Better decision making in business
One characteristic of great actuarial leaders is their ability to make effective decisions. They confidently make timely decisions while capably weighing up all relevant factors. From the outside, they make it look easy!
How do you make decisions? Do you use a special process, checklist or framework? Are you slow to decide, taking your time and gathering all relevant details, or do you prefer to act quickly? Do you gather data or go with your gut instinct?
A few weeks ago, I ran a webinar and shared my top tips for actuaries when stepping into management roles. In the final Q&A, Jason Qin asked for tips on how to make decisions and feel confident about your choice, particularly when you have two solutions that appear to be equally valid. Jason gave me the following example:
“Let’s say you are building a model and you need to decide between simplicity/efficiency vs complexity/accuracy/flexibility. In making your decision, you might take into account the usual things such as purpose, timing, stakeholder requirements etc. but I feel like it doesn’t really help much – both approaches will have their pros and cons, and it’s still hard to decide between the two. In addition, there’s also the pressure on getting it right the first time, because obviously you don’t want to re-do everything later down the track.”
His question really got me thinking! For many decisions, especially those I make regularly, I know which way to go without too much consideration. However, when decisions could go either way and there is not an obvious solution, I consider a range of strategies to help me make the decision. To get some diversity of views I reached out to five senior actuaries with deep experience in corporate decision making to ask for their advice and tips.
1. Make sure you understand the big picture
While it can be tempting to get straight into the detail of a decision, it can be worthwhile understanding the context first. Jennifer Lang, Actuary and Non Executive Director, suggests starting by making sure you understand the strategy and objectives of your organisation. She says that “the key to good decision making in a work context is to understand the strategy of your team. That can sound a bit fluffy, but if you know how your work fits into the bigger picture of your organisation, you will make better decisions.”
At the start of your career, you are often focussed on learning how to complete the technical part of your work. However, Jennifer points out the value in taking the time to understand your organisation’s strategy. She says: “Sometimes it can feel as if the time spent on the vision and strategy of your company is time taken away from your "real" work. But it can help you work out which parts of your "real" work matter the most, and will mean that you will better use your time to make a bigger difference to the business as a whole.”
2. Establish the core issue
Actuary, Adviser and Facilitator, Martin Mulcare, facilitates workshops where he shares a range of frameworks and processes for problem solving and decision making. Martin highlights the importance of taking the time to identify the core issue before attempting to make a decision. “Often the decision is being framed to answer the wrong question unless the core issue is identified. For example, a decision could be framed as “What new car should I buy?” This may lead to a poor decision without first resolving the core question of whether a new car is actually needed.”, says Martin.
3. Carefully select others to talk it through
As they become more senior, most actuaries feel more confident making decisions on their own. Experienced Chief Actuary and CFO, Mark Henderson notes that “With experience, many decisions will come fairly naturally or instinctively. You may have faced similar decisions previously and you won’t need a complex process to determine which way to go.”
But for some situations, the best way forward won’t be as easy to determine. Mark suggests carefully choosing a few people to talk the decision over with. “It can be worth talking the situation through with someone who is more experienced, such as your boss. It can also help to talk the situation through with people closer to the issues, even if they are more junior to you. The act of explaining the situation to someone else can help you assemble better your own thoughts and help you to clarify your position.”, says Mark.
4. Fully explore all available options
When the bigger picture and the core issue is well understood, you can then consider the available options.
At this point, Martin encourages us to consider the full range of options available. “Often the decision is framed in a binary manner (e.g. accept the risk or don’t accept the risk?) when there are many options in between (e.g. apply potential new mitigation techniques). Simplifying the decision or limiting the options may make the decision faster but it won’t necessarily make it better.”, says Martin.
5. What is the “right” thing to do?
When the options feel equivalent and there’s no clear frontrunner, it can help to consider what you think the “right” decision would be.
Genevieve Hayes, AI and analytics specialist, suggests considering all parties who may be impacted by your decision. “Think about how you would defend/explain each option to someone who is negatively impacted by the consequences of that decision? Almost every decision results in "winners" and "losers", but if you can't explain to someone why they are one of the "losers", then the choice you are considering making might not be all that good.”, says Genevieve.
CRO and experienced actuary, Iain Bulcraig concurs. He says that considering his values can help in close calls: “If in doubt, I make decisions based on my values. If you are aware of your values, you can make decisions with these in mind (when it is not an easy answer) at least you are making something you will always be “comfortable” with. This doesn’t mean just going for the “softest” option, as values can be integrity or consistency or compassion or justice. But if in doubt I would go there in my head and usually be happy with the call – and be able to explain why to others if needed.”
