How Mutually Exclusive Choices Affect Your Business

mutually exclusive choices in business

 

If you’ve ever been a manager or started your own company, you likely had to search and hire employees for your organization. It happens often that at the end of the process you’re sat looking at two candidates’ applications. Both are different, but both with potential. Perhaps one of them is a bit green and needs some training but shows incredible room for development. The other might have the right training already, but the culture fit aspect might not be as good as you’d like. You can’t hire both – you need to make a choice. What you’re dealing with is a mutually exclusive decision. 

This concept of mutually exclusive can be carried over into the world of business as well. The added factor, however, is how each option can bring with it a potential loss of income or capital. In other words, there’s an opportunity cost that comes into play. As a business owner, you might have to choose between a social media campaign and a print campaign based on your available manpower. The choice you make will be directly related to the cost you must give up when pursuing one option over the other. 

 

What Is Mutually Exclusive?

The concept of mutually exclusive is applicable to much more than just workplace decisions, and understanding what it is and how it works is the first step to applying it. Essentially, something that’s mutually exclusive means that it can’t be two things at once. 

In the example above it would be that you can’t hire both candidates if you only have one position open. Choosing one of them means the other one won’t move forward in the process. Another common way of explaining the concept of mutually exclusive is via the coin example. Say you’re making an important choice where you only have two options available. It’s either one option or the other, this or that, him or her. In the case of the coin you have only heads or tails – but never both. 

Mutually Exclusive VS Independent Choices

While mutually exclusive choices mean you can’t choose two of the same outcomes at once, there is another type of decision-making available in business. These are called independent choices. 

If mutually exclusive means two outcomes can’t happen at the same time, then independent solutions mean the opposite. More than one option can happen simultaneously as long as each is independent of the other. Basically, the probability of one outcome happening doesn’t influence the probability of the other outcome taking place.

Examples of Mutually Exclusive Business Events

Now that you understand what mutually exclusive means as a concept, it might be helpful to see it in practice. Below are three examples of how these types of decisions can be seen within a company.

  • Investing: Because of certain restrictions such as time or funds, if investing is part of your business, you might have to limit your choices. There might be an excellent opportunity to take advantage of, but the timeline for the return on investment might be longer than what’s required. This means you can’t take this opportunity, and also have the profits within your needed date range. 
  • Budgeting: With a limited amount of money to use, and several places it needs to be given to, budgeting is an excellent example of mutually exclusive choices. If you give 35% to Marketing, then you can’t give 100% to Purchasing.  
  • Hiring: Taking from the example we discussed at the beginning of the article, we can see mutually exclusive decisions show up during hiring. Only one position open means choosing one candidate automatically closes the option for the second one. One option can’t happen if the other is selected first.  

 

Probability Calculations

There are plenty of variables when it comes to mutually exclusive events. However, there are still some standardized probability rules that are useful in these types of decision-making situations. We collected two of them you can use next time you’re making a mutually exclusive choice.

First off is the rule of multiplication. Essentially, when looking at a mutually exclusive event, the probability of both options happening is zero:

P(A and B) = O

The second is the rule of addition. Similar concept, different point of view:

P(A and B) = P(A) + P(B)

The chances of option A happening at the same time as option B is the same as the solution to the rule of multiplication – zero.

Understanding the equations above will help you when choosing which outcome is better for your company financially. 

 

Related Readings

Professional Leadership Institute (PLI) is an educational website providing professionals from all types of businesses with practical education in entrepreneurial leadership. To keep evolving your leadership toolkit, additional PLI resources below will be useful:

 

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