DECISION MAKING IN BUSINESS A FINANCE & MANAGEMENT SPECIAL REPORT

DECISION MAKING IN BUSINESS
A FINANCE & MANAGEMENT SPECIAL REPORT
SR37 | JUNE 2012
BUSINESS WITH CONFIDENCE
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DECISION MAKING IN BUSINESS
A special report published by:
Finance and Management Faculty
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Emma Riddell
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Jennifer Chong
Technical manager
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E [email protected]
Rick Payne
Finance direction programme
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Caroline Wigham
Services manager
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This special report is one of a series
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within finance and management, offering
both analysis of the relevant theory and a
review of the practical application of
appropriate management techniques.
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ISBN 978-0-85760-624-2
FOREWORD
THE POWER OF CHOICE
‘Good decisions come from experience. Experience comes from making bad
decisions’ – Mark Twain, American novelist and journalist
Decision making is a vitally important activity that lies at the centre of every
business. Many business decisions can be complicated but, regardless of the
complexities, there are fundamental steps and techniques which decision
makers should follow to ensure a robust decision-making process.
All decisions are made under a degree of uncertainty. There is always the
possibility of a bad outcome arising irrespective of the quality of the decisionmaking process. Even if the decision was considered ‘good’ at a particular
point in time, there is still a chance of an unfavourable result due to
uncontrollable factors. Consequently, it is difficult to judge the quality of a
decision based solely on its outcome. As a result, it is necessary to distinguish
between good and bad decisions by evaluating the process undertaken – such
as how the decision was actually made and who was involved.
As decision making is a broad topic, this special report is not a
comprehensive step-by-step guide but aims to provide an overview of the key
aspects you should understand to improve your current processes.
The report is split into two sections. ‘Practical tips’ offers useful guidance
including a case study and experiences from members of the faculty
committee. ‘The big picture’ examines the theory behind the process from a
leadership and data quality perspective.
Behavioural factors
One of the key themes emphasised is the behavioural aspect of a decision.
Throughout this report, references are made to Gary Klein’s ‘recognition
primed decision model’ which highlights that faults often lie with the decision
maker and not the decision-making process. Human emotions can play a
significant role with recent losses or gains clearly influencing the final decision.
To avoid making unsound decisions, it is vital to constrain human tendencies
to make snap judgments. Four safeguards are outlined (on page 03) which
one can use to counterbalance the effects of flawed thought patterns.
Management places great reliance on both quantitative information and
qualitative factors (such as experience, intuition and moral conviction). As a
large majority of business decisions involve groups, improvements can be
achieved from collective insights and contributions across departments.
Decisions made in groups are one way to constrain individual biases.
However, hindrances can occur through ‘groupthink’ where group blind spots
result in a compromised decision.
In summary, if decision makers and those that oversee them are aware of
their strengths and weaknesses, are well prepared and mindful of a variety of
decision-making traps, then choices can be made which are more likely to
result in business success.
I hope you find this publication useful and that it will assist you in making
better business decisions in the future. Please contact me if you have any
comments – or share your opinions on the faculty’s LinkedIn pages.
Jennifer Chong
Jennifer Chong is
technical manager of
Finance and
Management
Faculty, ICAEW.
icaew.com/fmfac
DECISION MAKING IN BUSINESS
CONTENTS
PRACTICAL TIPS
THE BIG PICTURE
02 MANAGEMENT
HOW TO AVOID MAKING BAD DECISIONS
Practical tips from Jo Whitehead and Andrew Campbell on
how to avoid making flawed decisions.
16 LEADERSHIP
WHY SUCCESSFUL DECISION MAKERS ARE GOOD
LISTENERS
Morgen Witzel looks at historical examples to show how
leadership requires a collaborative approach to decision
making.
06 CASE STUDY
HOW BOOTS RAN INTO A SERVICES PROBLEM
The case study highlights the problem of misleading
prejudgments.
07 TOOLS AND TECHNIQUES
THE ART OF DECISION MAKING IN BUSINESS
The authors, MindTools.com, explain the key issues for
organisations and suggest techniques to adopt for good
decisions.
10 GROUP DECISIONS
STOP ‘GROUPTHINK’ DAMAGING YOUR BUSINESS
Tony Powell explains how decision making, particularly when
working in a group, can be improved.
18 THE DATA REVOLUTION
TRENDS IN INFORMATION MANAGEMENT FOR
DECISION MAKING
Dr Mike Kennerley outlines the recent developments in
business processes that spur decision-making efficiency.
21 APPENDIX – FURTHER READING
BOOKS, JOURNAL ARTICLES AND MORE...
The ICAEW Library and Information Service suggests book and
journal titles for further reading in this area.
13 THE FINANCE FUNCTION
THE ROLE OF FINANCE IN THE DECISION-MAKING
PROCESS
FDs are shouldering broader responsibilities – Jennifer
Chong and faculty committee members look at the various
roles and offer some practical advice.
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
01
PRACTICAL TIPS – MANAGEMENT
HOW TO AVOID MAKING BAD
DECISIONS
Effective business executives are still capable of making flawed decisions which can
damage their organisations. Jo Whitehead and Andrew Campbell look at the
issues and suggest ways in which these can be addressed.*
Events in global finance in recent years have provided an
abundance of examples of how organisations’ super
heroes – as they were once hailed – can simply get it
wrong. So did regulators and politicians. However, those
bad decisions affected not only our banking system, but
the broader world of business and politics.
Everyday decisions to hire or promote key managers, to
invest in new technologies or acquire new businesses,
may be fatally flawed from the outset. Starting from our
premise that most good leaders intend to make good
decisions, we explore here why so many make bad ones.
How our brain can let us down
People often ask, with incredulity, how experienced and
clever people can make such bad decisions. Bad
decisions are often simply the result of the downside of
brain processes that have served humankind well and are
usually – but not always – reliable. Neuroscience reveals
that the brain depends primarily on two hardwired
processes for decision making: pattern recognition and
emotional tagging.
Pattern recognition
Pattern recognition is a complex process that integrates
information from many parts of the brain. Faced with a
new situation, the brain makes assumptions based on
prior experiences and judgments that have been stored in
memory.
