Home > Risk > What makes for effective decision-making?

What makes for effective decision-making?

I was talking with a friend about decision-making and decided to put together a list of principles for effective decision-making. This is my first shot. What do you think? What would you change?

  1. Effective decisions require that the right people are making them at the right time.
  2. It is imperative that the decision-makers understand the nature of the problem, why a decision is required, and what they are trying to achieve
  3. The decision-makers need reliable, complete and accurate, current, and timely information.
  4. Everybody whose information and insight into the situation and the effects of a decision should participate. The level of each individual’s participation may vary depending on such factors as how much they will be affected, the information and insight they offer, and so on.
  5. The alternatives should be identified and their potential effects on success understood.
  6. Consideration should be given to both the potential for harm and the opportunity for reward, recognizing that there may be both multiple ‘risks’ and multiple ‘opportunities’, with reliable analysis that weighs all the pros and cons in a disciplined manner.
  7. The depth of analysis and the time taken will vary depending on factors such as the urgency of the situation, the magnitude of the potential effects (both positive and negative), the authority of the decision-maker, and the complexity of the situation.
  8. Decision-makers and their advisors need to understand and allow for their cognitive and other biases that may influence their decisions.
  9. The effectiveness of a decision depends on a common and clear understanding of the decision and required actions, together with timely and clear communications.
  10. The effectiveness of a decision should generally be monitored and adjustments made as necessary.
  11. The authority to make decisions should be determined by senior management with the approval of the governing body.
  12. The governing body should be assured that the more significant decisions that will affect the overall success of the organization are made consistent with these principles.

I don’t want to have so many principles that they become impractical. While there is probably more to say, I think 12 should be a good number.

What do you think?

If you like these (perhaps with some change), what should this mean for:

  • Boards?
  • Executives?
  • Other decision-makers?
  • Risk practitioners?
  • Internal auditors?

I welcome your thoughts.

  1. msfedorov
    April 9, 2020 at 10:11 AM

    The approach is usually called Decision Quality and there is a number of sources on that. For example, Decision Quality by Carl Spetzler or Smart Organization by David Matheson.

    • Norman Marks
      April 9, 2020 at 10:14 AM

      Yes, there are multiple books and reference materials around Decision Science. I am looking here to distill some of that to a few principles.

      You and probably many others have worked in this area for longer and deeper than I. So what do you think of my list?

  2. April 9, 2020 at 11:07 AM

    I think that’s a good list and a handy framework. Helping evaluate an organization’s decision making process is an innovative audit topic. I think there is worthwhile research in a couple of intelligence related sources, for terminology as well as concepts and tools:

    “Psychology of Intelligence Analysis” (Heuer; free PDF available on CIA website) and “Structured Analytical Techniques for Intelligence Analysis” by Heuer and Pherson.

    Some of their thoughts:

    1. Scenarios – lay out the future vision under the alternative scenarios considered. Think of a chain of impact, like you do when evaluating a chess move.
    2. Visualize the pros, cons and tradeoffs, as tough for short-term memory to weigh them.
    3. Contrarian or challenge analysis – make the opposing argument. Experts are not always the best to spot an inflection point.
    4. Host sessions to generate ideas, the famous “lock the smart people in a room” until they come up with options (e.g., Cuban Missile Crisis response might have been positioned as binary invade vs. appease, versus third option of quarantine). Since we’re stuck at home, watch “Thirteen Days” about the crisis; entertaining and inspirational about this topic.

    #3 in your initial list: “current” and “timely” information mean the same thing to me.
    #4 Everybody who has (not whose)

    • Norman Marks
      April 9, 2020 at 11:12 AM

      Yes, there is a lot of work done on this but I haven’t yet seen a list of principles like this. There are also different ideas, with similar points and ideas, on a decision-making process.

      One of the reasons I developed this is in #12 and in my questions.

      Organizations tend to succeed or fail as a result of their decisions. So how does the CEO, or the board, know whether people are making good decisions? I suspect they just trust the people involved. Is that ok?

  3. Quinton van Eeden
    April 9, 2020 at 10:42 PM

    As above, I think the DQ framework provides a comprehensive/usable set of questions –

    1. Are we addressing the right problem?
    2. Do we have a good list of alternatives?
    3. Does our decision fit our values and objectives?
    4. Are the inputs into our decision analysis representative?
    5. Is the analysis logical and reasonable?
    6. Are the right people involved to execute the decision?

    IMO questions such as those above and the principles set out by yourself, are means objectives to achieve the primary objective for decision/risk analysis – Decision Quality

  4. April 10, 2020 at 10:01 AM

    What should these principles mean for internal auditors? Every audit plan should include obtaining assurance that:
    The principles have been communicated to all decision makers, including training.
    Decision makers understand their responsibilities (#11)
    Decision makers have clear objectives (#2).
    The principles have been followed.
    Information is available to make decisions (#3)
    The effect of the decisions is being monitored (#10) and learnings fed back as appropriate.

    Internal audit should state an opinion on whether the objectives in the area being audited have been/are being/are likely to be met based in part on the effective implementation of these principles.

    • Norman Marks
      April 10, 2020 at 10:08 AM

      Thank you. Do you believe IA should say anything about whether the right people are making decisions and whether they are involving others as needed. How about whether they are considering all the options and weighing their consequences?

      Should we provide positive assurance or just point out areas for improvement?

      • April 10, 2020 at 11:47 AM

        I’ve included the ‘right people making decisions’ etc under ‘The principles have been followed’ .I specified the other principles because they seem to need highlighting.

        The opinion will state whether objectives are being met. Only if they are not likely to be met will reasons be given. I believe an audit report should state an opinion (see Book 4 – Audit manual on http://www.internalaudit.biz) not provide a list of what is not working., or ‘The controls are/are not satisfactory’.

  5. Elliot Schreiber
    April 10, 2020 at 6:27 PM

    Always enjoy your posts, Norman. For Boards, governance is not about compliance, but rather about good decision making. The Duty of Care responsibility of Directors stipulates that each Director has assured him/herself that that have considered all appropriate information in reaching a decision. You have provided a more granular look at what decision-making entails.

    • Norman Marks
      April 10, 2020 at 6:35 PM

      Thank you

  6. April 14, 2020 at 3:01 AM

    You mention “bias” but would also be great to consider whether there is “diversity of thought” in the room during decision making.

    Also – where there isn’t complete information in an area (especially for opportunities or where decisions are needed before things are certain) a clear view on the acceptable tolerances for the areas being decided. Its covered in a few of your bullets but maybe making it explicit?

  7. Marinus de Pooter
    April 17, 2020 at 8:15 AM

    Great list, Norman. Thanks for sharing.

    An relevant criterion is that the decision-makers in question are adequately knowledgeable, competent and experienced.

    However, that doesn’t suffice. Choosing implies making trade-offs. That is always a matter of balancing interests of stakeholders. Solving dilemmas, allocating scarce resources and gaining acceptance require, more than anything, people who are honest and righteous.

    An essential principle for effective decision-making is that the ones calling the shots have suitable characters, personalities and mentalities.

  1. April 12, 2020 at 5:20 AM

Leave a Reply to msfedorov Cancel 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: