Feeds:
Posts
Comments

Archive for the ‘Decision Making’ Category

A colleague Todd Sears recently wrote:

I thought I’d write to let you know that I used an argument map last night to inform a public conversation about whether to change our school budget voting system from what it is (one meeting and you have to be physically present to vote), to the (of all things!) Australian Ballot system (secret ballot, polls open all day, and absentee ballots available).

So, I went through the articles, editorials, and opinion pieces I could find on the matter and collapsed those into a pretty simple argument, which it is. Simple reasoning boxes get the job done.  Our voters had never really seen this kind of visualization.  It’s nice to be able to see an argument exist in space, and to demonstrate by pointing and framing that a “yea” vote needs to buy into the green points, but also that they need to reconcile the red points, somehow. It had very good response.

Ultimately, the AB motion was defeated by five votes.  Still, it was a good example of a calm, reasonable, and civil dialogue.  A nice change from the typical vitriol and partisan sniping.

Here is his map (click to view full size version):

Bethelmap

When I suggested that readers of this blog might find his account interesting or useful, he added:

Let me clarify what I did because it wasn’t a classic facilitation.

1. I reviewed all of the on-line Vermont-centric AB content I could find in the more reputable news sources, and put a specific emphasis on getting the viewpoints of the more vociferous anti-AB folks in my town so that I could fairly represent them.

2. I created a map from that information and structured it in a way that spread out the lines of reasoning in an easily understandable way. I could have done some further abstraction and restructured things, or made assumptions explicit using the “Advanced” mode, but chose to focus on easily recognized reasoning chains.

3. I sent the map out to the entire school board, the administrators, a couple of politicians, the anti-AB folks and some of the other more politically engaged people in town.

4. The session was moderated by the town Moderator, who set out Robert’s Rules of Order. Then discussion began. In fact, the first ant-AB speaker had my map in his hand and acknowledged the balance and strength of both sides of the argument.

5. I let the session run its course, and then explained what I did and how I did it, and then reviewed the Green and Red lines of the debate, explaining that a vote for or against means that the due diligence has to be done in addressing the points counter to your own position, and I demonstrated how this should be done. Though I was in favor of AB, I maintained objectivity and balance, rather than a position of advocacy one way or another.

Overall the session was very civil, informed, and not one point was made (myriad rhetorical flourishes aside) that was not already on the map. Many variations on similar themes, but nothing that hadn’t been captured.

And followed up with:

BTW, just 30 minutes ago I received an e-mail which said this:

Hi,

I love the map of the issues around Australian Ballot that you sent out. Is there an easy way to make such a map? We are tackling some issues that have our faculty at Randolph Union High School pretty evenly split and I think two such maps would be a powerful way for my colleague and I who are leading this change to communicate. It looks as if it was created in PowerPoint. If you are too busy to elaborate that’s fine too.

Thanks for your leadership on the Australian Ballot issue. I appreciate it.

Advertisements

Read Full Post »

On Thursday 9th October I’m doing a presentation at a conference of The Tax Institute, the Australian professional association for tax specialists, introducing decision analysis techniques.  The presentation will illustrate (with live demonstration) the following applications:

  • Using quantitative risk analysis (Monte Carlo simulation) to help a client gain better insight into the probable or possible outcomes of a certain tax strategy;
  • Using decision trees to help a client decide whether to purse a dispute with the Tax Office through the courts.

The conference paper is available here.

An excerpt:

Decision analysis techniques are well-developed and used, more or less widely, in various other professions such as engineering and finance. However, they are rarely used by tax specialists, or by lawyers and accountants more broadly.

Why? One perspective is that decision analysis is fundamentally ill-suited to the kinds of reasoning and decision making involved in tax matters, which are thought to involve unquantifiable issues and nuances requiring intuitive nous of the kind only highly trained and experienced legal or accountants can provide.

An alternative perspective is that tax matters would almost always benefit from decision analysis, and that tax specialists fail to use it only because they are trapped behind boundaries imposed by their professional traditions, their training, and their intellectual inertia. A strong version of this view is that tax specialists are derelict in failing to provide their clients with an easily-obtainable level of clarity and rigour.

In the spirit of John Stuart Mill, this paper takes a middle position. It suggests that decision analysis is potentially useful for certain types of problems regularly handled by tax specialists, while not being appropriate for many others. Decision analysis may represent an important opportunity for tax specialists to provide greater value to sophisticated clients.