Take, for example, Hurricane Katrina. Matthew
Broderick, chief of Homeland Security Operations Center,
had learnt from his experiences in military operations in
Vietnam and in previous hurricanes, that early reports
surrounding a major event are often false. It’s better to
wait for a ‘ground truth’ from a reliable source before
acting. Despite 17 reports of major flooding and levee
breaches some 12 hours after Hurricane Katrina struck,
Jo Whitehead is a director of
Ashridge Strategic Management
Centre.
[email protected]
Andrew Campbell is a director of
Ashridge Strategic Management
Centre.
[email protected]
02
Broderick believed reports from the Army Corps of
Engineers that there were no breaches, plus a CNN report
of residents partying in the belief they had escaped
unscathed. And so he went home, after issuing a situation
report that the levees had not been breached. His
pattern-recognition process told him that until he had
reliable reports of flooding he should take no action.
Broderick had not experienced a hurricane in a city built
below sea level. Unlike in Florida, where floods caused by
storms rapidly retreated back to the sea, the
consequences of a breach of the levees in New Orleans
would be disastrous.
Many leaders will have had experiences similar to
Broderick’s. How many times, on moving to a new
organisation, have we instinctively resorted to imposing
solutions and approaches that were successful in our
previous organisation and with our previous team, only to
discover that they simply don’t work this time round?
Emotional tagging
This is the process by which emotional information
attaches itself to the thoughts and experiences stored in
our memories. This emotional information tells us
whether to pay attention to something or not, and it tells
us what sort of action we should be contemplating
(immediate or postponed, fight or flight). If parts of our
brain controlling emotions are damaged, even though we
retain the capacity for objective analysis, we become slow
and incompetent decision makers.
Emotional tagging was at play in the case of Wang
Laboratories, the most successful company in the wordprocessing industry in the 1980s. Founder An Wang
believed he had been cheated by IBM over a new
technology he invented early in his career. His dislike of
IBM led him to create a proprietary operating system
even though the IBM PC was clearly becoming the
dominant standard in the industry. This decision
contributed to the company’s demise in the 1990s.
The instinctive route to decision making
Faced with a decision, we assess the situation and choose
to act or not by using pattern recognition and emotional
tags. But why can’t we spot the distortions of our own
thinking, or know how well we are actually counterbalancing what we might be aware of as ‘gut’ reaction,
with what we perceive to be rational thought and data?
* This article is largely based on their book Think Again:
Why Good Leaders make Bad Decisions and How to
Keep It From Happening to You, co-authored with
Sydney Finkelstein of Tuck School, Dartmouth.
Further ideas are discussed at www.thinkagainbook.com
icaew.com/fmfac
‘ By nature our brains do not lay out options
and evaluate alternatives. We rely on
unconscious processes ’
One of the primary new insights we have gained is how
little of our own decision processes we are able
consciously to audit. As research by Gary Klein
demonstrates (Sources of Power: How People Make
Decisions, MIT Press, 1999), pattern recognition and
emotional tagging happen almost instantaneously and
our brains leap to conclusions, reluctant to consider
alternatives. We then make an emotional investment in
our initial, automatic judgment.
We are particularly bad at revisiting our initial
assessment of a situation – our initial frame. By nature our
brains do not lay out options and evaluate alternatives.
We rely on unconscious processes to bring a plan of
action to our consciousness and then assess that plan to
see if it makes sense, before considering others. If we
imagine that our first plan will work, we do not normally
consider alternatives.
So our brains work in a ‘one plan at a time’ mode. The
resulting plan we arrive at will be tagged with an emotion
determined by the level of confidence we have in our
imagination of what will happen and the positive
emotions we have towards expected outcomes (see
Figure 1 below).
If we recognise that our brains can lead us to arrive at
flawed decisions, what can leaders do to increase their
chances of avoiding pitfalls? First, recognise the
conditions under which decisions are more likely to be
flawed.
Red flag conditions
We have identified four ‘red flag’ conditions that are likely
to lead to distortions in the decision maker’s judgment:
• misleading experiences – these occur when we are faced
with an unfamiliar situation, especially if it appears
familiar. Under these conditions we can think we
recognise something when we do not;
• misleading prejudgments – when our thinking has been
primed before we begin to evaluate the situation by
previous judgments or decisions we have made that
connect with the current situation;
• inappropriate self-interest – this happens when emotions
produce inappropriate motivations and arises when our
self-interest becomes misaligned; and
• inappropriate attachments – these include attachments
we might feel towards people, organisations or things
that result in choices being made without carefully
weighing up the alternative options.
We can all cite examples from our own professional lives
in which ‘red flag’ conditions have existed. Even with
raised awareness of these, how can we ensure that we are
less likely to make flawed decisions in the future? Is it
enough to rely on the wisdom of experienced chairmen,
the humility of CEOs to question their own decisions, or
standard organisational checks and balances? We urge all
those involved in important decisions to consider whether
red flags exist. If they don’t, decisions may need fewer
checks and balances. But if they do, the decisions with
the highest stakes should be subjected to more robust
safeguards.
Safeguards
We have identified many process ‘safeguards’ – additions
to any standard decision process that can counterbalance
the effects of distorted thinking. Most safeguards are well
known – the challenge is to pick the right ones for the
particular red flag condition. For example, a presentation
from an expert consultant might be a suitable safeguard
for a decision maker who has misleading experiences
about a new market entry. However, if that decision
maker is a CEO with strong prejudgments, they might
need a stronger challenge – perhaps from the chairman
or board.
Safeguards can involve a wide range of interventions,
process changes, people choices, analytical techniques
and other mechanisms that can be put in place to reduce
Figure 1 THE ONE-PLAN-AT-A-TIME PROCESS
Sensory
inputs
Create actionorientated
situation
assessment
Select suitable
action plan
Imagine likely
outcomes
Decide and
commit
If outcomes are
problematic
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
03
‘ Creating a debate which challenges biases
need not involve an elaborate process. It
could mean simply chatting ’
the risk of a flawed decision. We use this term because
they provide a guard against flawed decisions, although
not a guarantee that no mistakes will be made. We
cannot eliminate human biases, but we can
counterbalance their potential effects.
