Effective decision-making

I had been to a discussion meet-up last night. The topic was ‘Effective decision-making’. It was an informal session trying to tease out different aspects associated with the decision-making aspects. We all make decisions, big and small, all the time. So, it goes without saying that it serves us well for them to be effective. The first question is how do we define “effective decision-making”. Is it the process or the outcome or some combination of it? Definition: As per the management guru ‘Peter F. Drucker”, an effective decision-making process must go through some steps:

1. The classification of the problem
2. The definition of the problem
3. The specifications which the solution to the problem must satisfy (the “boundary conditions”).
4. The decision as to what is “right”, rather than what is acceptable, in order to meet the boundary conditions
5. The building into the decision of the action to carry it out.
6. The feedback which tests the validity of the decision against the actual course of events.

Unless these elements are the stepping stones of the decision process, the executive will not arrive at a right, and certainly not at an effective, decision.

So, this tells us that “Effective decision-making” is all about the process. But decisions are usually interpreted as good or bad only in hindsight, once we know the actual outcome. And I believe that it’s not the right way to judge a decision. Because while we making decisions, there are risk and uncertainty in play. Risk is known and if we don’t factor it in our decision-making process, then we are not being effective. But the uncertainty relates to unknown and we don’t have any idea about it. (Who would have predicted something like 9/11??) Strategic Decisions Group of Stanford says that “Making good decisions in the face of uncertainty requires understanding the difference between decisions and outcomes. They say that decision quality integrates the art and science of decision making along six elements:

1. Appropriate frame
2. Creative, doable alternatives
3. Meaningful reliable information
4. Clear values and tradeoffs
5. Logically correct reasoning
6. Commitment to action

There are pitfalls at each step that we need to be first aware of and then avoid. The framework suggests that we should try to attain 100% quality on each of these elements. (100% being a point where additional effort will not improve the decision.) But in most cases, when we are judging others’ decision-making, the only thing we have access to is the outcome.

It was pointed out in the discussion that in political scenario, all the citizens know is how the decisions made by the President/Prime Minister turned out bad i.e., in hindsight. Is it how it’s supposed to be? Logically no. But since they have access only to the outcome, people vote based on the outcome.

Coming to the process, there can be several ways to go about deciding something – rational, spontaneous, avoidant, participatory/dependent, intuitive. How to determine, which process is the best. Should it be dictated by the type of problem or situation or just a preference of decision-making style? Every one of us has a preferred or dominant style of decision-making, which is part of our personality. Scott & Bruce’s (1995) General Decision Making Style questionnaire can be used to assess how people approach decision situations.

Many questions sprang up during the discussion. Most important of them being:

• If your data says something but your gut pull you towards something else, how should be decide?
• How reliable is “gut feeling/instinct”?
• How much data is enough to make a data-driven decision? How do we handle analysis-paralysis?
• How do we arrive at the list of criteria to evaluate our alternatives? How do we prioritize them?

As for me, I make (or at least try to make) rational decisions; I list out my alternatives, come up with criteria to evaluate them, prioritize the criteria and based on all the pros and cons of the alternatives make a choice. Sure, it’s taxing. It’s a lot of effort. Will it always produce good results?? I’m afraid not. The challenge for me personally is in trying to evaluate the alternatives. What are the criteria to consider and what’s the weightage I need to give to each of them? In hindsight, I see that failing to factor in some of the important/relevant criteria has resulted in the bad outcomes. How to address this major pitfall?

One interesting question that was posed is – what is the optimal number of criteria we need to consider? Given the fact that we may have tens of requirements and that it may not be economically or otherwise feasible to consider all of them, we may have to prioritize and limit them to a handful so that we can arrive at the decision in a timely and effective manner. But is there a one-size-fit-all magic number??

One of the major takeaways for me from the discussion is “cost-benefit analysis” of the decision. With the data and criteria we have at our disposal, we have to make sure that the cost of making a decision does not outweigh the benefits that can be accrued from an effective decision-making.  In some cases, the quality of the decision may not affect us in any big way and we can live with sub-optimal choices. We will be better focusing our time and energy on only those decisions which are crucial and warrant the extensive analysis. This is a very important aspect to think about and is one way to deal with “analysis-paralysis”.

It was indeed an exuberant and stimulating discussion. But as you can see, no concrete conclusions were arrived at and there are more questions than answers. There are lot of interesting and intriguing aspects that I would like to explore further and “try to” come up with some perspective, which I hope would be objective.