Decision Quality

Why use decision analysis? George Kirkland, vice chairman at Chevron and in charge of the company’s oil & gas exploration and development strategy, is very clear. “Decision analysis is part of how Chevron does business for a simple but powerful reason: it works,” he says in a short video that outlines how decision analysis is used in Chevron and the value it creates.

I’m with statistics guru Hans Rosling. “I am not an optimist,” he said in the New Year’s Eve edition of More or Less on BBC Radio 4. “I am a probabilist. I can see that progress in the world is possible, and even further and better.” He is displaying an important trait shared by skilled decision analysts and thinking in terms of possibilities and ranges, rather than fixating on a single point forecast of the future.

You may have completed the most perfect decision analysis, but if the recommendation is not actually implemented, the effort is completely wasted. Commitment to action is the sixth and final dimension of decision quality.

Sound reasoning is the logic that knits together and distils the Frame, Alternatives, Information and Preferences into a single clear choice. It is the fifth dimension of decision quality.

Preferences (or values) are “what we want” and the fourth dimension of decision quality. We all want more money, sooner, with less risk, but in the real world we cannot optimise in all three directions at once. Add in values such as saving lives, creating jobs and preserving the environment, and the task is truly impossible. We need therefore to make trade-offs, to give up one thing we want to get more of another. Making the right trade-offs is at the core of many decisions, particularly portfolio decision making.

Information is “what we know” and the third dimension of decision quality. For decision making we need information about the future, so don’t confuse information with “data”. There is no data about the future. Too little, or poor quality, information is clearly not ideal for decision making. But it can be just as bad to have too much information.

Alternatives are “what we can do” and the second dimension of decision quality. If we don’t have choices, there is no decision to be made! We need a manageable set of alternatives that are creative, feasible, significantly different, comprehensive and compelling.

The frame for a decision problem defines the question to be answered by the decision analysis. The right frame is essential for developing any strategy, because if we don’t answer the right strategic question, the entire analysis effort is wasted. A useful frame is the first dimension of decision quality.