Safeguards can be grouped into four categories.
entering a new market. Consultants could be brought in,
partly for their expertise and readily available manpower,
but also because they are relatively objective. BP
sometimes employs two firms of lawyers to get
contrasting views for very important decisions, such as
major acquisitions (see Box 1, below).
1. Experience, data and analysis
In business, there are many ways data can be collected
and experience broadened. A discussion with a key
customer can provide valuable feedback on a proposed
new product. Market research might evaluate the risks of
2. Debate and challenge
Creating a debate which challenges biases need not
involve an elaborate process. It could mean simply
chatting through an issue with a friend or colleague.
However, in large organisations a typical approach is to
Box 1 TYPE OF EXPERIENCE, DATA AND ANALYSIS SAFEGUARDS
04
SAFEGUARD CONCEPT
EXAMPLE
Expose decision makers to new
experiences
• Organise customer visits, days in the field.
• Allocate information-collecting roles to executives – eg, R&D, marketing.
• Share information about the industry on a regular basis.
• Increase the flow of real-time information to executives.
Appoint advisers who have
different experiences from
those of the decision makers
• Use internal experts or people from diverse parts of the organisation for particular analytical
modules.
• Do interviews with external experts, people with other experience.
• Use outside consultants with specialist expertise.
Buy in data and analysis
• Purchase or commission industry reports and studies.
• Use case studies, industry analogies, or analogies with other decisions, industry life-cycle
analysis and patterns from others’ experience.
Do analysis of key assumptions
• Focus analysis on specific elements of the classical decision process – eg, create alternative
frames for the problem, lay out the link between the frame and the criteria, identify
potential options, discuss the key assumptions, create detailed implementation.
• Do extra modules of analysis on key areas of uncertainty, particularly where experience
about these uncertainties is limited – eg, test key assumptions, evaluate risk/return tradeoffs between different options.
• Do extra modules of analysis for areas where there are apparently anomalous results—eg,
analyse the potential meanings of weak signals.
• Pressure test the proposed solution – eg, adding 25% to the downside case.
• Create a simulation to model the consequences of particular choices.
Use provocative data and
analysis to challenge strongly
held prejudgments or other
powerful emotional tags
• Ask decision makers to list weaknesses in their argument.
• Use very compelling and counterintuitive analogies or case studies to challenge key
assumptions.
• Adopt a ‘blank sheet of paper’ approach, starting with the framing and the selection of
options.
• Commission provocative studies by an individual or a group that does not share the
emotional connections to members of the group – eg, to evaluate second-choice options.
• Use ‘frame breaking’ techniques such as scenario analysis to challenge existing views of the
situation, or gaming to challenge how a range of options might turn out.
• Make decision makers analyse how a competitor or start-up might attack their business, so
that they think of different frames or options.
icaew.com/fmfac
‘ The main challenge in identifying
safeguards is to have just enough in place
without jeopardising efficient decision
making ’
form a decision group. The choices of who is in the
group, who is the leader and the process for the group to
follow are all important. While many such groups operate
with simple guidelines, there are a host of more elaborate
approaches – such as splitting the authoriser, evaluator
and proposer roles, allocating ‘hats’ to different people
(as suggested by the lateral thinker, Edward de Bono),
role-playing or the devil’s advocate method (in which a
subgroup attacks the proposed option).
What if debate is not enough? In some situations
genuine debate is difficult to generate – or unlikely to
affect the views of the primary decision maker. For
example, when there is a powerful, charismatic and (up
to that point) successful decision maker, challenging him
or her to think again may simply be impractical.
Challenging such individuals by redesigning the
decision group and process is unlikely to be effective –
especially when the individuals concerned are in charge
of the design. In such situations, an even stronger
safeguard is required. Sometimes the only way to
significantly reduce the risk of a flawed decision is
through a strong governance process. This is the third
type of safeguard.
3. Governance
Someone with power and strong prejudgments may be
resistant to new analysis or a group process. In this case it
may be necessary to strengthen the governance process –
perhaps by setting up a special subcommittee of the
board to review the proposal in detail.
Before this research, we were sceptical about the
amount of effort being put into corporate governance
and the need to have independent chairmen of public
companies. We felt that independent chairmen are
unlikely to understand the businesses well; hence they
may be more of a hindrance than a help. However,
having completed this research, we are more aware of
the problem that independent chairmen can solve:
helping protect against flawed decisions. When red flags
exist that cannot be addressed by additional data or
additional debate an independent chairman is vital.
4. Monitoring
Finally, particularly when there is a risk that all these
safeguards are still insufficient, it may be sensible to beef
up the monitoring process – for example, by setting
clear milestones, monitoring performance and adjusting
the strategy accordingly. Typically it is reviewed by senior
management. Otherwise there is a danger that warning
signals are not communicated to the decision makers.
Monitoring, of course, is a normal part of almost every
decision. What we are suggesting here is that, for some
decisions, where there are red flag conditions that
managers believe are hard to address with the first three
categories of safeguard, then the last defence is to put in
place some extra monitoring. The safeguard is the extra
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
monitoring over and above what would have occurred
anyway.
Just enough process
Safeguards are all well and good, but they also have their
downside. In particular, they can slow down the decisionmaking process. The main challenge in identifying
safeguards is to have just enough in place without
jeopardising efficient decision making. It is necessary to
use safeguards that are powerful and focused on
counterbalancing the red flag conditions. But it is also
necessary to avoid ones that have toxic side effects, such
as delaying the decision or bogging it down in
bureaucracy.
Anyone with experience of large, bureaucratic
organisations will be aware of the stifling nature of many
decision processes. ‘More process’ is not always ‘good
process’. Elaborate processes can quench motivation and
kill initiative. Collecting all possible data can be costly, or
delay decisions, making them irrelevant. Just enough
process is required. Enough – but only just enough. The
right safeguards are those that powerfully address the
specific red flag conditions of a particular decision, with
manageable side effects. The worst decision processes
may not always be those with too few safeguards but
those that have too many.
