Training objective
The objective of this practical and simplified mini-training video is to give you an understanding of the nine elements for making intelligent decisions.
What you’ll learn
Strategies for making fast and frugal decisions and the nine elements for making intelligent decisions.
Decisions made under uncertainty can only be judged by the speed and quality of the decisions, not by the quality of the consequences after the outcome of the decision becomes known.
Transcript
[Slide 3] Making fast and frugal decisions for better outcomes
Wouldn’t it be great if you can take all the time you need to gather and fully analyze all available information and make an ideal decision with a guaranteed future outcome?
With time and cost pressures, limited information, and future uncertainties, there is no practical way for all information related to any decision, probabilities, consequences, and alternatives will ever be known when analyzing, evaluating, and deciding. There will always be gaps and limitations inherent in our decisions.
With increasing uncertainties, no one can confidently guarantee or predict the future with any accuracy after decisions have been made.
Even if you wanted to acquire 100% of the information before deciding, you cannot be 100% certain that you will have all the relevant information to start with.
You also cannot be 100% confident of the accuracy or completeness of your analysis or computation even if you had all the information to decide.
At best, you may only have 80% certainty as to the accuracy and completeness of the information and analysis if we use the Pareto Principle.
Having more information, time, and computation is not always better, especially if you need to decide under pressure using limited cues and information. With uncertainties and inherent gaps and limitations in our decisions, you have no choice but to make fast and frugal decisions based on rules of thumb instead.
As not all decisions are created equal, organizations must treat different types of decisions differently.
Jeff Bezos of Amazon considers 70% certainty to be the cut-off point where it is appropriate to decide. That means acting once you have 70% of the required information, instead of waiting longer. Deciding at 70% certainty and then course-correcting is a lot more effective than waiting for 90% certainty and losing the opportunity.
In his 1997 letter to Amazon’s shareholders, Jeff Bezos also said that one common pitfall that hurts organizations, and their speed and inventiveness is “one-size-fits-all” decision making.
While there are some consequential and irreversible decisions, most decisions are changeable and reversible. You can reopen the door and go back through again.
If a decision is reversible, you can make it fast and without perfect information. Take risks and stop viewing mistakes or small failures as disastrous. View them as information that informs future decisions or improvements.
These decisions can and should be made quickly by individuals or small groups who are empowered to make decisions and learn quickly from their mistakes. Fully empowered employees can make good decisions and resolve problems.
If a decision is irreversible, you had better slow down the decision-making process. Ensure that you take time to consider the best available information and understand the problem as thoroughly as you can. These could be big-bet decisions with major consequences for the organization, often involving situations with unclear right or wrong choices. However, this should be an exception rather than the rule as the number of irreversible decisions is very small.
According to McKinsey’s research, organizations that make decisions quickly are twice as likely to make high-quality decisions, compared with slow decision-makers. The quality and speed of decision-making are both strongly associated with overall organizational performance. The same is true of speed where faster decision-making processes and faster execution of decisions both link to higher returns for the organization.
This brings us to the next important point.
You can control your decisions at the time when they are being made, but you cannot control the consequences after the outcome of these decisions become known. Because you cannot predict or control the future, everything will look obvious when you know the answer from hindsight.
When making decisions under uncertainty with time, cost, and quality pressures, your decision strategy and process must be simple. Focus only on a handful of key criteria that will make a difference using the 20-80 rule. Ignore most predictors. Seek yes or no answers to three key questions.
Asking at most three yes or no questions is a fast and frugal decision-making strategy for deciding under uncertainty and gaining the best outcome.
It’s fast because it does not involve much computation or over-complicated analysis.
And it’s frugal because it only searches for and uses some of the best available information.
Finally, get the broadest range of inputs possible. You cannot make decisions alone and will not know everything.
Therefore, you need people around you with the broadest range of experiences and knowledge possible, so that your blind spots are covered. Hire people who are not like you. Embrace differing opinions. Celebrate diversity.
[Slide 4] The modified PrOACT decision-making framework
The good news is that you can control your decision-making process and learn to make better-informed decisions in the future using established frameworks.
One such decision-making framework is outlined in the book, Smart Choices, which has been enhanced for our purposes. It is one of the best structured but simple frameworks for making smart choices.