1.2.1 Three Thinking Modes

At a high level, the relation of decision analysis to the kinds of intellectual labour generally undertaken by tax specialists is summarized in this diagram.

threemodes

To indulge in some useful caricatures, qualitative thinking is the domain of the lawyer. It uses no numbers at all, or at most simple arithmetic. The central concept is the argument. Making the most important decisions is always a matter of “weighing up” arguments expressed in the legally-inflected natural language

Quantitative deterministic thinking is the speciality of the accountant. It is epitomised in the structures and calculations in an ordinary spreadsheet, in which specified inputs are “crunched” into equally specific outputs. The central concept is calculation; uncertainties are replaced by “assumptions”. Decisions generally boil down to comparing the magnitudes of numerical outputs, in the penumbral light cast by the background knowledge, intuitions and biases of the decision maker.

The third mode of thinking, probabilistic, is of course the decision analyst’s territory. The central concepts is uncertainty, and the essential gambit is framing and manipulating probabilistic representations of uncertainty.

In this context, the “master” tax specialist has facility, or even advanced expertise, in all three modes of thinking.

Read Full Post »

A new draft of What Do We Think?  Divining the Public Wisdom to Guide Sustainability Decisions is now available.

Download PDF

Read Full Post »

In a recent post to his excellent blog, Kailash Awati writes (and I quote at length)

As regular readers of this blog will know, I am a fan of dialogue mapping,  a conversation mapping technique pioneered by Jeff Conklin. Those unfamiliar with the technique will find a super-quick introduction here.  Dialogue mapping uses a visual notation called issue based information system (IBIS) which I have described in detail in this post.  IBIS was invented by Horst Rittel as a means to capture and clarify facets of   wicked problems – problems that are hard to define, let alone solve.  However, as I discuss in the paper, the technique also has utility in the much more mundane day-to-day business of managing projects.

In essence, IBIS provides a means to capture questions,  responses to questions and arguments for and against those responses. This, coupled with the fact that it is easy to use, makes it eminently suited to capturing conversations in which issues are debated and resolved. Dialogue mapping is therefore a great way to surface options, debate them and reach a “best for group” decision in real-time. The technique thus has many applications in organizational settings. I have used it regularly in project meetings, particularly those in which critical decisions regarding design or approach are being discussed.

Early last year I used the technique to kick-start a data warehousing initiative within the organisation I work for. In the paper I use this experience as a case-study to illustrate some key aspects and features of dialogue mapping that make it useful in project discussions.  For completeness I also discuss why other visual notations for decision and design rationale don’t work as well as IBIS for capturing conversations in real-time. However, the main rationale for the paper is to provide a short,  self-contained introduction to the technique via a realistic case-study.

Most project managers would have had to confront questions such as “what approach should we take to solve this problem?” in situations where there is not enough information to make a sound decision. In such situations, the only recourse one has is to dialogue – to talk it over with the team, and thereby reach a shared understanding of the options available. More often than not, a  consensus decision emerges from such dialogue.  Such a decision would be based on the collective knowledge of the team, not just that of an individual.  Dialogue mapping provides a means to get to such a collective decision.

And now for an unabashed commercial plug: Austhink Consulting provides “on demand” facilitation using dialogue mapping and related techniques for decision making and wicked problem “solving”.

Read Full Post »

In a murder trial, to prove that a defendant was guilty the prosecution must establish that:

  • The victim was killed;
  • The defendant unlawfully caused the death of the victim; and
  • The defendant did so with “malice aforethought.”

These are known as the elements of the crime.   Elements have been defined for many legal actions.  They are the major things which all must be proved in order to establish the prosecution’s (or plaintiff’s) case.

We can by analogy think of the elements of a major business decision.   In a board context, where typically management will recommend an option for the board to approve or reject,  these are the major things that management must establish to the board’s satisfaction.  The recommended option must be:

  1. Strategically sound;
  2. Financially sound;
  3. Operationally sound;
  4. Prudentially sound (i.e., acceptable from a risk perspective)
  5. Ethically sound; and
  6. Legally sound.

These are the minimal conditions; a decision satisfying these conditions would be reasonable or defensible.  It may not be the best decision.  For that, an additional element point must be established:

  • The option is on balance better than any other relevant option across elements 1-6.

These elements are often not independent matters.  For example, what counts as financially sound will depend on the organisation’s strategy (and ultimately of course on its purpose).

Each element must in turn be established by argumentation, governed by standard principles of clarity and rigor.

Associated with each element are a series of critical questions. Addressing the critical questions generates supporting arguments or objections.   For example, critical questions for strategic soundness might include:

  • Is there a wider corporate strategy pertaining to this type of decision?
  • If so does the proposed option align with that strategy?
  • If there is no wider strategy, or no alignment, is this option nevertheless strategically defensible?

