Decision Processes and Support

This blog looks at:

• Decision making processes
• Problems with the decision making phases
• Bias
• Ideology
• Ethics
• Types of support for decision makers
• Plans
• Forecasts (prediction)
• Exploratory Analysis

The decision making process

This process has been described by a number of authors, each with their own varying steps. Simon (1977) describes the following phases:

1. Intelligence Phase - identify the problem
2. Design Phase - identify and evaluate alternative solutions
3. Choice Phase - selection of a solution
4. Implementation - implement the solution (monitor the result?)

Others divide the phases into an greater number of discrete steps, such as Champoux (2006, p 335):

1. Identify problems and solution criteria
2. Develop alternatives
3. Assess alternatives (rate each on a range of criteria?)
4. Choose an alternative (commit to one)
5. Carry out the decision
6. Assess the decision's effects

However, you can see that Simon's and Champoux's processes, are in essence the same. You can use either of these, or any other variant form as you see fit, however, if you say Simon's phases of decision-making most people will understand what you mean without needing to look up the reference. This process is referred to as "rational decision making'. In later blogs I question the validity and usefulness of such a discrete ordered sequence of clearly separated steps/phases and I relate this to modern methods of system's development. For now though I simply highlight some difficulties in each of Simon's phases.

Problems with the decision making phases

Phase 1 Problem identification:

What some people regard as a problem others may regard as entirely natural. For example, a recession may be seen by some as creating a problem of unemployment, however, others may argue that such cycles are an inevitable part of a free-market system and that these periods are to be accepted and endured. This occurred to some extent with the Global Financial Crisis in 2008. Some economists argued that it was difficult to detect a bubble, as if housing prices increase maybe wage increases will follow? (although in Australia in 2008 house prices had increased for many years without commensurate wage increases). Some discussion of this issue is available here.

Phase 2: Design a solution (generate and evaluate alternatives):

This requires collecting information. Often not enough information is available as needed. Furthermore, available information may be incomplete or biased, ignoring some data. This can lead to pre-determined, desired outcomes for vested interests (more on this later). The following hypothetical article on a US steel company by Gregg (1936) describes this point:

“Our great executive organizations,—f inancial, manufacturing, commercial, and governmental,—are so large that it is impossible for their chief executive officers to know the full truth about what is happening to the people in them. If, for instance, there is trouble in a little Minnesota iron mining town controlled by the U. S. Steel Corporation, the President of the Corporation cannot find the essential truth about it. He has not time to go there and look into it in person, and even if he did go, the people there would be so overawed by his position that they would be afraid to tell them all the details. If, instead, he writes to the local representative of the Steel Corporation in that town, that man, even assuming he is honest and fair-minded, will not tell the whole truth. He will not mention his own mistakes; he will not adversely criticise or “let down” his immediate subordinates because he relies on them to do what he thinks necessary. Nor will he criticise his superiors, because he depends on their favor for his job. All three of those people,—himself, his immediate subordinates and his superiors— are human and have therefore made mistakes. But none of those three sets of mistakes are going to get into that man's report to the President. Yet the President has to make an executive order based on that man's report. Hence it is practically impossible to have that order really just, because the facts needed for it cannot be obtained by the President who has to make it. When you add, as you must, an allowance for the average amount of selfishness, prejudice, pride, ignorance, stupidity, lack of imagination, ambition, jealousy, greed, and dishonesty, both in relation to the making of that report, the consideration of it by the President's assistants and advisers, and the administration of the President's order after it is made, the probabilities of injustice to the rank and file of workers and people on the periphery of that immense organization are greatly increased. Indeed, there is sure to be great and constant misunderstanding, injustice and consequent resentment and friction. That is true of all large executive organizations, no matter what their field of action. The larger they are the more certainly does this condition exist. Their very size makes them humanly inefficient, whether or not they are mechanically or financially efficient. Such a result is a matter of psychological necessity.”

De Bono (2005) argues that this phase needs more attention, as people do not generate enough alternatives. He argues that more creativity and lateral thinking is required before moving on to choose from the available alternatives.

Phase 3: Selection from alternatives (the decision)

Others argue that it is on the selection phase that people must concentrate. In a speech by Alan Greenspan, Chairman of the US Federal Reserve testifying to congress at the end of 2008 about what had caused the financial crisis (Patel, 2009) one panel member questioned Greenspan in relation to a previous statement by Greenspan about free markets (which I will examine in the next section):

WAXMAN: ... Do you feel that your ideology pushed you to make decisions that you wish you had not made?