Conclusion
Whilst it might be discouraging to discover that our
brains predispose us to some errors of judgment in our
decision making, leaders can take heart. If you are
prepared to be more reflective about the decision-making
processes, you can identify where there are red flag
conditions. Once aware of these, you can introduce
extra safeguards which counterbalance the risks of a
flawed decision. Whilst you can’t ever eliminate the risk of
errors in your decision making, you can reduce the odds!
Further ideas are discussed in our book Think Again and
on our website, www.thinkagain-book.com.
FURTHER READING
• Bazerman, MH. Judgment in Managerial Decision
Making 6th ed: Wiley, 2006
• Goleman, D. Emotional Intelligence: Why It Can
Matter More Than IQ, 10th Anniversary reissue
• Kamerer, C; Loewenstein, G; Przelec,.
‘Neuroecomonics: how neuroscience can inform
economics’ Journal of Economic Literature XL111, no1
(2005): 9-64
• Roberto, MA. Why Great Leaders Don’t Take Yes for an
Answer: Managing for Conflict and Concensus Upper
Saddle River, New Jersey: Pearson Education
Publishing as Wharton School Publishing, 2005
05
PRACTICAL TIPS – CASE STUDY
HOW BOOTS RAN INTO A SERVICES
PROBLEM
Here Jo Whitehead and Andrew Campbell report on their discussions with the
Boots chief executive who led his group into a an unsuccessful strategy – illustrating
the ‘red flag’ problem of misleading prejudgments.
Steve Russell was joint managing director of Boots,
Britain’s largest drugstore chain, between 1997 and
2000, and CEO between 2000 and 2004. We spoke to
him in 2006, more than a year after he had resigned
following a turbulent time as leader of the company.
For years, ‘Boots the Chemist’ was a household name,
boasting dominant market share, high margins and
prime retail sites on every British high street. But the
company’s dominant position left it little opportunity
for further growth, and, more worrying, supermarket
chains were expanding their range of drugstore
products and taking market share.
When Russell became joint managing director,
Boots had already tried a number of different ways of
growing. One strategy had been to acquire other
British retail businesses with growth potential. Another
strategy was to take the drugstore business to other
countries. The first had been unsuccessful: the new
acquisitions had underperformed and were
subsequently sold. The second strategy was not
showing much promise.
‘For at least 10 years I had believed that Boots
ought to be able to go from being a pharmacist into
health care,’ explained Russell. ‘I could see Boots
becoming the health care provider to the nation. All
my research told me that there was a huge latent
desire for additional health provision in Britain. I had
been formulating this ambition for Boots since I was
merchandising director of Boots the Chemist in the
late 1980s. So, when I became CEO, I was determined
to make it happen.’
Broad support
Russell’s plan was to build on Boots’ health and
beauty positioning. He discontinued some unrelated
lines, expanded the health range and launched
additional health and well-being services, such as
dentistry, chiropody and travel inoculations. Some of
‘ Russell hired consultants. He involved
his managers in developing the
thinking. He was supported by an
analytically oriented head of strategy.
Nevertheless, his preferences were based
on his prejudgments ’
06
these services could be co-located in the retail outlets
to utilise spare retail space.
There was broad support for the focus on health
and beauty, but some opposition to the move into
services. Some board members were lukewarm and
the financial community, in both London and New
York, was dubious. ‘In London, they argued that we
should focus on the core. In New York, they were
more excited about the growth potential but
concerned about the risks,’ Russell explained.
‘These influences did not cause me to be more
cautious. I knew that I could not sit around being
cautious. If I was going to try to make change of this
kind in a public company I needed to push on. I
thought it was my role to move Boots forward.
Frankly, if people wanted something else, they would
need to do it without me. I would not have managed
Boots for cash. Even if the logic for focusing on cash
had been overwhelming, I still would not have done
it. My concern was that the company was on the
verge of becoming bereft of hope or ambition.’
Unfortunately for Boots and for Russell, although
the health and beauty positioning was sound, the
strategy of expanding into services did not succeed.
With hindsight, Russell commented, ‘The problem was
an execution problem. We did not have the knowhow to make these services work. We should not have
tried to do so much of it ourselves.’ Other managers
suggested, however, that many of the services Boots
tried to enter were inherently low-margin businesses.
Enthusiastic
Why was Steve Russell so enthusiastic about a services
strategy? Why was he comfortable ‘pushing on’ in the
face of scepticism? Why did he fail to anticipate the
execution challenges that undermined success? The
answer lies, at least in part, in the prejudgments he
had made 10 years earlier, when he was
merchandising director of the chain. He decided that
Boots could build on and strengthen its retail position
by becoming a ‘health care provider to the nation’,
and this vision included expanding into health and
well-being services.
Russell’s decision is a classic example of the
influence of prejudgments. This is not to suggest that
he carried out no analysis or ignored other options.
Russell hired consultants. He involved his managers in
developing the thinking. He was supported by an
analytically oriented head of strategy.
Nevertheless, his preferences were based on his
prejudgments, well articulated by his comment
‘I thought it was my role to move Boots forward.
Frankly, if people wanted something else, they would
need to do it without me.’ These prejudgments are
likely to have influenced the decisions that were
made.
icaew.com/fmfac
PRACTICAL TIPS – TOOLS AND TECHNIQUES
THE ART OF DECISION MAKING IN
BUSINESS
Making decisions may seem to be a simple matter, but in business making the right choices
can ensure corporate success. Here James Manktelow, Tom Hallett and Heather Levin
look at the issues and suggest techniques to adopt to make good decisions.
We make hundreds of decisions every day. Most of these
are simple and subconscious: we decide what to wear to
work, what to eat for breakfast, what time to leave home
and whether or not to take a colleague out to lunch.
However, from time to time, we can need to make
more complex and uncertain decisions. These decisions
can have an impact on our career, our team’s
effectiveness, our clients, and whether or not our
organisation achieves its strategic goals. We have to
consider consequences, assess risks, weigh options,
brainstorm alternatives and forecast possible outcomes
when making these decisions.
