Invest in sound decision-making

Kim Trout

Have you ever had an issue that required resolution through means of mediation, arbitration or litigation? Have you consulted a lawyer who said, “I think you have a good chance…”, and then wondered what “good chance” actually meant to you and what it meant to your lawyer?

Inevitably, some resort to guessing at critical junctures in the dispute resolution process, whether that be litigation, arbitration or mediation. A better way is to use Decision Tree Analysis, or DTA.

DTA cuts through the guesswork and helps us weigh the costs and benefits of any course of action.

As part of any early case evaluation, and certainly as a component of critical decisions regarding settlement, there is significant value in using DTA as part of your strategic evaluation process. After all, if your counsel isn’t providing you with a better tool than “I think you have a good chance,” then you may not understand the risks, exposures, and rewards that can lead to uniformed decision-making despite your best intentions.

DTA, as often used in the business world, is a tree-branch-shaped model of a decision and the uncertainties surrounding it. DTA will show the possible outcomes of each course of action. If used properly, it can help enormously as you evaluate the risks, benefits and costs of each outcome.

DTA requires that the client and lawyer each identify and evaluate potential outcomes and quantify them with likelihoods. It forces the decision maker and advisor to write the potential outcomes down for critical evaluation. This inevitably should lead to the question, “Is there anything we’ve missed?” or “How likely is this outcome?” This process eliminates the undisclosed disconnect from “I think you have a good chance” and replaces it with a meaningful evaluation of the probable outcomes. This evaluation is of inestimable value to both client and counsel.

Decision Tree Analysis can be broken down to four principal steps.

1) List the possible events that may occur in the dispute. In the legal field, this event might be a motion for summary judgment. In a business context, it might be the development or rollout of a new product.

2) Consider the economic costs and gains associated with each event.

3) Identify the likelihood of an event occurring.

4) Quantify the entire decision tree by simple math.

Here’s a simple example. This evening, while driving home on the freeway, you come upon a complete traffic stoppage. A sea of red brake lights is all you can see, and you’re close enough to an exit to get off the freeway.

Your goal is to get home fast. Do you get off or stay on? The two evaluations are:

1) How long will the freeway remain blocked (10, 20 or 120 minutes)?

2) How much slower will the non-freeway streets be due to others getting off the freeway?

A DTA will look something like this:

This simple comparative DTA identifies the possible events (clearing of the freeway) as compared with taking the exit and using either Franklin or Fairview to travel home. In this analysis, the probabilities provide a logical reason to take the exit and arrive home in an average of 36 minutes from the exit, versus 55 minutes on the freeway.

When using DTA in mediation or litigation the goal might be to maximize reward given a risks scenario. In modeling resolution, one is not modeling time, as in the brake lights example, but rather the net return (payoff less costs). In a dispute resolution model, one needs to take into consideration additional factors like length of time for resolution plus direct and indirect costs.

And the graphical display has another advantage: it helps people remember and digest information more efficiently. It’s been shown time and time again that we recall and use visual information far better than we recall information we’ve heard.

The graphical display also shows us a “big picture” roadmap of the path to conclusion, allowing us to evaluate the important events along the chosen route.

The DTA process often allows decision makers to identify and explore outcomes that were not previously considered. And it prompts valuable discussion between lawyer and client. This collaborative process rarely fails to yield significant benefits to the successful resolution of critical issues. The byproduct of this evolutionary process is the addition of both defensibility and transparency to the decision-making process from the view of the participants, particularly from the client’s point of view.

Anyone can do this – you simply have to learn the technique. Once you do, you’ll move quickly away from the old “I think your chances are good” discussion to a structured, analytical and substantive evaluation.

Kim J. Trout is a partner at Trout Jones Gledhill Fuhrman Gourley, P.A.  He specializes in guiding all levels of clients through their business ventures and litigation.  ktrout@idalaw.com

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