HUMBLE DECISIONS FOR UNCERTAIN TIMES

FMI PD WORKSHOP

Hana Carbert, CMA, FCMA

Decisions, decisions

What decisions do you make? Past decisions Future decisions

Business or personal

Successful or not

Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk3. Managing risks

Decision Process: this?

Decision Process: or this?

Decision 1:

Decision 2:

Problem-Solving Steps

Recognize Problem Define Alternative Courses Evaluate Alternatives and Decide Implement Decision and Monitor

What is the problem with this? Anything missing? What is assumed?

The rational model

“Evidence-based decision making” Good – if we have the right evidence and

know how to use it Assumes decision maker wants to be

rational Assumes clear/single criteria Assumes relative certainty of outcomes

BUT…

Clear goal? Clear decision

criteria?

List goals and criteria for your decisions

Exercise

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Types of Decisions

Programmed Experience Routine Information Decision-rules

exist

Non-programmed Poorly defined Unique situation Often combined

with lack of information and uncertainty or risk

Categorize your decisions: programmed or not?

Exercise

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Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk3. Managing 4. risks

What causes uncertainty?

Environment of uncertainty

Risk regarding decision environment Economic risk: e.g. growth, commodity

prices, deflation/inflation; interest rates Leadership direction Weather & Nature Technology Human behaviour

Lack of information or poor information Validity of assumptions Ambiguity of goals and criteria

List uncertainties related to the decisions

Exercise

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Four ways of knowing

We know what we know We know what we don’t know We don’t know what we know We don’t know what we don’t know

What are the (known) unknowns of the decisions?

Exercise

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Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk3. Managing risks

Critical thinking

What forms our assumptions and experience?

Discussion

How can you reduce ‘what you do not know’?

Reducing what we don’t know

Edward de Bono: Six Thinking Hats Defined but separate focus of team

members Diverse teams: backgrounds, training,

types Critical thinking: questioning

assumptions, explicit reasoning Culture People awareness

How does your mind work?

How do you gather information? Sensing vs.

Intuitive How do you

evaluate information and make decisions? Thinking vs.

Feeling

Information Processing

What is YOUR Cognitive Style (Jung/Slocum)?

Sensing Thinker

Intuitive Thinker

SensingFeeler

Intuitive Feeler

Discussion:

Relate Jung’s/Slocum’s framework to decisions made Do you recognize people you know? What does new insight suggest for future approaches?

Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk1. Adapt process steps2. Select decision model3. Communicate goals, criteria and risks

3. Managing risks

How does this Doctor decide?

Humble decisions (Etzioni)

Focused trial and error Tentativeness Procrastination Decision-staggering

More humble decision tactics.. Fractionalization Hedging bets Maintaining reserves Reversible decisions

Reversible decisions

Final sale?

List ways the humble tactics could have been used

Exercise

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BUT…..

Clear objective/goal?

Clear decision-criteria?

Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk1. Adapt process steps2. Be aware of decision model3. Communicate goals, criteria and risks

3. Reducing risks

Decision Models (Harrison)

Rational Organizational Political Process

Rational Model

Seeks perfection/optimization - a decision-making prescription

Requires (almost perfect) information Requires clear decision

objectives/criteria - shared by all Uses MS tools such as decision-trees,

CPM, etc. Problems?

Rational model

“Illusion of precision”

Organizational Model

Challenges assumption of perfect information

Recognizes limitations of decision-makers

Seeks rational, rather than perfect, decisions

Quick, satisfactory decisions

Political Model

Recognizes a variety of goals, agendas Organizational power is the key driver

impacting decisions

Process Model

Focus on the process, as opposed to end objective

Interdependence of steps: process will impact exhaustiveness of choices

Objective-oriented outcome, long-term focus

Recognizes behavioural impacts Open to external environment

Which decision model applied?How did it affect the decision?

Exercise

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Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk1. Adapt process steps2. Be aware of decision model3. Communicate goals, criteria and risks

3. Reducing risks

More than one goal

Decision Matrix - example

Criteria Alternative A

Alternative B

Alternative C

Financial outcome

$ XXX $ XXXX $XXXX

Service Reliability

Community Acceptance

Environmental Risk

Timeliness of completion

Decision Matrix – Example +

Criteria A1- worst A2 – most likely

A3 - best

Financial outcome

$ XXXX $ XXX $XXX

Service Reliability

Community Acceptance

Environmental Risk

Timeliness of completion

Decisions with uncertainty

Communicate range of outcomes Communicate sensitivities Communicate at what point does the

preferred decision changes Outcomes Criteria changes Decision process changes

Decisions with uncertainty

Segment decision elements Identify points of no return Revisit decision through implementation Communicate and manage risks

When is the decision point?

Show variability

Growth 0 Growth 2% Growth 4%0

10000

20000

30000

40000

50000

60000

70000

Alternative A Alternative B Alternative C

Was range of outcomes understood?If not, how could it have been communicated?

Exercise

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Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk1. Adapt process steps2. Be aware of decision model3. Communicate goals, criteria and risks

3. Managing risks

To quote a genius...

“Anyone who has never made a mistake has never tried anything new”

Albert Einstein

Anticipate and plan for risks

Good judgment comes from experience, experience comes from bad judgment

Author unknown

Communicate: Risk Register

Category Risk Likelihood Impact Response

Types of Risk

Strategic – choice of strategies Operational – risk to assets & ability to execute

strategy Compliance – people/organizations will not do

what they are supposed to do Reporting – reliability and accuracy of information

Categorization helps the identification process: checklist

Risk Management Process

Anticipate – what can happen? Assess – what would be consequences? Plan – how can we respond? Control - is the process working?

Risk Management Responses

Accept E.g. delays due to weather

Share or Transfer E.g. P3’s transfer risk of cost overruns

Reduce or Mitigate E.g. response plans to accidents/disasters

Avoid E.g. don’t engage in conflict

List risks related to the decisions.How could they be managed?

Exercise

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Too much agreement?

Role of Communication

Communication skills and style can enhance of encumber group decision-making

Culture can enhance or encumber Clear goals and criteria will enhance

decision-making

Agenda

1. Decision context Decision process Environment & uncertainty Human factors

2. Adapting for uncertainty & risk3. Managing risks4. Conclusion

Role of financial managers

You can improve the effectiveness of decision making: Defining and providing relevant information Clarifying goals, criteria Providing balanced evaluations Communicating associated risks

Applying decision process skills Managing risks

How can you use this?

Questions?

THANK YOU!