The elements listed above are generic, suiting a typical major business decision.  However, just as different crimes have their distinctive sets of elements, so particular categories of business decision would have tailored sets of elements.

The “elements of the case” approach can be used in a variety of ways.  It can for example guide the development and structure of the board paper and presentation in which the recommendation is advanced.  Or, it might be used within the board meeting to structure attention and discussion.

Read Full Post »

Two recent articles in the business press underscore the importance of unearthing and challenging the assumptions which are shoring up your inferences.  They also provide fascinating insights more generally into organisational decision, a topic which always becomes more interesting when things go badly wrong.

The first, Potash: The deal that didn’t have to die appeared in the Canadian newspaper The Globe and Mail in the aftermath of the failed attempt by mining behemoth BHP Billiton to acquire Potash Corp.   Potash Corp makes a lot of money digging up – you guessed it – potash in Sasketchewan and selling it around the world.  Potash Corp is part of a cartel, the existence of which helps keep the Saskatchewan state coffers replenished.

As authors McNish, Bouw and Reguly state, in the lead-up to the bid,

[BHPB CEO] Mr. Kloppers had every reason to believe that the takeover odds were on his side. Potash prices were still climbing out of the cyclical basement, and few other companies in the world could match BHP’s financial heft to top the bid. A government-backed company from China probably could, but no Chinese entity has ever tried to make such a large acquisition in a developed, democratic country. Even better, the widely held Saskatchewan company had no blocking shareholders. The Canadian government had never rejected a foreign takeover of a major resource company, and just three years ago allowed Rio Tinto PLC to take over Alcan Inc. of Montreal in a deal of similar size.

Focusing on one aspect of this, it appears that BHPB were reasoning that if the Canadian government had never rejected a foreign takeover of a major resource company, then they’d be unlikely to disapprove the takeover by BHPB of Potash Corp.   Which seems a perfectly reasonable argument.

Of course there is an unstated premise in this argument, viz., that Potash Corp is a major resource company.  This seems so obvious that it is hardly worth mentioning – and ipso facto hardly worth challenging.  But often the critical weakness in a case can be disguised as a truism even after we take away the cloak of invisibility.   Sometimes the highest level of critical scrutiny is not challenging the dubious but daring to question the obvious.

The real force of the assumption “Potash Corp is a major resource company” was the idea that Potash Corp was just another major resource company, just like all the previous ones that had been taken over.  That, in other words, there was nothing special about Potash Corp, in Canada in 2010, that would prevent it being taken over just like others before it.

But that assumption was wrong.  Potash Corp was in fact, at the time, quite special due to the close connection with Saskatchewan state funding, and the special connection of Saskatchewan politicians to the Canadian federal government.

As Andrew Mackenzie, a key BHPB executive, conceded after the failure of the takeover bid: “We didn’t grasp how significant potash is to Saskatchewan.”

If the authors are correct, this “failure to grasp” – a kind of unchallenged assumption – was the critical error leading to a failed bid.  Some of the consequences: immediate waste of some $350 million dollars, loss of potential billions in future profits from selling Canadian potash, embarrassment for BHPB, and a major headache: what now should it do with the mountains of money it is making due the resource boom?

The second article appeared in today’s edition of the Melbourne paper The Age.  In AXA deal could bring $2.6bn headache David Symons recounts how some financial sharks spotted a design weakness in superannuation giant AXA’s offerings and tricked AXA into granting them the right to exploit that weakness mercifully for decades to come – hence the $2.6 billion dollar lawsuit.  The details are of course somewhat complex but on Symons’ account AXA management – apparently lurching from one feat of incompetence to another – repeatedly made assumptions which turned out false.  For example:

“anxious to resurrect a faltering product, AXA ignored the embedded option risk. AXA management had referred the special terms to the legal department and the board product committee, but not to the chief actuary. The three-day option was considered a tweak that didn’t require costing. Nothing could have been further from the truth. AXA had effectively written a multibillion dollar series of puts over the equity index.”

Quite a different domain, but the same basic point: sometimes an unquestioned assumption comes back to bite you in a very costly way.

Of course in both these cases we have the wonderful benefit of 20/20 hindsight.  It is relatively easy to spot a false assumption after its falsity has caused a calamity.  It is much harder to expose all the assumptions one is making at the time of decision, and to know which of those many assumptions need to given especially rigorous scrutiny.

One of the great benefits of argument mapping, rigorously applied, is its utility in the former challenge, i.e. exposing hidden assumptions.

