Research finds that process is 6 times more important than analysis when making decisions.[1] It is therefore clear that businesses can get more value by improving their decision making process rather than putting extra effort into their analysis.
Establishing a robust process helps to limit the variability in decision making and brings the baseline level of decisions to a reasonable standard. This article explains four recommended techniques (shown in Figure 1) that businesses should consider using as part of their decision making processes.
Figure 1: Practical decision making techniques
1. Pre-mortem
A pre-mortem sits in a category of techniques that alter the mindset of decision makers by requiring them to think using a specific perspective. In this case, the technique stress-tests a favoured decision by asking participants to imagine that the business is 1 to 3 years ahead of today and the favoured decision resulted in a massive failure. The participants must generate reasons to explain the “cause of death”.
The role-play essentially acts as a shortcut to constructive criticism. Decision makers are often overconfident with their chosen course of action, but the pre-mortem empowers participants to hunt for blind spots and reduces the emotion that often occurs in traditional head-to-head debates. It also helps decision makers to transition from day-to-day activities and bridge into the long run when strategic decisions play out over multiple years.
Pre-mortems are a relatively new concept and were introduced by Gary Klein in 2007.[2] A very similar technique of falsification, which seeks to disprove the prevailing hypothesis, is a much older concept. It is however, rarely performed in practice. Groups often succumb to the confirmation bias where they gather evidence to justify their decision.
2. War Gaming
War Gaming simulates a market by considering the perspectives of the key players in the industry and recreating their competitive responses. A game typically involves 3 to 6 main stakeholders (which can include non-competing parties such as the regulator) who set business levers such as price and capital expenditure. The game repeats over a number of turns where stakeholders submit choices and then receive feedback about the market position (e.g. market shares, pricing, and profitability).
Figure 2: The steps of a War Game
The simulation is a practice ground to try different strategic directions and understand what competitive responses each option might face. This multi-party, multi-iteration aspect of the game makes it more powerful than just regular strategic planning. The typical insight obtained through War Gaming is not a specific set of actions, but rather guidance on general trends, strengths and weaknesses of market players and promising moves.
To understand it in practice, a global chemicals company used War Gaming to understand what might happen if they built a new plant to produce more of a specific product. Their simulations suggested that competitors would react aggressively to defend market share. These insights led to the company adopting a more transparent implementation strategy, which publicly announced the new plant in advance of it being able to produce. This reduced the aggressiveness of its competitors’ response.
War Gaming is often most valuable when a business is facing impending change and wants to better understand what tomorrow might look like. Ideally, there are a handful of options to test and the market has meaningful competitive dynamics driven by a small number of stakeholders who have the most influence. The simulation itself provides an immersive experience where people better understand the mindset of their competitors and ‘live’ through the consequence of their strategies.
Some of the best outcomes that I have seen from War Gaming often test the boundaries of perceived market ‘rules’. Games should ideally trigger an optimum level of stress for players – one that forces problem solving but provides enough space to do so – tends to draw out innovative and lateral thinking. For example, in a War Game which simulated how countries would negotiation for a finite supply of vaccines, the more innovative and successful players ‘bent the rules’ by forming coalitions between multiple countries.
3. Submit your homework
The ‘Homework’ technique requires each decision maker to formally submit their views ahead of a decision meeting to choose course of action. There are three key benefits to this. First, the act of formal submission means that decision makers are directly accountable for their actions and will therefore become much more active in any decision process.
The second benefit is that that each person’s view is independent of another, rather than being swayed by group opinions. This helps to access the ‘wisdom of the crowds’ when making decisions because each player’s own expertise and diverse perspective is considered.
Third, the process provides a forum for all stakeholders and ensures that the most vocal members do not dominate the group’s discussion.
Most decision making meetings usually combines an information session (where the facts are presented) with the decision session (where the evaluation and debate happens). The Homework approach separates these activities. Despite it appearing like more work, putting in the groundwork is likely to facilitate faster, less painful and more successful decisions.
4. Spell it out
‘Spelling it out’ is a method that requires decision makers to explicitly state the components that make up their decision. There are a number of components to define:
- question –a precise articulation of the question that decision makers need to answer (e.g. selecting from a range of options, yes/no to a course of action);
- key decision factors – considerations like financial (NPV, rate of returns, cash flow profiles, payback periods), safety, reputation and ease of implementation;
- evaluation criteria weightings – prioritising and then assigning percentage weights to each of the key decision factors;
- probabilities of scenarios – where any scenarios depicting future states of the world are used, like high / medium / low, assign a percentage likelihood for each one occurring; and
- decision criteria –approaches to combining evaluation scores like maximum expected outcome (maximax), maximum worst outcome (maximin), or least regrets (minimax)
This technique is an analytical way of approaching decision making. While it appears complex, parties are making these selections implicitly within their own thought processes. Laying it all out explicitly can simplify discussions between multiple parties and reduce the chances of getting stuck in the weeds when evaluating options.
Spell it out is best used when people are trying to trade off multiple criteria which mix qualitative and quantitative factors. A recent project saw a utility client who was deciding what to do with a large capital asset that was incurring operational losses. They were grappling with three options with different financial outcomes and also different outcomes regarding asset safety and company reputation. Initial discussions got stuck because different stakeholders placed different weightings on things like reputation. Explicitly agreeing a common set of criteria weightings helped the company to discuss the overall packages in a more holistic manner.
5. Conclusion
There are a number of ways that businesses can improve their decision making. This article has looked at how four practical techniques – Pre-mortems, War Gaming, Homework and Spell it out – that business can deploy within a wider decision making process. My next articles are going to look at improving regular decisions through automation and use of specialist, in-house ‘decision teams’.
[1] McKinsey Quarterly, 2010, The case for behavioral strategy
[2] Klein, 2007, HBR, Performing a Project Premortem
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