GREENSPAN: Well, remember though, what an ideology is. Its a conceptual framework with [sic] the way people deal with reality. Everyone has one. You have to. To exist you need an ideology. The question is whether it is accurate or not. What I am saying to you is, yes, I found the flaw. I don't know how significant or permanent it is, but I have been very distressed by that fact.

(some text omitted)

WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

GREENSPAN: Precisely. That is precisely the reason I was shocked, because I had been going for 40 years or more with considerable evidence it was working exceptionally well.

Patel (2009) claims that Greenspan's ideology "warped his view about how the world was organised" and lead to poor decisions (i.e a poor selection from the possible alternatives).

Stage 4: Implementation – need buy in from various stakeholders.

In the implementation stage we are interested in both acting so as to implement the decision, but also in evaulating the effects and outcomes of our decision, ideally so that we can learn from past mistakes. When implementing decisions organisations should behave in a lawful way. However, in the documentary "The Corporation", the behaviour of organisations is examined by the film makers. They find that corporations often behave in ways that are consistent with psychopathic behaviour in humans, including (Patel, 2009):

1. Failure to conform to social norms with respect to lawful behaviours as indicated by performing acts that are grounds for arrest.
2. Deceitfulness, as indicated by repeated lying, use of aliases or conning others for personal profit or pleasure.
3. Impulsivity or failure to plan ahead
4. Irritability and aggressiveness, as indicated by repeated physical fights or assaults.
5. Reckless disregard for safety of self or others
6. Consistent irresponsibility, as indicated by repeated failures to sustain consistent work behaviour or honour financial obligations
7. Lack of remose, as indicated by being indifferent to or rationalising having hurt, mistreated, or stolen from another.

Negative impacts on others should be considered in our evaluation of our decision outcomes. Some authors, such as Naomi Klein (The Shock Doctrine) have documented the negative effects of various organisations on external parties. This raises obvious issues of ethics, but also of long term sustainability. One aspect of this problem is negativ e externalities. Negative externalities are costs of production paid by the public/society in terms of repairing environmental damage, paying for road systems to support industry as well as various subsidies. In one study it was estimated that for every private dollar spent on pesticides 80 cents of public money was spent to clean up their effects (Patel 2009).

One aspect of this problem seems to be that even if individual decision makers do want to act in a way that is ethical and sustainable (and reduce externalities), their business is punished by the market place. Patel (2009) cites Jan Kees Vis, Director of sustainable agriculture at Unilever (a company renowned for its environmental and sustainability leadership) as being caught in this dilemma. Patel (2009) argues that due to the hidden costs much food available at supermarkets that appears to be cheap food is in fact cheat food (as in passing some costs on to others).

The hidden costs of free goods are evident in other ways. Newspapers, for example, are now struggling to stay profitable with their bread-and-butter revenue of classifieds now moving to specialised online advertising companies (eg: carsales.com.au, domain.com.au). With more and more people reading papers for free online newspapers have less money for quality journalism. This is an effect which threatens the role of the media as a community watch dog over other democratic and legal systems (Patel 2009).

It is due to concerns about the above issues, among others, that triple-bottom-line accounting practices have been proposed. These suggest that business organisations focus not just on the traditional bottom line of profit, but also account for their organisation's effects on society and the environment (Lamberton, 2005). Triple-bottom-line accounting should support a broader consideration of the impacts of corporate decision making.

Types of Support for decision makers

This section is based on Schumacher (1973).

Decisions are typically made with some intended outcome or goal. Deciding on an appropriate goal is a significant problem in itself and one we will deal with separately later. But given that we have a goal, making a decision implies that that we expect that decision to lead us to, or closer to, that goal. But on what do we base that expectation? And how reliable is that basis? Clearly some things are reliably predictable, some things unreliably predictable and others entirely unpredictable. In choosing what you want to base your decisions on your first task is to determine which of these situations you are dealing with. If you believe something is predictable you need convincing reasons as to why you believe that and under what circumstances you may be proved wrong. Establishing the type of problem and environment you are dealing with will allow you to determine an appropriate basis for the decision. Three possible bases include (there are others): forecasts (predictions), plans and exploratory calculations.

