Reversibility Analysis

Overview

Systematic procedure for analyzing decision reversibility, option value, and optimal commitment timing

Steps

Step 1: Identify the commitment being made

Clarify exactly what you’re committing to:

1. State the decision clearly
2. Identify what resources are being committed (money, time, reputation)
3. Determine the duration of commitment
4. List what doors close once you commit
5. Identify what doors open once you commit

Step 2: Assess reversibility for each option

Evaluate how easy it is to undo each option:

1. For each option, imagine you chose it and later regretted it
2. What would it take to reverse or exit?
3. Estimate financial cost of reversal
4. Estimate time/effort cost of reversal
5. Assess relationship and reputation cost of reversal
6. Categorize on the reversibility spectrum

Step 3: Identify option value

Assess the value of flexibility in each option:

1. What future options does each choice preserve?
2. What future options does each choice eliminate?
3. How valuable is the preserved flexibility?
4. Is there a low-commitment option that preserves more flexibility?
5. Calculate option value where possible

Step 4: Analyze timing and information

Determine optimal timing for the decision:

1. What information might arrive if you wait?
2. How likely is that information to change your decision?
3. What is the cost of waiting (delay, lost opportunity)?
4. Are there deadlines or timing pressures?
5. Calculate value of waiting vs acting now

Step 5: Determine appropriate decision rigor

Calibrate analysis effort to reversibility:

1. Match analysis depth to irreversibility level
2. For two-way doors: determine minimum viable analysis
3. For one-way doors: identify required due diligence
4. Consider who else should be involved
5. Set appropriate timeline for deciding

Step 6: Design for reversibility

Look for ways to make the decision more reversible:

1. Can you pilot, prototype, or test before full commitment?
2. Can you build in checkpoints or gates?
3. Can you negotiate exit clauses or options?
4. Can you stage the commitment over time?
5. Can you reduce scope to reduce commitment?

Step 7: Make timing recommendation

Synthesize analysis into timing and approach recommendation:

1. Compare value of waiting vs cost of delay
2. Factor in option value of each alternative
3. Consider reversibility in risk assessment
4. Recommend: act now, wait for information, or pursue staged approach
5. If acting, specify appropriate decision rigor

When to Use

• Deciding how much analysis is warranted before committing
• Evaluating whether to act now or wait for more information
• Understanding the consequences of being wrong
• Designing projects with appropriate checkpoints
• Negotiating contracts and commitments
• Evaluating strategic options and flexibility
• Determining appropriate decision-making speed

Verification

• Each option assessed for reversibility with concrete reversal scenarios
• Switching costs estimated for all options
• Option value explicitly considered
• Timing analysis weighs information value against delay costs
• Decision rigor matched to reversibility level
• Design for reversibility options explored
• Clear recommendation with rationale

Input: $ARGUMENTS

Apply this procedure to the input provided.