Continuing with the “decision-making” theme from our previous post, it’s important to recognize that there are different types of decisions and different ways of going about making each of them.
The simplest type of decision involves known knowns: That is, we know what information we need in order to make a good decision and we can acquire that information. These decisions can be mapped out with simple decision-trees to reliably and quickly produce good decisions. For example, a supplier selection process can be mapped out and reliably executed to produce good results.
Next we have situations that involve known unknowns: The problem is knowable, but not simple. We require an expert to gather and process the information to arrive at a reliably good decision. Decisions about how to design a website to maximize traffic or where to position a power plant relative to cooling sources are examples of “known unknowns,” which are often referred to as “complicated decisions — the domain of
Tougher decisions involve unknown unknowns: These complex decisions, in which we may not even know all the right questions, are
increasing in frequency as advancements in technology and rapid change take place around us. As a result, many strategic decisions organizations face today carry a great deal of uncertainty.
As more decisions fall into the “Unknown Unknowns” category, managerial decision making that relies on learned best practices is no longer adequate. Consider that “best practices” are by definition past practices; and if the industry, the organization or the underlying assumptions are in flux, what worked in the past may have little bearing on the decision today.
For complex decisions such as these, a decision making process designed for uncertainty can be most helpful. Five critical steps can help you improve your organization’s process for arriving at the best decision in a complex situation:
- Start with a clear goal or objective. This step will help an organization refrain from starting with a compelling idea and backing into the rationale.
- Widen the alternatives you are considering. As the French philosopher, Emile Cartier, put it, “There is nothing more dangerous than an idea when it is the only one you have.” A single idea is dangerous because when we focus on our current option, other and quite possibly better alternatives are outside our spotlight. Yet our natural inclination once we arrive at an idea is to stop looking for alternatives and devote our effort to convincing ourselves and others that this is the right decision.
- Know what you know and what you don’t know. Behavior economists assert that human beings are wired to give much more weight to information we have than to information we do not have and by doing so, we miscalculate our risks and opportunities. Experts suggest that we write down the most important information we are missing. Otherwise, we risk ignoring what we don’t know because we are distracted by what we do know, especially in today’s information-rich businesses.
- Achieve distance & perspective before deciding. This is often called creating an emotional distance in order to enable one’s self to make better decisions. If you were an outsider, with no emotional stake in past decisions, what advice would you give yourself? Bringing in other perspectives, suppliers, customers, and other stakeholders can also help provide different perspectives on the decision to be made. Another way to gain distance is to imagine the impact of the decision one year in the future or even five or ten years.
- Take a hard look at the uncertainty. One way to combat uncertainty is to figure out what you do know and use that to “bookend” the decision: what would be the outcome if all the bets go against you, and what would it look like if everything fell into place. This can help you evaluate if there is more upside opportunity or downside risk. Another approach is to experiment and learn from small tests before going whole hog. Find ways to test the waters or test some key assumptions to reduce the range of uncertainty to arrive at better decisions. The greater the uncertainty and risk associated with a decision, the more valuable these small experiments will be.