Home > Risk > Good decisions take time and more

Good decisions take time and more

I have just started Problem, Risk, and Opportunity Enterprise Management by Brian Hagen. (Thanks to Jay Taylor for sharing the good news about the book.)

I have already highlighted some nuggets of wisdom:

  • As Peter Drucker made clear in the 1950’s, “Whatever a manager does, he does through making decisions.” Decision making is the headwaters from which all value creation and protection flow.
  • For the highly complex and impactful decisions faced by corporations, there are good, proven decision analytical methods available: decision analysis, Monte Carlo methods, game theory, and real options. But those methods require experienced experts and significant time and effort to apply. As a result, these methods are consigned to the most complex situations and are not used for generalized decision making. Moreover, decisions have a shelf life. Delaying a decision can be beneficial or deleterious, but usually time is working against you as options begin to dissipate or the situation is redefined by events. Opportunities can become risks, and risks can become costly problems. Decision timeliness matters.
  • Every day, managers at every level within an organization are faced with the challenging question of how to allocate scarce organizational resources against a myriad of competing and usually worthwhile objectives. Of course, answering the question requires a method for sorting through, in an objective and practical manner, all the competing proposals as well as being able to demonstrate that some are better than others in allocating limited organizational resources.
  • A recent study of 500 managers and executives showed that “98% failed to apply best practices when making decisions[1].”

Let me repeat and stress some of those key points.

  • Decision making is the headwaters from which all value creation and protection flow.
  • …good, proven decision analytical methods… require experienced experts and significant time and effort…[and] are consigned to the most complex situations and are not used for generalized decision making.
  • Delaying a decision can be beneficial or deleterious, but usually time is working against you as options begin to dissipate or the situation is redefined by events. Opportunities can become risks, and risks can become costly problems. Decision timeliness matters.
  • Every day, managers at every level within an organization are faced with the challenging question of how to allocate scarce organizational resources against a myriad of competing and usually worthwhile objectives.
  • …answering the question requires a method for sorting through, in an objective and practical manner, all the competing proposals as well as being able to demonstrate that some are better than others in allocating limited organizational resources.
  • 98% [of managers and executives] failed to apply best practices when making decisions.

Achieving success and objectives requires informed and intelligent decisions.

Those decisions are where risk is taken or addressed.

Those decisions are being taken every day across the extended enterprise – not just at periodic executive and board meetings.

A poor decision by a middle manager can have devastating effects on enterprise performance. As I said in World Class Risk Management and Risk Management in Plain English, you can trace the roots of calamities such as the BP Deep Water Horizon spill to poor decisions made below executive levels.

Taking the time to gather information (that is trusted, complete, and up-to-date) and involve the right people is essential to making informed and intelligent decisions. Yet, the great majority of decisions are made quickly and without a great deal of thought.

That may be OK, if the consequences of those poor decisions are inconsequential – but so many are not.

 

Now let’s turn to one of my heroes, Tom Peters.

He recently shared this:

Tom Peters and Tim

I think Tom is, again, right on the money.

Decisions that can affect enterprise objectives should take time.

 

What do you think?

Do risk, governance, and audit practitioners consider the problem of decisions where insufficient time was taken to obtain the necessary information, consult with all affected parties, and THINK about the options?

 

 

[1] E. Larson, “Don’t fail at decision making like 98% of managers do,” Forbes, May 2017

Advertisements
  1. Marshall Kern
    August 26, 2018 at 10:44 AM

    Thank you for the clarity this post brings to making good decisions. I’ll be referencing this post when teaching my decision-making course. My undergraduate students tend to get so wrapped up in analysis that they forget the need to make a decision — classic paralysis by analysis. They also use the most recent tool they learnt; so every situation gets the most recently learnt analysis and not the optimum analysis.

  2. August 26, 2018 at 11:48 AM

    Norman, a very relevant post. Some years ago I write a website (www.managing-information.org.uk) looking at decision-making as the result of receiving information. The site probably needs updating but it’s still relevant.
    I’m now writing a website to provide ideas on the specification, choice and implementation of computer systems. This is based round the objectives of the users and the decisions they have to make to achieve those objectives.

  3. August 27, 2018 at 2:52 AM

    Norman – thank you for a thought provoking post which clearly shows the trade-off balance between fast and thorough decision planning.

    For decisions which are expected to have long time and significant impact on company performance – please “do your homework” and spend the time/resources to provide adequate analytics as to what decision to make … and how to implement this. The latter is important as even a bad (as conditions change) strategy can be successful if/when the organisation is able to adjust the strategic approach as conditions change, whereas even the best strategy may fail if the implementation process is 100% rigid and cannot meet changed conditions.

    The problem with such strategic decisions is, they are often made by a team of executives, each with their own (political) agenda which, in the worst case, is focused on their own personal success and power/position rather than, what is best for the company. Some decisions may even be almost known ineffective, but it is the (e.g.) CCO’s “turn” to “have it his way” if the team is to function as a team – so let us do it anyway. The worse the executives, the less likely they are to have their decision process hampered/altered by some employee specialist, who indirectly challenge my competency as decision maker … and the calamity is at hand.

    On the term “anyway”. In company I worked with, it was s standing joke, that “every time an executive said anyway, it would cost the company 10 million dollars”.

    However, for other (i.e. most) decisions, time if of the essence, and here you have to rely on the experience and insight of qualified people and do not have the option of analytics. Here you rely on their “gut feeling” which is the way we “see” the consolidation of experience and insight in our brain in terms of it feels right/wrong.

    The trick is to strike the right balance – but, and this is where effective risk management comes in – the faster/easier/better the specialists can make a valid analysis – the more decisions can be based on firmer ground. Furthermore, as a cultural element, if (all) managers are accustomed to consider three simple questions, even fast decisions can be more intelligent risk taking. The questions being based on what I am about to decide
    1) what can happen?
    2) How important is that?
    3) What do I do about that?
    … plus potentially the same questions if I reverse my decision. Given experience, this is a five-minute exercise.

    • Norman Marks
      August 27, 2018 at 6:41 AM

      Brilliant comment, Hans. I believe that rather than rely on the specialist, every manager should be trained in decision making, including cognitive bias and so on. There are too many decisions and they have to be made quickly

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: