Structured Decision Making – No Frets, No Regrets

(Last updated on: July 17, 2019)

Mediating Assessments for Wise Choices

structured decision making

There’s a new structured decision making tool, and it’s not only for business. It may strengthen us for some rare, difficult choices that we each have to make.

Choices and decisions: the average U.S. adult makes around 35,000 decisions every day, large and small. And a quick search turns up literally a million books, articles and blogs to help us make wise choices.

However, today’s blog offers something you have not seen before. In March Kahneman, Lovallo and Sibony (KLS) presented a new approach to important business decisions, drawing on studies of job candidate interviews. And the lead author, psychologist Daniel Kahneman, is worth listening to. He received the Nobel Prize in Economic Sciences for his work on cognitive biases that lead to poor decision making.

The KLS tool is a nuclear weapon compared with the wordy, fuzzy tools in management literature. It’s very effective in a business setting. However, it can also be valuable in the Business of Life, which we conduct every day.

In this blog I am translating the KLS work into terms that each of us can use. Here’s the plan for this blog:

The KLS Mediating Assessments Tool for Structured Decision Making

The KLS authors call their tool the Mediating Assessments Protocol (MAP). However, I don’t care for this name because although it’s distinctive, it’s not memorable. I prefer the term “KLS Tool”: this procedure is sufficiently valuable that it deserves a name that cannot be confused, and a name that credits its creators.

Many business questions require a yes or no answer. Should we hire a particular job candidate? Are we yet ready to launch our new product? Should we make a strategic acquisition?

Each of these situations depends on a huge amount of information. Somehow, management must digest the information and come up with a simple answer. Moreover, the future success of the business depends on arriving at the right answer often enough.

 Why People Often Make Poor Decisions

Decision making is fraught with peril. The elements of important decisions are often complex and contradictory. However, our minds want to simplify, to find an easy answer. For that reason, the deciding person or group forms a “mental model” that has these limitations:

  • The mental model simplifies and thus ignores the nuances of the true situation.
  • We form our mental model quickly, and then have great difficulty in amending it.
  • The mental model tends to be biased, relying on some factors to the exclusion of others that are just as important.

Successful companies have a continual flow of applicants for open jobs. And the company must make a “yes or no” decision on every candidate. This ongoing process at many firms generates mountains of data. Psychologists have been studying this information to discover what hiring processes are successful, meaning that they lead to new hires who perform successfully at the company.

 The KLS Tool for Structured Decision

KLS reference that body of research to describe the KLS tool. And their tool gives a recipe for a structured decision that a business can use for both strategic and tactical choices.

This is my version of the KLS procedure:

  • 1a. Compile a list of options among which we are trying to choose.
  • 1b. Define a comparison group against which we will grade each option.
  • 1c. Define the key evaluation factors. (Note: KLS do not adopt weights for each factor. The essence of their approach is discussion, not a simple numerical scoring.)
  • 1d. Define a scoring approach for each. KLS favor “percentile scales.” Each option is compared with the comparison group and given a percentage score. Thus, 10% would mean that the option is in the top 10% compared with the group, and so forth. (This avoids the hazards of a 0 to 10 scale, in which there’s a tendency to give multiple candidates the same number.)
  • 2. For each factor, use facts to rate each of the options. When rating a single factor, purposely ignore all the other factors. And people rating one factor should not influence those rating another factor.
  • 3. For each factor, discuss the ratings of that factor for all the options. Only after discussing all factors, start discussing the overall impression of each candidate.

(KLS merge 1a to 1d into a single item. However, I think the tool is clearer when these parts are spelled out as they are above.)

When Is a Structured Decision Useful in Everyday Life?

OK, let’s leave the worlds of academia and business and get into real life.

The KLS tool, with its seven (or three) steps is of no use for 99% of the decisions we make every day. I can choose an appetizer at a restaurant, or a time to set my alarm, very easily. I can follow my whims and be perfectly happy with the result.

However. Sometimes a pending decision weighs on your mind. It may disrupt your sleep. Or it may bring a headache or other symptom of stress.

On the rare occasions when a choice is so important, and so difficult, that it demands your full concentration – I suggest considering the KLS tool.

 Two Major Categories of Decision

Let’s be specific and talk about decisions that each of us may face. There are two major categories of choices we confront:

  • “Strategic”: One-off decisions that come rarely and can’t be easily reversed.
  • “Tactical”: Recurring decisions. They are often minor. In addition, they tend to be reversible, or at least repeatable at will.

In each category, there are decisions that are, and are not, appropriate for the KLS approach. I’d like to offer the following examples to consider:

 Strategic Decisions

Some strategic decisions are not appropriate for KLS: In these cases, the options are too numerous to list and choose between. It would be tedious to apply the KLS protocol. Here are some examples:

  • Set up a financial plan including budgeting.
  • Set up an investment plan including asset allocation percentages and choice of specific investments.
  • Remodel or redecorate your residence.
  • Decide when and how to retire.

Other strategic decisions may be appropriate for the KLS protocol: In these cases, there are limited numbers of options under consideration and lots of information to think about. Some examples:

  • Choosing a college to attend.
  • Selecting a major subject in college.
  • Choosing a professional specialty.
  • Moving into a committed relationship or marriage.
  • Choosing when to have a child.
  • Taking a new job.
  • Choosing an investment brokerage.
  • Buying a house.
  • Selecting a retirement city.
  • Choosing a retirement community.

 Tactical Decisions

Certain tactical decisions are not appropriate for KLS: In these cases, the factors that we consider most important may change with each recurrent decision. For that reason, it may not be worth the time required to develop a KLS-type protocol. Here are some examples:

  • Deciding whether to friend or follow someone.
  • Deciding on a social engagement.
  • Selecting a restaurant to go out to.
  • Choosing a new doctor.
  • Changing a bank relationship.
  • Choosing or changing an insurance plan (car, health, home).

Other tactical decisions may be appropriate for the KLS protocol: These situations are recurrent and have similar factors each time we face them. Some examples:

  • Deciding where to take a vacation or a cruise.
  • Choosing a car to buy or lease.
  • Hiring a household employee or domestic service.

Examples of a Structured Decision for Important Life Choices

Here are a few real-life situations where the KLS protocol might bring a better decision with less stress. For each one, I’ll offer specific examples of steps 1a, 1b and 1c: options; comparison group; and key factors.

 Example: Choosing a College

1a. Options to Consider: List of colleges I’m seriously considering or have offers from.

1b. Comparison Group: List of colleges whose graduates will be competing with me for a job or career.

1c. Key Factors: national ranking; ranking in my major; location; cost & aid available; friends attending; lodging; campus; activities available; reviews by graduates.

 Example: Taking a New Job

1a. Options to Consider: List of open jobs.

1b. Comparison Group: List of all the jobs I would like to have if they were available.

1c. Key Factors: pay; job security; opportunity for advancement; benefits; value on resume; good match to my skills; good company; like the boss; like the people; reviews by employees.

 Example: Choosing an Investment Company

1a. Options to Consider: List of candidate companies.

1b. Comparison Group: List of comparable companies described in review articles.

1c. Key Factors: cost & fees; adequate range of investments; quality and quantity of advice offered; account security; financial strength of company; analyst reports made available; ratings by online articles; reviews by customers.

 Example: Buying a House

1a. Options to Consider: List of likely candidate houses on the market.

1b. Comparison Group: List of similar homes in the same geographical area.

1c. Key Factors: price & comparables; location; ease / cost of upkeep; number of bedrooms, baths; quality and condition; landscaping; lot size & shape; floor plan / layout; government and schools.

These examples are illustrative, to clarify how the KLS tool could be used. I’m not suggesting that it’s necessary to adopt the KLS protocol for all these sample decisions. Nor would I presume that these are the specific lists and factors that would best suit you.

Recommendation: When To Apply This New Tool

The KLS tool does not have to be used beginning-to-end to provide you with value. You will still gain if you remember its underlying principle, which embodies an important lesson learned from psychological research on job hiring:

The accuracy of intuitive judgment is much improved by delaying a global evaluation until the end of a structured process.

Try to silence your “first impressions” and withhold your judgment until after you have studied all the options available. If you do so, research shows that you are more likely to make a wise choice.