Decisions are defined as choices that we make, based
on facts, biases, emotions, reason, or memories. So, how
can we make good decisions? There are several different
types of decisions that we can make:
• programmed decisions are routine choices that we
make on a regular basis. They often rely on an
established process;
• non-programmed decisions are complex or unusual
ones that require original, creative thinking;
• strategic decisions affect the strategic goals of our
organisation. These are ‘big picture’ decisions;
• tactical decisions support our big picture strategic
decisions. They define the actions that we’ll take to
achieve our overall strategy; and
• operational decisions influence how day-to-day business
is done. They are usually related to a process.
If you’re a business leader, you may spend the majority of
your time making non-programmed and strategic
decisions. If you’re a manager, you may make
predominantly tactical decisions. Or, if you work directly
with customers or clients, you may be concerned with
operational decisions.
It’s important to realise that your personality, as well as
the corporate culture you work in, also influences your
decision making. For instance, people with extrovert
personalities may thrive on the rush and excitement they
feel when making last-minute decisions, even on
important issues. More introverted people may take their
time with decisions; even ones that don’t need much
consideration or analysis. So it’s useful to consider your
natural tendencies when making decisions. Also,
remember to take other people’s personality and cultures
into account when considering their decisions.
James Manktelow is CEO
of MindTools.com and
has written seven books
on management,
leadership, and personal
effectiveness.
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
Using a decision-making process
It’s helpful to use structured decision-making processes for
several reasons. First, by going through organised steps,
you ensure that you don’t miss important elements or
perspectives. As well as this, you’ll remember to use
specific decision-making tools within each step to enrich
your analysis, to identify the best possible approach and
to cope with uncertainty and risk.
Another benefit to using an established process is that
it can help you overcome ‘decision fatigue’ – the decline
in decision quality that we experience after we’ve made
several choices, back to back. Put simply, the more
decisions we make throughout the day, the poorer our
judgment gets!
For best results, there are six steps to go through when
making a decision.
Step 1 – Prepare properly
Your first step in making a good decision is to create an
environment that encourages successful decision
making. As part of this, establish your objective – what
do you want to achieve once you’ve made your
decision? Also, make sure that the problem you’re trying
to solve isn’t just a symptom of a larger issue; and think
about whether you need to include anyone else in
making the decision.
A useful but simple tool for getting to the root of your
problem is the ‘five whys’ technique. With this, you look
at your problem and ask ‘Why?’ or ‘What caused this
problem?’ Very often, the answer to the first ‘why’ will
prompt another ‘why’ and the answer to the second
‘why’ will prompt another. This goes on until you get to
the cause of your problem.
CATWOE (which stands for ‘customers, actors,
transformation process, world view, owner and
environmental constraints’) helps you look at your
problem from different perspectives. For instance, if you
need to decide on a new reporting system for a specific
customer, CATWOE will help you look at your problem
from the perspective of your team and your organisation,
and will help you understand how your decision could
impact your other customers.
Other techniques for preparing your decision-making
process include root cause analysis (see Box 1, on page
08) and the Vroom-Yetton-Jago decision model (see box
2, on page 09).
Tom Hallett is an editor
at MindTools.com
Heather Levin has been a
regular contributor to
MindTools.com since
2007.
07
‘ The more good alternatives that you can
identify, the better and more efficient your
final decision will be ’
Step 2 – Brainstorm possible solutions
Next, brainstorm alternative solutions: the more good
alternatives that you can identify, the better and more
efficient your final decision will be. This also forces you to
consider the problem or situation from other
perspectives, which often leads to creative or unexpected
ideas. Avoid criticising or analysing ideas at this stage.
Instead, focus on generating as many solutions as
possible.
Box 1 SUMMARY OF SELECTED TOOLS AND TECHNIQUES
• 5 whys – a series of questions asking ‘why’. Each question prompts
another, until you reach the cause of the problem.
• Blindspot analysis – this technique leads you through a process of
checking your decision making against a list of common blindspots.
• CATWOE – helps you look at a problem from many different
perspectives, including those of customers, actors, the
transformation process, the world view, the owner and
environmental constraints.
• Crawford’s slip-writing method – this is a simple technique in which
you ask group members to write down suggestions separately and
then aggregate ideas to show popularity.
• Decision trees – these provide a structure within which you can lay
out your options and evaluate the value of these options, adjusted
according to possible outcome scenarios.
• Force field analysis – this helps you weigh the pros and cons of a
change, score these and assess the overall impact of your decision.
• Impact analysis – this helps you brainstorm the possible
consequences of a decision and spot risks that need to be managed.
• Ladder of inference – this describes the thinking process that we go
through, usually without realising it, to get from a fact to a decision
or action. The thinking stages can be seen as rungs on a ladder.
• Paired comparison analysis – helps you to work out the importance
of a number of options relative to one another. It is particularly
useful where you do not have objective data to use for your
decision.
• Round-robin brain storming – here, group members write their ideas
down on a piece of paper, pass them to a neighbour and develop
ideas passed to them by the neighbour on the other side.
• Risk analysis – this gives you a structured way of exploring the
possible threats that you face if you go ahead with a decision.
• Root cause analysis – seeks to identify the origin of a problem. It
uses a specific set of steps, with associated tools.
• Six thinking hats – this is used to look at decisions from a number of
useful perspectives. This helps you to get a rounded view of a
situation.
• Stepladder technique – this encourages people in a team to
contribute ideas on an individual level before they are influenced by
other people’s ideas. This prevents people from ‘hiding’ in a group,
or being overpowered by others.
Further details of these and many more tools can be found on the
www.mindtools.com website.
08
If you’re brainstorming as part of a group, there are
several techniques that you can use to ensure that people
are free to come up with creative ideas without fear of
criticism. One, the Crawford’s slip-writing method, is to
ask group members to write down their suggestions and
ideas on a separate piece of paper or sticky note. You
then organise the pieces of paper into groups of similar
ideas, and note down the popularity of duplicate ideas.
Another tool is round-robin brainstorming. Here, group
members write their ideas down on a piece of paper.
