Post on 16-Feb-2016
description
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!