What’s what? Understanding and setting the decision context
Decision context, here, simply means the circumstances surrounding the decision-making process and its consequences.
For example, how much time you have is part of the context. Who is involved is also part of it. The range of options available to you and possible outcomes are a part of the context. The costs and risks of the likely outcomes are too. Have you made similar decisions before? Will you be making more such decisions in the future? Is it a reversible decision? What data is available?
You can already see that you can control some parts of the context but not others. For example, you may control who you involve but may not control who you impact!
Understanding and framing the context is critical for a good decision-making process.
Can we systematize the components of the decision context?
Why are you making the decision?
The first step here is to identify what brought you to this point where a decision is to be made. Is your customer asking for another product? Did your old laptop break? Did your competitor just get acquired by a larger company?
The second step is to figure out what are your goals or objectives for this decision.
Examples:
- Get a laptop that will last the next 5 years with reasonable performance
- Add another product that generates profits with at least a 30% margin
This step prevents you from knee-jerk reactions like starting a new project just as a response to a request without evaluating how it adds value to your company.
Don’t go on until you know why you are here and what you expect to come out of this decision!
Timelines and frequency
This a quick-step where you check on a couple of things:
- How much time do you have?
- How often do you need to make this decision? Is this a one-off purchase. Are you deciding whether or not to setup operations in a certain country? This may be something you repeat for 20 other countries over the next 5 years.
Define clear roles
Read our earlier article on Roles in Decision-making to figure this out. The names we defined were “The Decision-maker”, “The Recommender”, “The Customer” and “The Implementer”.
Characterize your options
“The Decision-maker” and/or “The Recommender” has to figure out the various options. For example, “don’t invest in the new project”, “invest $10 million over 3 years” and “buy another company that has solved this for $30 million” could be your options for a decision.
It is also good to identify a default decision you would go with if you had to decide right here, right now. For example, “don’t invest in the new project” could be your default decision.
The default decision keeps you honest and keeps a lot of biases at bay. You really need to see evidence to the contrary before you go in and change your default decision.
The next step is to seek out information on the payoffs, costs and risks involved. How do we know it will cost $10 million to do this project. How reliable is that number? What is the payoff if we had this project ready today? What happens if I decide to neither build nor buy?
How risky is this project? Is the decision reversible? Can it take the company down with it if it fails? Do I need a plan B if a certain risky outcome emerges?
You do need to involve the other stakeholders like “The Customer” or “The Implementer” when doing some of this.
Characterizing your options is not a single step and may require a lot of research and discussion. So when setting context you are just characterizing the options at a very high level. More detail (and more options) may get added during the decision-making process.
Keep biases at bay while sharing the context
“The Decision-maker” may share part of the context with others. There are many reasons to be careful here because of various biases that each participant brings into the process.
You have to pay attention to the incentives that each stakeholder has. Ideally they should be aligned but often that is not the case.
“The Customer” wants it whatever it may cost. “The implementer” may prefer options that involve more work for them. These biases are obvious and need to be accounted for.
You would ideally want “The Recommender” to be untainted by biases. This is often not easy and is why external consultants are hired to support decision-making. But with external consultants you may trade business knowledge for lack of bias which can be expensive.
Some of this is in your control. Decision-makers are usually higher in the hierarchy. If they show a preference for one option vs. others when setting context, “The Recommender” may then simply pander to that option and take the wind out of the decision-making process.
Decision-makers should be careful to not signal their preferences prior to the decision-making process taking its course.
This means that decision-makers should define a brief for the stakeholders that acknowledges certain parts of the context and leaves out others.
A key quality of a good decision-maker is knowing how to understand and set the decision context and how much to share with others.
