- Two Sides of the Same Coin. - Decision analysis is the process of dismantling a decision so as to determine the inputs and processes that went into arriving at a decision.. - It follows that high quality decision making serves the purpose of risk management. - We begin with a definition for quality control in decision making. - This definition is then related to the four steps of the decision making process and finally to the three types of error (risk) that occur in each of the four steps.. - The paper concludes with an example of how methodical decision analysis leads to an understanding of the degree of risk in a decision.. - Poor decisions are risky. - make a bad investment or pur- chase a defect-prone vehicle), but that the decision was made without a full understanding of the uncertain- ties or risks involved.. - High quality decisions imply a complete understanding of the uncertainties involved. - High quality decisions are decisions in which the magni- tude of the risk of being wrong is understood.. - The quality of decisions can therefore be judged by the degree to which uncertainties (risks) are considered in the decision making process. - The highest quality decisions are the ones that have the least unknowns. - Risk management (planning for possible future events) therefore begins by ensuring that an organization’s decisions are of the highest possible quality given the constraints of time and resources.. - The quality of an organization’s risk management is the degree to which we understand the uncertainties (risks, implications) of future events. - The quality of one’s decision making is measured according to how well uncertainties have been considered.. - Quality controlling decisions are based on analysis of risk. - The thoroughness of the analysis determines the. - “quality” of the decisions.. - High quality decisions are not the best decisions in hindsight. - Instead, it is the best decision that could have been made given the resources and information available at the time of the decision.. - When we speak of identifying a problem we mean recognition and interpretation of the problem. - How one perceives the problem under consideration ultimately determines how the problem is analyzed in the decision-making steps that follow. - Step 2 is the identification of options from which the selection will ultimately be made. - This involves a comparison of the pros and cons, costs and benefits of each alternative based on criteria, and standards established by the person doing the analysis. - Instead, a preferred choice reflects the decision maker’s interpretation of the avail- able information and their unique sense of risk and return.. - Risk in the Decision-Making Process. - Analyzing risk requires an understanding of the types of uncertainty that can be incorporated into a decision.. - There are three sources of uncertainty inherent in decision making.. - Known unknowns. - Unknown unknowns. - Analytical bias. - Known unknowns are areas of uncertainty that are recognized and integrated into the decision-making process. - This is the stuff about which we know we should be concerned.. - In the example of choosing which type of new car to purchase, the known unknowns include future repair costs (after the warranty period is over) for one brand versus another, or residual value (sale price) after a number of years of use. - Unknown unknowns are risks (uncertainties) that are relevant to the decision but that are not included in the analysis. - This is the stuff that is ”off our radar”.. - When choosing a new car the unknown unknowns are possible events like: the car manufacturer going bank- rupt which voids the service warranty. - or the car being under- insured in the event of a major accident.. - Unknown unknowns are those possible events that you just would not normally think of in advance but could crop up to cause problems.. - Unknown unknowns are determined by your level of knowledge about a particular situation. - The more informed you are the fewer (or more obscure) the unknown unknowns.. - On the other hand, a layman who enters a court, preparing to defend himself, is likely to encounter many unknown unknowns. - Unknown unknowns are therefore the issues that increasing degrees of expertise will reveal. - The less you know, the more unknown unknowns there are—that is, the fewer known unknowns that you know.. - This is the stuff of habit, prejudice, and mental laziness.. - Analytical bias may be referred to as the unknown unknowns of the known unknowns. - Every analysis is a reflection (to some degree) of the person doing the analysis.. - Analytical bias is the difference between what we believe to be true and what is actually true. - It is the differ- ence between fact and perception.. - Critical thinking is the tool that is used to reveal bias. - It involves deconstructing the way someone is thinking into the elements or processes involved in the reasoning process. - Risk in Decision Making. - Broadly speaking, the risks inherent in a decision relate to the four steps in the decision making process.. - Identification and interpretation of the problem.. - Known unknowns – Have I defined my transport needs correctly?. - Unknown unknowns - Should I be considering alternative transport options?. - Known unknowns – Have I considered all possible manufacturers?. - Unknown unknowns - Is it possible that there are custom-made vehicles that would provide the best value?. - Known unknowns – Have I considered the most important selection criteria?. - Unknown unknowns – How will future technologies affect resale value?. - Known unknowns – one of the other choices may prove to have lower maintenance costs, and therefore to have been a better choice in the long run.. - Unknown unknowns – What vehicles and options are going to be available in the upcoming model year that might have changed my decision?. - Quality Decision Making. - they are “a stab in the dark.”. - So, to understand the quality of a decision we must understand the weaknesses in the inputs that have gone into the decision making process and in the approaches taken to reaching the decision.. - The degree to which the various sources of risk in a decision are considered determines the quality of the decision.. - When it comes to the decision about which car to choose, in order to judge quality we would ask questions about each of the decision steps and the areas of uncertainty.. - How much effort went in to reviewing the product offerings that appeared to meet the decision maker’s needs?. - Can the final choice be explained in terms of the selection criteria or did some extraneous factors drive the decision?. - The answers to these questions will ultimately determine the score that an observer would give to the decision that has been made.. - What is the key question under consideration. - The person receiving the advice is responsible for the final step in decision-making: making a choice.. - Quality decision-making requires consideration of uncertainty in all four steps in the decision making process.. - The more thorough and balanced the analysis, the greater the potential for high quality decision-making.. - When is the analysis complete? When has enough effort gone in to quantifying risks?. - The answer depends on the relative importance of the decision. - Whether it is a “high quality” decision depends on our degree of understanding of the uncertainties around which we must make a decision.. - Quality control of analysis – is the comparison of options balanced, complete, and correct?. - Whether we feel adequately informed is a personal choice that reflects the significance of the decision.. - Known Unknowns – my medical knowledge is limited so that my diagnoses of how serious the problem is is prone to error.. - Unknown Unknowns – could be a radiation leak at work. - Known Unknowns – My family physician may never have seen this kind of thing before and will be unable to diagnose it properly.. - Unknown Unknowns – My neighbor just went through a diagnosis for exactly the same symptoms.. - Known Unknowns – Family physician is least inexpensive but least well equipped to do fancy testing.. - Unknown Unknowns – There are specialists who do nothing but treat hips.. - Known Unknowns – It will be expensive. - Unknown Unknowns – Cannot go direct to cancer clinic because patients must be referred by family physician.. - Analytical Bias – Cancer runs in the family and therefore a tumor must be what is causing the pain.. - Looking Back at the Decision. - How good was the decision to go directly to a cancer clinic in order to have a painful hip diagnosed?. - In addition, all stages of the analysis are badly skewed by the decision maker’s biases. - High quality decisions are reached through a methodical and imaginative analysis of each step in terms of the uncertainties associated with them.. - They understate risks and over- state the significance of information that the decision maker believes to be true because of his or her biases.. - Risk management begins by ensuring that decisions are of the highest quality possible.. - means how thoroughly and effectively uncertainties have been considered in the pre-decision analysis.. - Decision analysis is the process of dissecting the inputs to a decision. - It is the basis of risk management.. - And low risk decisions are ones that will result in the fewest headaches in the future.. - Critical Thinking, Problem Solving, and Decision Making. - Brian Egan is the CEO of the Book Box Company and principal of Briny Deep Consulting
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