Does the KLS approach for structured decision making appeal to you? Are there any life decisions where you would consider using it?

Image Credits:
– From pixabay: woman thinking by kaboompics; woman question mark by Sophieja23; man thinking by geralt
– Girl thinking by Public Domain Pictures on pexels

Comments

Structured Decision Making – No Frets, No Regrets — 2 Comments

  1. I’m not sure how to actually apply this in real life. Your examples stopped at 1c. So, then what? And also, it doesn’t look all that different from how I made similar decisions in the past.. except for the addition of the comparison group which does seem interesting (but I’m not sure how valuable that bit is; I need to run some simulated decisions I think…). So, my actual next big decision will be where to move to for our early retirement… how do I apply the full KLS to that>

    • Hi Cheryl, and thanks for your comment! It’s always best to work from a concrete example. And let me try that – although the whole idea of adapting a business tool to personal life is a bit of new research.

      Backing up to the motivation of KLS, what we’re trying to do is guard against forming a neat, simplified model of any of the choices. Any important decision, such as the retirement move, is messy, it contains contradictory factors. We want to avoid a premature decision, and not streamline the way we view any of the alternatives.

      More specifically, for choice of retirement location: let’s walk through the steps of the decision. And in line with your request, let’s try to apply the full KLS protocol.

      1a. List of options. These would be locations where you can imagine yourself living. I’d try to list a handful, in some specificity. For example: a home or villa in The Villages, Florida (the villages.com); a city apartment in Boston with elder in-home services (bmc.org/programs/elders-living-home); a highly rated CCRC such as Kahala Nui in Honolulu (kahalanui.com); a lakeside home in a mountain community with good services (say, Lake Arrowhead, California). Your list will be different, of course!

      1b. Comparison group. If your list of options has 3 to 5 candidates, you could add some also-rans or other places you’ve heard of to get a total comparison group of, let’s say, 10.

      1c. Evaluation factors. You may recall my blog on where to retire (https://artchester.net/2019/01/best-retirement-location/). Its top factors were daily personal contacts and people you trust to make your decisions when you can no longer make them yourself. But there may be additional factors that you consider important. For example: familiarity based on your past visits or knowledge; cost of living; local attractions (cultural, sports, educational, outdoors, etc) that you value; excellence of medical care, especially in specialties that may be relevant to you based on personal or family history.

      1d. Scoring approach. You have broad latitude here, but here’s what I’d try: Since the future is uncertain, I’d imagine a range of scenarios, all the way from optimistic to pessimistic. In some of them, there are serious physical or mental medical issues, or the passing of people you care about. In others there could be community problems such as high taxes or crime. This is a way to embrace, or at least consider, all the things that could happen years after you move.

      2. Choose one factor, such as medical care. Consider that all the scenarios are possible. Then put the whole 1b comparison group in rank order from best to worst for this one factor, given the range of scenarios. Most people are risk averse, so you might pay special attention to the worst scenarios and decide how the comparison group ranks in those scenarios. Then go on to another factor such as local attractions, or the close presence of family/friends. Try not to reach any conclusions yet.

      3. Discussion. This is best if you can recruit one or two family members or close friends to talk about what you have found. Talk through each of the 1c evaluation factors in turn, and how the 1a options measured up. For example, if you have three 1a options, they might rank 2, 4 and 5 among a comparison group of 10, when considering medical care. Only after discussing each of the evaluation factors, then discuss the relative merits of the 1a options. If you’ve done this well, none of the 1a options will seem perfect, each will have some relative pros and cons. When you get through discussing each of them you should have a nuanced appreciation of how well each might work for you.

      Whew! Perhaps that is Too Much Information. However, your decision is an important one, and if you choose wisely, one that you won’t have to repeat. So it might be worth putting some effort into.

      But if this seems like too much, you could drastically simplify by just applying the last paragraph of the blog – to hold back on drawing any conclusions at all until you have studied each option thoroughly. A decision delayed for good reason (the acquisition of data and understanding) is a wiser decision.

      If you try any of this, I’d love to hear what worked or didn’t work for you. This is research in progress! My very best wishes for your thoughtful decision –

      Art