Decision architecture

Creating a framework for good decisions

architectureGood decisions in delivering change has been a theme in this blog. A recent paper on the HBR website has introduced the psychological (or culture) context for good decisions. This paper suggests how to overcome inherent biases in the way our brain works to make better decisions.

There are a lot of biases in decision making and a lot of decisions to be made during a change initiative. To focus this blog I will consider how biased decision making can affect a key decision: whether to do the change or not and the vehicle for that decision — the Business Case.

It is now accepted that the human brain has two modes of thinking: system 1 which is intuitive, emotional, and automatic; and system 2 which is slower, logical and deliberate. The use of ‘system 1’ and ‘system 2’ has been well described by Nobel laureate Daniel Kahneman in his book ‘Thinking, fast and slow’. This is an excellent book and I recommend it to everyone. Both of these modes have their role in making decisions, but it is system 2 that we want to engage if we want a rational decision.

Preparing for the decision

Preparing for the go-no go decision about starting a change means preparing the business case. I have seen lots of poor business cases, all of which are the construct of the environment (architecure) in which they were made. Poor business cases often result from:

  • No accountability for the product, no one owns the result or its quality.
  • There is no leadership direction of the contents so it is produced entirely by managers who either have no stake in the result (poor information) or a big stake in the result (biased information).
  • A political environment where the business case needs to fit into the current view of senior managers (often the decision is already made). This is known as confirmation bias.

To produce a good decision about investing scarce resources in a change initiative the business case needs to:

  • Predict the future with as much accuracy as possible. This requires a logical analysis of the change, its impact, its strategic alignment and the risks involved. All of these are system 2 thinking skills.
  • It needs to demonstrate and communicate the ‘value’ of the proposed change to the stakeholders — this is a system 1 skill as most stakeholders will use their system 1 to arrive at a quick immediate reaction.

Techniques that can help with predicting the future include:

  • Analysis of previous predictions in business cases and the actual performance of the change initiative. If previous business cases have been too optimistic in their predictions of costs, or time, or benefits delivered (most of us have an optimism bias in predicting these things) then an allowance can be added to compensate based on data from past performance.
  • Accepting that the business case is a ‘political document’ in that it is intended to promote the case for the change initiative amongst the decision makers and to separate the ‘promotion’ from the data evidence. This helps us to identify where other bias (such as confirmation bias) might occur when drawing conclusions from evidence.
  • Give the authors some responsibility and accountability for the quality of the document. For instance, involving change managers in the benefits and risk analysis. Give the contributors a vested interest in their contribution by pointing out that if the business case is successful then they will be required to deliver the benefits in the time and cost parameters of the business case and their performance will be measured. My experience is that such a move has a strong effect on on both optimism and confirmation bias.

Making the decision

The HBR paper makes an interesting observation based on research that comparing options simultaneously is more effective in eliminating bias than separate consideration. For instance most companies consider a number of candidates (alternative options) for an new hire to a post; but rarely do this for internal promotions where only 1 or 2 candidates are considered. The more options considered simultaneously the easier it is to see past our biases on comparison.

The implication for making decisions about business cases for change initiatives is that a number of these should be considered against the available resources and a prioritisation should occur. This will require a timetable of decision making and business case submission such as the sort of organisation that comes with Portfolio Management.

The key point of my message is that senior managers must think through the whole architecture — culture and process — around their decisions in managing change to ensure that the decsions they are making are the best ones.

twitterHave you thought about the architecture of your decision making? How does it compare? Are you aware of your bias thinking and how it can both help and hinder your performance? Respond to the blog post or contact us on twitter.

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