5 Steps That Will Ensure Your Organization Makes Good Decisions
By Steve Lindo
It’s the 11th hour for a high-stakes decision. All pertinent data, facts, and opinions have been gathered. All critical stakeholder groups have been consulted and are represented in the room. The yea-or-nay decision has been assigned to an executive with appropriate experience and seniority.
Your organization prides itself on its dynamic, adaptive, inclusive and diligent decision-making process. However, something in the back of your mind is uneasy. How can you be certain that the decision about to be made isn’t tainted by organizational influence; group-think; emotion, or other well-known cognitive biases?
Recently, several blue-chip firms including Boeing, BP, Volkswagen, and Wells Fargo made headlines and watched share prices tumble when they, and the markets, discovered that their high stakes decision-making processes were fatally flawed. The analysis revealed that the most common contributory factors to these bad decisions were: information overload; inconclusive data; conflicting expert opinions; organizational influence; blurred accountability; intense competitive pressure; and hubris. Two additional contributing factors were the relative infrequency of needing to make such high-stakes decisions and the long tail of their consequences. In each case, forensic investigations in the courts and the press revealed that these disastrous decisions could have been prevented had they been rigorously tested before execution.
Does the practice of rigorously testing high-stakes decisions exist? To date, the only organizations known to have learned from their costly mistakes are the US intelligence services. In the aftermath of 9/11, analysts are now required to test high-stakes decisions using long-established, field-tested Structured Analytic Techniques (SAT). The SAT toolkit is extensive and falls into three broad categories: Challenge, Imagination, and Diagnostic. All three groups are intended to help de-bias decisions and bring transparency to the decision-making process. However, in the commercial sector, the diagnostic technique which has the most power to test a high-stakes decision before it’s executed is the Key Assumptions Check.
At first glance, the Key Assumptions Check is a disarmingly simple concept: validate the level of confidence in each of the key assumptions which have to hold for the desired outcome to be highly probable.
In practice, the Key Assumptions Check is a series of 5 subtle and rigorous steps involving multiple stakeholders:
- Define the key question
- List all working assumptions
- Select and rate the key assumptions
- State the inferences revealed by the key assumption ratings
- Present your conclusions to the organization’s executive leaders
Another pre-requisite: establish the capability to conduct this process with the necessary rigor well in advance of when it’s needed, which typically occurs on short notice and under intense time-pressure.
With all of this in mind, how are you feeling about your organization’s decision-making process? No doubt many of you remain confident that your organization’s well-established culture, experience, technical expertise, and leadership talent can be relied upon to make good decisions 99.9% of the time, even under duress. If that’s the case, congratulations! Just remember that uncertainty and cognitive biases are two constants that always threaten good decisions. When the stakes and pressure are high, the validation provided by a rigorous Key Assumptions Check is a small price to pay for the increased certainty that either a decision is good, or it’s dangerously flawed and needs to be re-thought.
In conclusion I offer you a link to an article that uses the Key Assumptions Check to analyze Target Corporation’s disastrous foray into the Canadian retail market. I have a strong hunch that it will resonate with your own experience.
Steve Lindo is an Eleven Canterbury executive expert. He is an independent consultant with over 30 years’ experience in the field of risk management. He is Co-Principal of Intelligent Risk Management, LLC.