Forecasts/Predictions

Forecasts (predictions) include the uncertainty of events in the real world, but not your acts in relation to those events. Eg: Will a trend of growth continue, flatten off or decline? When dealing with people and freedom of action prediction becomes difficult. Most of the time most people act fairly mechanically, however, a tiny minority can generate significant change and innovation which can disrupt these patterns (see also: Christensen, Horn and Johnson 2008). It might be possible in some cases to create sophisticated computer programs to apply mathematical pattern processing, however, the more sophistication needed to detect and extrapolate a pattern the more likely that pattern is a weak and obscure basis for extrapolation in real life.

Plans

Plans are a statement of intention. Plans can be certain in regard to what you are going to do (your acts are certain given a situation), but uncertain in relation to what might occur during the execution of your plan (events outside your control). In this sense they may include forecasts.

Exploratory calculations

Also known as feasibility studies. These are conditional statements which are presented as a certainty given that the conditions are true. “What if?” questions and extrapolations fall into this category unless they include many possible outcomes based on probabilities. Eg: “If such and such a trend of events continues for another x years, this is where it would take us”. Note this is not a forecast (prediction) as it is conditional and does not take into account uncertainty.

Note that forecasting is fraught with danger. The following provides a recent example of how forecasting models may fail. It is a speech by Alan Greenspan, Chairman of the US Federal Reserve testifying to congress at the end of 2008 about what had caused the financial crisis (Patel, 2009):

"a Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputed into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment."

According to Patel (2009) the model had faulty assumptions (based on limited data from recent decades) and so the output was wrong. He describes this as a classic case of Garbage-in-Garbage-Out (GIGO). The parameters were wrong so its outputs were wrong.

Measuring outcomes and risks

While we do not deal with determining goals here as a final point in this section we will raise some issues regarding outcomes of decisions. One issue that is of interest in particular is the effect on stakeholders. A stakeholder is anyone with an interest in what the organisation is doing (Jackson, 2003). Effects on, and the involvement of, stakeholders is an issue that we will continuously consider in later material. However, some issues that are worth considering in relation to setting goals is that decision makers tend to prefer quantifiable outcomes (measurable) however, Schumacher (1973) argues that we should not ignore qualitative aspects such as health, beauty, cleanliness. He asks the question of how these aspects can be valued in decision making. It is claimed that cost/benefit analysis can accommodate these types of values however Schumacher believes that in fact cost-benefit analysis is just a procedure whereby the priceless is given a price leading to self-deception or the deception of others; an elaborate method of moving from preconceived notions to foregone conclusions.  George Monbiot discusses exactly this in his article An answer to the meaning of life  in which he discusses how assigning values, which are essentially arbitrary, to nature allows developers to effectively provide economic rationales to justify the destruction of nature. To quote:

“Picture, for example, a planning enquiry for an opencast coal mine. The public benefits arising from the forests and meadows it will destroy have been costed at £1m per year. The income from opening the mine will be £10m per year. No further argument needs to be made. The coal mine’s barrister, presenting these figures to the enquiry, has an indefeasible case: public objections have already been addressed by the pricing exercise; there is nothing more to be discussed”

The cost-benefit nearly always “comes out right” for business.

References

Champoux, J.E. 2006. Organisational Behaviour: Integrating Individuals, Groups and Organisations. 3rd Edition. Thomson.

Christensen, C.M, Horn, M.B and Johnson, C.W, 2008, Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns, Mcgraw-Hill.

De Bono, E. 2005 De Bono's Thinking Course. BBC Books.

Gregg, R.B. 1936 The value of voluntary simplicity. Pendle Hill.

Jackson, C. 2003 Systems Thinking: Creative Holism for Managers, Wiley.

Lamberton, G. 2005. 'Sustainability accounting—a brief  history and conceptual framework', Accounting Forum, vol. 29 no. 1 March. Available here.

Patel, R. 2009. The Value of Nothing. Black Inc.

Minzberg, H. 1989 Mintzberg on Management: Inside Our Strange World of Organisations. Free Press.

Monbiot, G. 2011, An Answer To The Meaning of Life, Viewed June 30, 2011

Schumacher, E.F. 1973 Small is beautiful: a study of economics as if people mattered, London. Blond and Briggs.

Simon, H. 1977 The New Science of Management Decision. Englewood Cliffs, NK. Prentice Hall.