They then pass this to the person next to them. The next
person then uses these as inspiration for their own new
ideas; you repeat the process several times until you have
many ideas to work with. Another tool is the stepladder
technique (see Box 1, left).
Step 3 – Explore possible solutions
Next, you need to analyse the risks, the feasibility and the
impact of each of the possible solutions that you came up
with.
Risk analysis is a useful tool that helps you look at the
risks of a decision objectively. With this, you first identify
the possible threats you might face if you go ahead with
the decision. Then you estimate the likelihood of these
threats being realised and their possible impact.
Similarly, you can use impact analysis to identify the
consequences of your decision. With this, you brainstorm
all the internal and external areas that will be affected by
your decision and then identify the positive and negative
impacts of the decision for each area.
Once you’ve analysed the impact of each solution,
force field analysis is useful for weighing the pros and
cons of each of them. To use this technique, write your
decision or proposal in the middle of a piece of paper.
Then list the forces for change (the positive impacts) on
one side of the paper, and forces against change (the
negative impacts) on the other. Assign a score to each
impact from 1 (weak) to 5 (strong), add up the scores for
each side. You can then see if your decision is likely to
have a positive or negative impact overall.
An additional tool is ‘six thinking hats’ (see Box 1, left).
Step 4 – Choose the best option
Sometimes, it will be obvious what the best decision is. If
it isn’t, there are several tools that you can use to further
evaluate your options.
Tools such as cash flow forecasting, break-even analysis,
cost benefit analysis, and calculation of net present value
and internal rate of return are tools that many
accountants will be familiar with. These are useful for
helping you look at the financial feasibility of a solution.
You can also use decision trees to evaluate the possible
risks and rewards of each option and then rate them
based on their worth to you.
However, many decisions involve non-financial
considerations as well as financial considerations. This is
icaew.com/fmfac
‘ It’s often important to check the quality of
your decision to make sure that you haven’t
made a mistake in the process ’
where a tool such as grid analysis is useful. With this
technique, you list all of your options as rows on a table
and you list all of the factors that you need to consider as
the column headings. You then weight the factors by
their relative importance and calculate the overall
weighted score of each option.
You could also weigh up alternative options with
‘paired comparison analysis’ (see Box 1, opposite).
Step 5 – Check your decision
It can be tempting to take action right away once you
have made your decision. But it’s often important to
check the quality of your decision to make sure that you
haven’t made a mistake in the process.
First, check your decision against your intuition. Ask
yourself if you have any doubts about the decision you
have made and whether it makes intuitive sense. (If
answers are counter-intuitive, there’s a reasonable chance
that they’re wrong.)
You also need to ensure that you haven’t made a
mistake in your chain of reasoning. One way to do this is
to use the ‘ladder of inference’. This describes the
thinking process that we go through, usually without
realising it, to get from a fact to a decision or action. It
highlights how we see things based on our prior
experience and assumptions and take actions that seem
‘right’ because they are based on what we believe.
Unfortunately, this can lead us to ignore the true facts
altogether. You can also use ‘blindspot analysis’ (see Box
1 on the opposite page)
Step 6 – Communicate your decision and act
Once you’ve checked your decision, it’s time to
communicate your intent and act.
Keep in mind that in most cases, the decision will affect
other people. So, explain how you came to your decision
and highlight how it will impact them: The more
information that you provide about the risks and benefits
of the decision, the more likely people are to support it.
If your decision has significant consequences, you may
want to brush up on your project management and
change management skills to help ensure that
implementation is smooth and successful.
Decision making in groups
If you’ve ever tried to make a decision with a group, then
you’ll know how challenging and problematic it can be.
Confident people can dominate, while the more quiet
members sit silently. This is why you’ll often need to use
specific approaches to guide the discussion.
(For a closer look at the issues involved in group
decision making, see the following article.)
Conclusion
Although we make thousands of decisions every day, we
can start making better decisions by using a step-by-step
process, especially when we’re faced with complex or
risky decisions. This improves the quality of the decisions
that we make, it helps us ensure that we don’t forget an
important perspective or solution and it helps us avoid
common decision-making errors.
Box 2 FRAMEWORKS AND MODELS FOR DECISION MAKING
The three frameworks mentioned below are designed to help the decision-making process. In each case,
further details can be found at www.mindtools.com.
The Vroom-Yetton-Jago Decision Model –
deciding how to decide
How you go about making a decision can involve as
many choices as the decision itself. This technique
distinguishes three styles of leadership and five
different processes of decision-making that you can
consider using. To determine which style and
process is most appropriate, there is a series of yes
and no questions to ask yourself about the situation
and build a decision tree based on the responses.
The Kepner-Tregoe Matrix – making unbiased,
risk-assessed decisions
This approach is based on the premise that the end
goal of any decision is to make the ‘best possible’
choice. The goal is not to make the perfect choice,
so the decision maker must accept some risk. The
KT Matrix approach guides you through the process
of setting objectives, exploring and prioritising
alternatives, exploring the strengths and weaknesses
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
of the top alternatives, and of choosing the final
‘best’ alternative.
OODA Loops – understanding the decision cycle
This model outlines a four-point decision loop that
supports quick, effective and proactive decisionmaking.
The four stages are:
• observe – collect current information from as
many sources as practically possible;
• orient – analyse this information and use it to
update your current reality;
• decide – determine a course of action; and
• act – follow through on your decision.
You continue to cycle through the OODA Loop by
observing the results of your actions, seeing
whether you've achieved the results you intended,
reviewing and revising your initial decision and
moving to your next action.
09
PRACTICAL TIPS – GROUP DECISIONS
STOP ‘GROUPTHINK’ DAMAGING
YOUR BUSINESS
Every day we see the repercussions of long-term decisions which, in hindsight, were illadvised. Tony Powell explores what such disasters tell us about strategic decision
making and how – particularly when working in teams – it can be improved.
Read the papers and we daily see the debris of long term
‘strategic’ decisions that have gone wrong and brought
company X, politician Y or celebrity Z crashing to the
ground. So what is it with mankind? Why are there still so
many spectacular failures provoking readers to say: ‘That
was never going to work, how could they do that?’ and to
wonder why no-one asked: ‘Are you sure that’s wise, sir?’
