Triage is a medical term for the process, in an emergency or disaster, of separating the injured into three groups: 1. The hopeless or those with a low probability of surviving, 2. those who will survive without immediate medical care, and 3. those who need immediate medical care to survive and who have a good chance of responding.
Given limited resources, the third group is the most important, the one that has the first call on resources. Note that as the situation evolves—as people respond to treatment or not, as more injured arrive, or as more help arrives—the lines between the groups may constantly change. Judgment calls must be made constantly with no guarantee that the evaluations are correct. There certainly exist guidelines but there are no-cut-and-dried formulas to remove the responsibility of decision. It takes a special person to be able to deal with such fluidity.
Triage is also used in the more general sense of any situation where scare resources must be allocated.
In business, senior management must allocate limited resources among many competing needs. Many projects are proposed but not all pass the “cost of capital” test. Investing at returns below your cost of funds is a surefire way to go broke. Plus projected returns are often just that, projections, while your cost of capital is frequently a fixed contractual obligation. Thus it is prudent to have an adequate safety margin of return ABOVE your cost of funds.
The Collier Companies manages 40+ apartment communities, 60% of them are core or wholly-owned without partners. We have a very limited amount of capital expenditure dollars annually to spread over all of them. One of the most challenging learning curves a new Senior Team Member must navigate is how to allocate the limited resource of CapEx efficiently and effectively across the entire portfolio. It is SO easy to camp out in one community or region and invest disproportionately.
While certainty it is an illusion in the real world, in theory you rank all the potential projects according to their return, the amount of impact they would have, the community’s NOI (net operating income), and on the global IRR (internal rate of return) of the company. You start at the top and you continue until you run out of money or until the project rate of return hits your cost of capital (plus a cushion).
Triage, allocating scare resources involves extreme multi-tasking plus the ability to rapidly switch from 50,000 feet to ground level and backagain over and over: grand vision to detail, strategy to tactics, numbers to people, theory to practice, board room to factory floor. Drives some peoplenuts, others thrive on it.