The five key elements are represented by the PrOACT mnemonic.
Pr stands for Problem statement
O stands for Objectives
A stands for Alternatives
C stands for Consequences
T stands for Trade-offs
Let us go over each of the five elements.
First, find the right problem to start with. This element seeks answers to the question, “What am I deciding and why?”
The first step is always to define exactly what the problem or opportunity is that requires you to decide and to determine who needs to be involved. This is your decision context.
In doing so, ask yourself these questions:
1. What is the problem?
2. How big is the problem?
3. Why and when does this problem need to be addressed?
4. What kind of decision does this problem require?
5. What are the key assumptions and constraints?
6. Who needs to be involved and how?
Second, identify your real objectives in solving the problem. This element seeks answers to the question, “What outcome am I seeking to achieve?”
Specifying your objectives help you to:
1. Focus and prioritize information and actions; and
2. Make opportunities, risks, and uncertainties of each alternative or solution both explicit and comparable.
Objectives define what matters to you in this decision. They are the foundation of your search for creative solutions. Measures describe the degree to which each alternative meets your objectives.
Third, create a range of alternatives tailored to solving your problem and align them with your objectives. This element seeks answers to the question, “What can I do?”
Well-informed decisions are not possible without good alternatives. Identify your alternatives to address what matters to you, as defined by your objectives. Your alternatives should reflect substantially different approaches to the problem and present you with realistic options when deciding.
Four, understand the consequences each alternative would have for each of your objectives. This element seeks answers to the question, “What do I know?”
Every alternative can create its own set of consequences. A consequence table is a useful way to summarize the essential elements of the decision problem, including levels of uncertainty and opportunities about predicted future consequences.
The table makes it easier to compare alternatives, narrow your objectives to those where critical trade-offs lie, and make an informed decision once you have received general agreement from everyone impacted by your decision.
Five, make trade-offs among conflicting objectives. This element seeks answers to the question, “What will I do?”
Trade-offs are difficult but are necessary or may be unavoidable. Structured decision-making requires you to make explicit choices or prioritization about which alternative is best.
Consider each trade-off carefully. Compare what will be gained or lost by each alternative with the help of a ranking table. Decide, act, and move on.
If you are not ready to decide, return to the previous steps to further review and refine your problem definition, objectives, alternatives, or consequences.
Finally, review your problem definition, stated objectives, available alternatives. and consequences. This element seeks answers to the question, “How am I doing?”
At any stage of the decision-making process, you may need to check, recap, or reconsider your problem definition, objectives, alternatives, and consequences.
Be willing to stop, reassess, and reformulate your actions and plans. If you are not satisfied with the preferred choice and ranking, then you need to reconsider and review whether you have captured your decision problem adequately. The omission of an important objective can lead to an unsatisfactory result.
[Slide 5] Remaining URL elements of the modified framework
The remaining three elements help clarify your decisions in volatile or evolving environments. The elements are uncertainty, risk tolerance, and linked decisions.
Some decisions won’t involve these three additional elements, but many of your most important decisions will as you are living in uncertain and challenging times.
First, identify any uncertainties impacting your decision. Then, identify, assess, and manage the positive or negative effects of these uncertainties on the achievement of your objectives. This additional element seeks answers to the question, “What uncertainties, risks, and opportunities impact my decision or objectives?”
Where appropriate, use the ISO 31000 risk management process to identify, assess, evaluate, and treat your risk.
In this international standard, risk is defined as the effect of uncertainty on the achievement of your objectives. It helps you succeed by making intelligent decisions under uncertainty.
Second, take account of your risk-taking attitude. This additional element seeks answers to the question, “What is my tolerance for risk-taking?”
Conscious awareness of your willingness to accept or tolerate risk will make your decision-making smoother and more effective. It will help you choose an alternative with the right level of risk that is suitable for you. Given the same uncertainties, different people would prefer different outcomes.
Third, plan for linked decisions over time. This additional element seeks answers to the question, “How this decision can impact my future decisions?”
Understanding how decisions are linked combined with a little foresight will help you make better choices.
The essence of making smart linked decisions is planning. Think ahead and work backward in time until you reach the individual alternatives for the basic decision. Many decisions will require you to select at the time of making the decision alternatives that may greatly influence your decisions in the future.