1. HUMBLE DECISIONS FOR UNCERTAIN TIMES FMI PD WORKSHOP Hana Carbert, CMA, FCMA

2. Decisions, decisions

3. What decisions do you make?  Past decisions  Future decisions  Business or personal  Successful or not

4. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 3.Managing risks

5. Decision Process: this?

6. Decision Process: or this?

7. Decision 1:

8. Decision 2:

9. 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?

10. 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

11. BUT…  Clear goal?  Clear decision criteria?

12. List goals and criteria for your decisions Exercise

13. 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

14. Categorize your decisions: programmed or not? Exercise

15. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 3.Managing 4.risks

16. What causes uncertainty?

17. 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

18. List uncertainties related to the decisions Exercise

19. 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

20. What are the (known) unknowns of the decisions? Exercise

21. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 3.Managing risks

22. Critical thinking  What forms our assumptions and experience?

23. Discussion  How can you reduce ‘what you do not know’?

24. 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

25. How does your mind work?  How do you gather information?  Sensing vs. Intuitive  How do you evaluate information and make decisions?  Thinking vs. Feeling

26. Information Processing  What is YOUR Cognitive Style (Jung/Slocum)? Sensing Thinker Intuitive Thinker Sensing Feeler Intuitive Feeler

27. Information Gathering - Sensing  Like routine problems?  Collect hard facts?  Like detail?  Break information into components?  Like to work all the way through to make a decision?  See the world as a series of parts?

28. Information Gathering - Intuitive  Dislike routine?  Don’t like taking time for precision?  Tend to continually redefine the problem?  Consider alternatives simultaneously?  Jump around the steps of decision-making?  See the world as one big ‘whole’

29. Evaluation - Thinking  Structure the problem  Base decisions on logic and analysis  Unemotional, objective

30. Evaluating - Feeling  Make decisions based on personal conditions  Treat every decision as unique  Consider others responses in depth  Desire to accommodate others  Dislike difficult/unpleasant decisions

31. Discussion:  Relate Jung’s/Slocum’s framework to decisions made  Do you recognize people you know?  What does new insight suggest for future approaches?

32. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 1.Adapt process steps 2.Select decision model 3.Communicate goals, criteria and risks 3.Managing risks

33. How does this Doctor decide?

34. Humble decisions (Etzioni)  Focused trial and error  Tentativeness  Procrastination  Decision-staggering

35. More humble decision tactics..  Fractionalization  Hedging bets  Maintaining reserves  Reversible decisions

36. Reversible decisions  Final sale?

37. List ways the humble tactics could have been used Exercise

38. BUT…..  Clear objective/goal?  Clear decision-criteria?

39. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 1.Adapt process steps 2.Be aware of decision model 3.Communicate goals, criteria and risks 3.Reducing risks

40. Decision Models (Harrison)  Rational  Organizational  Political  Process

41. 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?

42. Rational model  “Illusion of precision”

43. Organizational Model  Challenges assumption of perfect information  Recognizes limitations of decision-makers  Seeks rational, rather than perfect, decisions  Quick, satisfactory decisions

44. Political Model  Recognizes a variety of goals, agendas  Organizational power is the key driver impacting decisions

45. 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

46. Which decision model applied? How did it affect the decision? Exercise

47. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 1.Adapt process steps 2.Be aware of decision model 3.Communicate goals, criteria and risks 3.Reducing risks

48. More than one goal

49. Decision Matrix - example Criteria Alternative AAlternative BAlternative C Financial outcome $ XXX $ XXXX Service Reliability Community Acceptance Environmental Risk Timeliness of completion

50. Decision Matrix – Example + CriteriaA1- worstA2 – most likely A3 - best Financial outcome $ XXXX $ XXX Service Reliability Community Acceptance Environmental Risk Timeliness of completion

51. Decisions with uncertainty  Communicate range of outcomes  Communicate sensitivities  Communicate at what point does the preferred decision changes  Outcomes  Criteria changes  Decision process changes

52. Decisions with uncertainty  Segment decision elements  Identify points of no return  Revisit decision through implementation  Communicate and manage risks

53. When is the decision point?

54. Show variability

55. Was range of outcomes understood? If not, how could it have been communicated? Exercise

56. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 1.Adapt process steps 2.Be aware of decision model 3.Communicate goals, criteria and risks 3.Managing risks

57. To quote a genius...  “Anyone who has never made a mistake has never tried anything new” Albert Einstein

58. Anticipate and plan for risks  Good judgment comes from experience, experience comes from bad judgment Author unknown

59. Communicate: Risk Register CategoryRiskLikelihoodImpactResponse

60. 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

61. Risk Management Process  Anticipate – what can happen?  Assess – what would be consequences?  Plan – how can we respond?  Control - is the process working?

62. 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

63. List risks related to the decisions. How could they be managed? Exercise

64. Too much agreement?

65. 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

66. Agenda 1. Decision context  Decision process  Environment & uncertainty  Human factors 2.Adapting for uncertainty & risk 3.Managing risks 4.Conclusion

67. 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

68. How can you use this?

69. Questions? THANK YOU!