Before closing it is worth noting another kind of assumption in play in the AXA case.  The aforementioned sharks clearly devoted much of their exquisite intellectual power to figuring out how to exploit the financial system so as to attract to themselves vast amounts of money of unearned and undeserved money.  Rather than doing anything productive, anything that might generate tangible value for society, these knaves are prepared to follow their greed to the point where they might even ruin an enormous institution (cf Equitable Life), with presumably masses of shareholders and policy holders and perhaps even taxpayers to take the hurt.   They are assuming that this is reasonable, legitimate conduct.   That assumption may not come back to bite them in this particular case.  But when large parts of society unconsciously and unconscionably adopt that assumption, it can be disastrous for almost everyone – as Ireland’s current problems illustrate.

Read Full Post »

For anyone who wants it, there is lots of advice around the place on how to improve decision making.  There are hundreds of books on the topic, innumerable articles and magazine pieces, and unstoppable streams of ephemera on the internet.

One thing I’ve noticed about this flood of advice is that each theorist’s thinking tends to be dominated by a particular “take” on what decisions are, what decision making is like, and how it should be done.    But the field of decision making is a bit like the Melbourne Zoo – there is not one type of animal but rather hundreds of different types, most falling into one broad category or another.  Nowhere at the zoo do you see a sign pointing to Animals; only directions to the reptiles, the birds, the butterflies, etc..  Likewise there is not much you can say about Decisions In General; anything interesting or useful needs to focus on a particular type of decision.

Such as?  What kinds are there?

Given the rich heterogeneity in the decision arena, there are many ways to “slice and dice” the domain.  How you do so should depend on what you want to achieve, where, and why.

Lately I’ve been doing work with some large organisations looking at their decision making and how to improve it.  In this context, it seems useful to distinguish at least the following four major kinds, based primarily on the type of activity (cognitive, and/or social) that goes into making the decision.

1. Intuitive Decisions

As elsewhere, the great majority of decisions in large organisations are intuitive.  Intuitive decisions have the following characteristics:

  • They tend to be made rapidly
  • They are made by individuals deciding alone
  • There is little or no conscious reflection
  • There is little or no following of rules or procedures
  • Usually only one option is considered
  • The cognitive process is typically “recognize/act” – the decision maker recognizes the situation and immediately “knows” what an appropriate thing to do in that situation would be

2. Technical Decisions

Technical decisions are those made by following some well-defined technical procedure.  Very often a spreadsheet or computer program plays a key role in the decision processing, and indeed sometimes the decision making can be largely or completely turned over to a computer.  Examples include:

  • Using multi-attribute utility theory to choose which IT system to adopt
  • Using formal decision analysis to select a strategy for a negotiation
  • Deciding whether to make a loan, or how much to loan, based on the applicant’s information as provided on a standard loan application

3. Deliberative Decisions

Deliberative decisions are those made by “weighing up” the arguments and evidence (“pros and cons”).   Deliberative decision making:

  • Involves conscious articulation and evaluation of various options and the considerations counting for and against options
  • Takes anywhere from minutes to months
  • May be made individually, or by a group
  • Often involves discussion and debate
  • Doesn’t involve computers in any important way, since the relevant considerations are usually “informal” or qualitative cannot be rigorously specified or quantified
  • Is not governed by strict rules or procedures, though it is subject to various norms and conventions (usually unspoken or implicit)

3. Bureaucratic Decisions

These are decisions which an organisation makes using a “bureaucratic” procedure.  Typically they:

  • Are important/weighty/high stakes
  • Are “standard” sorts of decisions for the organisation; hence they
  • Are made following a codified process, involving lots of steps and rules
  • Involve lots of people playing their assigned roles
  • Are based on lots of information, extensively analysed
  • Have detailed documentation

Examples include:

  • Making major decisions in military operations using the Military Appreciation Process (or similar)
  • Making a major infrastructure  decision following Infrastructure Australia’s Reform and Investment Framework
  • Making a substantial investment decision in a funds management firm, following that firm’s standard procedures

(Note: I don’t claim that this list of decision types is “MECE“.   Indeed it is probably a more useful classification than any strictly MECE list would be.)

Once these various types of decisions are distinguished, you can see that asking a question like “How can decision making be improved?” is bit like asking “What do we feed the animals in the zoo?”    It all depends what type of decision you’re interested in.   At the most general level, you’d do very different things to improve decision making of the four types described above:

  • Intuitive decisions could be improved through more and better experience, feedback, possibly using some debiasing techniques
  • Technical decision making could be improved through better selection of technical methods, and training in those methods
  • Deliberative decision making could be improved by adopting more effective deliberative practices and supporting technologies; and
  • Bureaucratic decision making could be improved by revising the official procedures.

Read Full Post »

Older Posts »