6. Apply a checklist or framework
Many actuaries find that having a process for structured decision making can reduce some of the stress and risk around making an important decision.
Martin reminds us of the ethical framework that was covered in the Professionalism Course. “Even if the decision is not apparently “ethical” in nature, I find that the three corners of the diagrams that were presented at the Professionalism Course are valuable in adopting diverse perspectives for the decision-making. Either of these can be selected, as appropriate, for personal decisions and business decisions.”
“I think that the bottom two perspectives in each are self-explanatory and usually considered, even if some people might overlook one of them in their thinking process. The top perspective is not so widely used but is especially helpful in addressing the challenge above quoted by Jason Qin. A trade-off between, say, simplicity and complexity may be answered by your personal values, as Iain Bulcraig also suggests, (“which characteristic do I want to be known for?”) or your organisation’s values (“which is more aligned to our brand?”). The main benefit in deploying the triangle is to avoid missing a critical dimension to your decision. I suggest that if you regularly deploy the triangle then it will become second nature and ensure that you make well rounded decisions.”
Mark also advocates using a checklist approach for business decisions. “It can help to have a checklist to help you systematically work through some decisions. This checklist, similar to the professional ethical framework above, includes:
What do I think is “the right thing” to do?
What professional standards or regulations apply to this situation?
What will my decision mean for various stakeholder groups? What might they want or need to know? Think 360 degrees – how will the decision impact your team, your peers, your boss – and what level of communication will be required to each of these groups.”
Mark recalls a previous boss who would say “You can’t overcommunicate”, so err on the side of more rather than less if unsure.
7. Identify priorities to assess trade-offs and negotiate if needed
Iain recalls a management training exercise he completed where he and his team had to work together to construct a wall that met certain criteria. While the exercise was challenging, the learning came from the reflection “There are normally three factors, and not all can be maximised/met, such as time, quality and cost/effort. You usually have to compromise on at least one, so faced with a decision I would ask myself “What is more critical? Being on time/quickly, being “right/auditable” or just doing it on my own without disturbing others or hiring help?”. If the answer was “all three” then you need to negotiate as this is impossible. It is all about setting expectations before you start, then you will have a framework for your decisions through the piece of work. Ideally, document the decision before you start!”
When faced with the accuracy / time trade-off, Iain’s advice is clear: “I would say 80% of time go quick and approximate rather than complex/accurate. You can always build on something simple and most senior managers would rather know a “good” estimate sooner rather than wait (in my experience). One option is to target giving a range quickly, which you can offer to refine with time, but may be enough for the purpose. Sometimes you may not be told the purpose (deliberately sometimes – it could be a decision on strategic investment or staffing options, hence you may not be told) so saying “I can give you a range in a couple of hours, provided I can make a couple of assumptions that I can share with you” may be the answer they are looking for. Then you have a decision making framework (again) with which to proceed.”
Jennifer’s point about understanding the bigger picture can also help assess trade-offs. She gives the following examples:
“What is the major product line for your business? Spend more time on models affecting the major product line than small products that aren't important for capital or profit
Is the model you are building for statutory reporting or for business planning? Each will have different trade-offs for accuracy, speed and future flexibility
Is the work you are doing a regular piece of work (such as statutory reporting), so that time spent improving efficiency will be useful in future, or a one off, where time spent improving flexibility for scenario testing will be useful?
What kind of decision is going to be made by the business from this model? How sensitive is that decision to speed or accuracy?”
“A team that is working really well together, and supporting the business well will understand quickly how to make these trade-offs.”, says Jennifer.
8. Remember you might make the wrong decision!
Despite our best efforts, we may discover that the decision we chose was wrong. To help navigate these situations, Martin suggests planning upfront how to measure the results and which parameters to set in order to review the decision.
“Examining how the decision is working out is vital so that we can make a tweak to the decision or revisit it if necessary. The value of this step is enhanced if some triggers are agreed in advance. For example, let’s say that a decision is made about a change in premium rates. I would hope that there would be some assessment of the impact on sales and premium revenue. It would be beneficial if, at the time, it was agreed that the decision would be deemed successful if the increase in premium revenue was, say, at least 10% but no more than 25%. If results fall outside the specified degree of variation then the decision would be reviewed.”, says Martin.
Conclusion
Some business decisions are easier than others, and with experience we become more confident in making effective decisions easily. When decisions involve two or more possible solutions it helps to understand your organisation’s objectives, ensure core issues are known, consult with others, consider all options, and employ checklists and frameworks to assess the options. It can also be helpful to consider your values, what you think is the “right” decision and determine how the impact of your decision could be measured and what would trigger a review of that decision.
Effective decision making isn’t always easy, but with practice and experience we can all make better decisions.
