Business Case Studies, Executive Interviews, Derek W Bunn on Decision Making

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Executive Interviews: Interview with Derek W Bunn on Decision Making
May 2008 - By Dr. Nagendra V Chowdary

Derek W Bunn
Professor at London Business School.

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  • From your decades of teaching, research and consulting experiences, can you share with us your insights on decision making?
    There has been a tremendous amount of research on decision analysis, decision making and leadership. A lot of it is descriptive, and we all make mistakes in what we learn individually and collectively. Most organizations are too busy facing future challenges, that finding time for constructive reflection on the mistakes made, or the forecasts poorly conceived, or the targets missed, is often inconvenient. The normative research and consulting advice on how to improve decisionmaking often advocates more thorough analysis, but none of us can incorporate "infinite and impeccable pains" in our routine decision making. The challenge is to know how much analysis is appropriate. But more importantly, moving from analysis to action is crucial. There is an old phrase concerning 'paralysis through analysis', as too much analysis may indeed erode decisiveness and the motivation to make things happen. Moving from decision analysis to decision leadership is a crucial and special skill. Ultimately, analysis in management is about communicating a shared understanding of the options, risks and ambitions in going forward with a particular venture.

  • One of the books you wrote was, Analysis for Optimal Decisions. What according to you are optimal decisions? Can you give us few examples?
    I have touched on this issue above, and the more strategic the decisions, the more subtle is the notion of optimality. In many operational decisions, choice has clear outcomes, like where to buy raw materials, how much to produce from different factories, how many new workers to employ, etc. Even if these outcomes are uncertain, a range of possibilities can be conceived. An optimal decision will then balance various decisions with possible outcomes, look at the risks and seek to make a decision consistent with the risks that the organization has been or should be taking in its other activities. Here optimality has the connotation of coherence in risk taking. And that is the essence of decision theory. Decision analysis does not prescribe pure rationality; it just provides an extensive procedure for being more and more consistent in evaluating the risks and returns in various decisions. This of course becomes more and more difficult with the bigger decisions, especially as the stakeholders' risks in the company become more exposed. Hence, the importance of decision analysis being a communication framework for investor relations, for the major projects, as well an internal support to leadership.

  • What, according to you, are the similarities and dissimilarities between individual, managerial, executive, societal and governmental decisions.
    I think it is all a matter of ramifications. The principle is the same, in that decision-making is ultimately about being comfortable with the chosen course of action, thereby being clear what the sources of 'comfort' are. Usually, these will involve issues of clear reasoning, absence of contradictions, weighing of different objectives, evaluation of the risks, and a sense of consistency with other actions and attitudes. This might be purely intuitive for an individual, or involve facilitated group discussions for an organization. Decisions for external stakeholders, or that which involve political compromises, have the additional element of defensibility, which brings us back again to the role of decision analysis for persuasive communication.

  • One of your research interests is in decision technology. What is decision technology all about? Are there any tools/mathematical models/ decision trees, etc., that the students are taught?Was there a danger of tools being mistook as the decisions themselves?
    That is a very good point. There is a huge range of analytical approaches and software to help decision makers with forecasting and choosing. Most of these are in regular use by major companies. Airlines, for example, make new investments, schedule operations and adjust prices using very sophisticated decision technologies. Business schools teach the elements of these procedures. But you are right, there is a danger that insecure students, managers and politiciansmay believe themodels are more rational than themselves or prefer to put responsibility on the models rather than take it on themselves. Decision technology is only there to support decision makers. I usually emphasize to my students that if the results of the model surprise you, you have not finished modeling, the point being that the interaction of decision technology and human judgment should ultimately be a mutually coherent one each is informed by the other.

  • Is decision-making a science or an art? If it is to be believed as science, can its principles be applied universally? If it is an art, how can someone be trained to be an effective decision maker?
    There are an increasing number of scientific principles to rational decision making, and an increasing number of tools to help decision makers understand its complexity, but as long as the consequences involve human values and organizational evolution, decision making is not an exact science.

    Training in decision-making is about framing complex problems to elucidate the key issues, and communicate and improve the coherence of their analysis. What are the skills that strategy consultants bring to companies? They find the key facts, of course, but mainly they improve the dialogue and decisiveness as they identify the risks and opportunities to the company. Many of these skills can be taught.

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