After each major failure we set up public enquiries,
commissions and committees to come up with measures
that will prevent recurrence. However, history suggests
that the spectacular failures will return, whatever we do.
Why is this? Are human beings infinitely creative in their
desire to find ways round rules and to put self-interest
above all else or do we have a lemming-like tendency to
find a cliff off which to jump?
The real answer is ‘none of these’ – though they may
contribute. Instead the answer lies in the way our distant
ancestors evolved to be good at taking survival decisions
once a crisis was upon them, but were less successful in
avoiding such crises in the first place.
How we really make decisions
First let’s debunk the idea that we are rational decisionmakers, but also explain why we are good at dealing with
the day-to-day issues. My friend Dave Snowden gave me
a clue at a seminar he ran in Chartered Accountants’ Hall.
He explained that rather than making rational decisions
we use what is called ‘first fit pattern matching’ and then
assemble the supporting facts later.
According to Snowden, this is a long-established
survival mechanism dating back to when we were in the
wilds and something with long, glinting teeth came in our
direction. Those who ran for cover by and large survived
and those who scanned their mental databases of animals
for a ‘best fit’, not a ‘first fit’, often ended up as lunch.
Gary Klein in his book Sources of Power: How People
Make Decisions (MIT Press, 1999) studied effective
decision-takers in the emergency services and the military.
He discovered that they rarely took decisions in the sense
of seeing a situation, coming up with a list of alternatives,
assessing each and deciding between them. They just did
the right thing for whatever situation confronted them.
They were able to quickly assess the situation based on
patterns they had seen before, play them through in their
minds and, if they worked, act on them. So they used first
fit pattern matching based on great experience.
Tony Powell is a management
consultant and trainer and is the
faculty’s deputy chairman.
[email protected]
Klein also found that these good decision-takers tend to
do a few other things (which he called mental simulation):
• think through what will happen if the course of action is
taken (relevant knowledge and experience are critical);
• look for signs confirming that the situation they face is
equivalent to ones they have come across previously;
and
• think about what they expect to happen next, and how
quickly (and if it does not, reassess why the current
situation may be different from previous ones).
Combined, these thought processes gave them the
confidence that the proposed course of action would
work and prepared them to react if the unexpected
occurred.
Decision making in business
If we fast forward a few thousand years from Dave
Snowden’s example and into the boardroom, what do we
see? Well, life has become a bit more complex because,
rather than being generalists in charge of everything to do
with our lives, we have become specialised and grouped
into different disciplines. So we have production,
marketing, sales, HR, finance, legal and no doubt many
more. Within our own territory we function pretty well –
first fit pattern matching tends to keep the products and
services coming out the door. If a production problem
occurs then first fit pattern matching is likely to lead to a
decision that will get the production line going again
quickly and, if it doesn’t work the first time, there are
other possible answers we can try.
Here we can see overlaps with the situations that Klein
studied, where quick action is needed to get things back
on track; something that works is a higher priority than
the absolute best option. There will be time to consider
refinements once the business machine is working again.
…when setting business strategy
But how well does this serve us when setting the business
strategy rather than dealing with day-to-day problems?
Let’s look at what happens if we map the Klein elements –
first fit based on sound experience, plus mental simulation
– onto this sort of decision:
• a solution is required – that’s fine, we are good at
decisions; our working life and experience have honed
these skills. Plus, of course, first fit pattern matching is
what we do; and
• mental simulation is needed – hmm… not so good. Do
we each have enough across-the-board experience of all
aspects of our emerging way forward? Probably not,
which means that…
• … we are individually not equipped to know where the
risks lie and what should happen next.
This, of course, is where teams and the collective wisdom
and responsibility that follows are supposed to come into
10
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‘ Groupthink can take over in any team,
however small and new, so it’s hardly
surprising that it is almost endemic in larger –
especially successful – organisations ’
play (unless hijacked by someone senior or vocal imposing
their own first fit response).
On the surface, the team will go through processes
similar to Klein’s experts and build the mental and then
financial models of success. Once the envisaged world has
been given the arms and legs of a financial model that
works, the team tends to group around the evolving
model. Rather than take on board new (and especially)
conflicting evidence they explain it away.
It’s here that bias rears its head. Researchers have found
over 25 examples of this, but three of the more common
biases are:
• expectancy bias – where teams interpret neutral facts to
fit their model of the world;
• confirmation bias – where teams search for information
that confirms their hypothesis; and
• de minimus bias – the tendency to notice, but explain
away, signs of a problem as immaterial.
In an individual all of these can be ascribed to lack of
knowledge or experience but for teams another factor
rears its head – ‘groupthink’.
Groupthink – how does it work?
Groupthink is where members of a team involved in
making a decision do not recognise their blind spots and
make a compromise decision. They then get so engaged
with the decision and the related models, and project
such a sense of the quality of their decision and unanimity
of purpose, that the biases mentioned earlier take root. In
extreme cases, the belief in the decision can even survive
after the project in question has failed.
Groupthink can take over in any team, however small
and new, so it’s hardly surprising that groupthink is almost
endemic in larger – especially successful – organisations.
Here team members are likely to have had the same or
similar experiences about the way the organisation works.
Specifically, the success stories that go round the
organisation – and that usually amount to ‘what we aim
to do here has worked before’ – provide a collective
‘memory’, even for newcomers. Meanwhile, bad news
and the associated learning tend to get buried.
The attitude adopted is one of, ‘if we work the problem
through together, drawing on all our experience, we will
be fine.’ This may well be true as long as both the
problem and the emerging economic background reflect
those that applied when these earlier stories were created
but, if not, then we may be heading for the buffers. How
many times do we need to pick up the pieces after
thinking that 110% or 125% mortgages were a great
idea? Similarly, some of the alleged consequences of
groupthink have been spectacular: while researching this
article I found that it was seen as contributing to Enron,
Tyco, Qwest, WorldCom — go back further and we find
that it contributed to many of the political and military
fiascos of the second half of the 20th century.
