I was talking with a friend about decision-making and decided to put together a list of principles for effective decision-making. This is my first shot. What do you think? What would you change?
- Effective decisions require that the right people are making them at the right time.
- It is imperative that the decision-makers understand the nature of the problem, why a decision is required, and what they are trying to achieve
- The decision-makers need reliable, complete and accurate, current, and timely information.
- Everybody whose information and insight into the situation and the effects of a decision should participate. The level of each individual’s participation may vary depending on such factors as how much they will be affected, the information and insight they offer, and so on.
- The alternatives should be identified and their potential effects on success understood.
- Consideration should be given to both the potential for harm and the opportunity for reward, recognizing that there may be both multiple ‘risks’ and multiple ‘opportunities’, with reliable analysis that weighs all the pros and cons in a disciplined manner.
- The depth of analysis and the time taken will vary depending on factors such as the urgency of the situation, the magnitude of the potential effects (both positive and negative), the authority of the decision-maker, and the complexity of the situation.
- Decision-makers and their advisors need to understand and allow for their cognitive and other biases that may influence their decisions.
- The effectiveness of a decision depends on a common and clear understanding of the decision and required actions, together with timely and clear communications.
- The effectiveness of a decision should generally be monitored and adjustments made as necessary.
- The authority to make decisions should be determined by senior management with the approval of the governing body.
- The governing body should be assured that the more significant decisions that will affect the overall success of the organization are made consistent with these principles.
I don’t want to have so many principles that they become impractical. While there is probably more to say, I think 12 should be a good number.
What do you think?
If you like these (perhaps with some change), what should this mean for:
- Other decision-makers?
- Risk practitioners?
- Internal auditors?
I welcome your thoughts.