rationale
Narrative quality:
- Clear recommendation stated upfront
- Problem statement explains why decision matters
- Alternatives shown (proves due diligence)
- Analysis summary appropriate for audience
- Tradeoffs acknowledged honestly
- Risks and mitigations addressed
- Next steps are actionable
Communication quality:
- Tailored to audience (exec vs technical vs finance)
- Jargon explained or avoided
- Key numbers highlighted
- Visual aids used where helpful (tables, charts)
- Length appropriate (not too long or too short)
Integrity checks:
- No cherry-picking of favorable data
- Downside scenarios included, not just upside
- Probabilities are calibrated (not overconfident)
- "What would change my mind" conditions stated
- Limitations and uncertainties acknowledged
Common Decision Types
Build vs Buy
- Estimate: Dev cost, maintenance, SaaS fees, implementation
- Decision: 3-5 year TCO with risk adjustment
- Story: Control vs. cost, speed vs. customization
Market Entry
- Estimate: TAM/SAM/SOM, CAC, LTV, time to profitability
- Decision: NPV with market uncertainty scenarios
- Story: Growth opportunity vs. execution risk
Hiring
- Estimate: Comp, recruiting, ramp time, productivity impact
- Decision: Cost per output vs. alternatives
- Story: Capacity constraints vs. efficiency gains
Technology Migration
- Estimate: Migration cost, operational savings, risk reduction
- Decision: Multi-year TCO plus risk-adjusted benefits
- Story: Short-term pain for long-term gain
Resource Allocation
- Estimate: Cost per initiative, expected impact
- Decision: Portfolio optimization or impact/effort ranking
- Story: Given constraints, maximize expected value