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
Groupthink – how can we avoid it?
The first major piece of research on groupthink is
accredited to Irving Janis. He developed a list of symptoms
indicative of groupthink and three pre-conditions that
typically lead to it. Later research has also shown the
things that groupthink-affected groups tend to overlook.
(See Box 1, overleaf, ‘Defining groupthink’).
Similarly, other researchers have put together lists of
actions that we should take to avoid groupthink setting in
and amplifying the effects of our first fit approach to
decisions. Common actions to take include:
• avoid directive leadership;
• encourage diversity (or avoid homogeneity);
• do not isolate yourself from the ideas of others;
• actively seek out your blind spots and find the expertise
to cover them;
• embrace a culture of enquiry;
• don’t chase consensus, rather, expose and explore your
disagreements;
• ask questions and discuss the issues in a spirit of
openness;
• avoid converging on an answer too quickly before the
problem has been fully explored;
• get comfortable with ambiguity – the differences may
point the way forward;
• listen out for the weak signals of emerging trends (often
from the little voice in the corner);
• build logical checks, such as flip-charting ‘pros’ and
‘cons’, for each decision; and
• establish an experienced and critical board or steering
group for the team to report to.
Set up a robust process
The common advice seems to be that, where the decision
is complex and important – a new strategy, exploring new
products or services or new campaigns to reinvigorate
sales or tackle a new market – it is essential to set up a
robust process. This should include:
• an independent facilitator;
• a clearly defined problem owner (who should not hog
the discussion – after all he/she has the problem and is
looking for ideas); and
• clarity about everyone’s role within the group.
An excellent starting point for avoiding flawed decision
making in a business context would be to run through
first fitting, the possibility of the various kinds of bias, and
the particular risks of groupthink with the team before it
starts work. Often simply raising the danger of a certain
behaviour will nip it in the bud for a new team – members
feel entitled to whistleblow if they see it happening.
And where does this leave the role of analytics? A final
piece of the jigsaw in the research into decision making is
that a further factor influencing group behaviour is how
the problem being addressed is phrased. So, knowing that
analysis rarely affects anything after a first fit decision,
11
‘ Where the decision is complex and important – a
new strategy, exploring new products or services or
new campaigns to reinvigorate sales or tackle a new
market – it is essential to set up a robust process ’
rather than using analytics as part of the answer, how
about using them to come up with a better question?
For example, one business I worked with faced price
competition often over the years and had responded by
cutting its own prices (and thus margins and cash flow).
Eventually, when faced with a new price challenge, rather
than repeating this first fitting it did wider analysis of its
products and customer needs. This helped to uncover a
different question around how to create lasting peace of
mind for their customers. The result was a new offering
that reversed the customer loss and grew revenues at the
same time. (Full case study is available on request).
Conclusion
We cannot avoid decisions – they are all around us – and
as human beings we are hard-wired to make them. OK,
some of us take longer than others but the underlying
process is probably still the same – we first fit pattern
match. In some of our business roles, this works fine – in
fact, anything else might well be counter-productive.
However, when it comes to less frequent, more complex
decisions, then brief everyone on both ‘first fitting’ and
groupthink – and do have a properly facilitated process in
place. This will arise when one person does not have the
full range of knowledge and experience needed to come
to a workable solution, and teams are involved.
The effects of first fitting, groupthink and other forms of
bias will never go away but bringing them out into the
open should help combine rational structured approaches
with the best that we can offer as human beings.
This article was first published in Finance &
Management, issue 193, November 2011.
Box 1 DEFINING GROUPTHINK
The most widely quoted original work on groupthink is by the late Irving Janis, a research psychologist at Yale University.
Subsequently many researchers have added to this field of study. The lists below are taken from Wikipedia
(http://en.wikipedia.org/wiki/Groupthink) and original sources are given for each.
EIGHT SYMPTOMS INDICATIVE OF GROUPTHINK1
THREE ANTECEDENT CONDITIONS TO GROUPTHINK2
Type I: Overestimations of the group – its power and
morality
1. Illusions of invulnerability creating excessive optimism and
encouraging risk taking.
2. Unquestioned belief in the morality of the group, causing
members to ignore the consequences of their actions.
1. High group cohesiveness.
2. Structural faults:
• insulation of the group;
• lack of impartial leadership;
• lack of norms requiring methodological procedures; and
• homogeneity of members’ social backgrounds and ideology.
3. Situational context:
• highly stressful external threats;
• recent failures;
• excessive difficulties on the decision-making task; and
• moral dilemmas.
Type II: Closed-mindedness
3. Rationalising warnings that might challenge the group’s
assumptions.
4. Stereotyping those who are opposed to the group as weak,
evil, biased, spiteful, impotent or stupid.
SIGNS THAT GROUPTHINK MAY BE AT WORK3
Type III: Pressures toward uniformity
5. Self-censorship of ideas that deviate from the group
consensus.
6. Illusions of unanimity, where silence is viewed as agreement.
7. Direct pressure to conform placed on any members who
question the group, couched in terms of ‘disloyalty’.
8. Mind guards — self-appointed members who shield the
group from dissenting information.
Groupthink can result in defective decision making where one
or more of the following are seen:
• incomplete survey of alternatives;
• incomplete survey of objectives;
• failure to examine risks of preferred choice;
• failure to re-evaluate previously rejected alternatives;
• poor information search;
• selection bias in collecting information; and
• failure to work out contingency plans.
1. I Janis and L Mann, Decision Making: A Psychological Analysis of Conflict, Choice and Commitment. New York: The Free Press, 1977.
2. I Janis, Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascoes. Boston: Houghton Mifflin, 1972.
3. C Kamau and D Harorimana, ‘Does knowledge sharing and withholding of information in organizational committees affect quality of group
decision making?’ Proceedings of the 9th European Conference on Knowledge Management. Academic Publishing: Reading, 2008.
12
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PRACTICAL TIPS – THE FINANCE FUNCTION
THE ROLE OF FINANCE IN THE DECISIONMAKING PROCESS
In an increasingly complex global economy, FDs are shouldering broader responsibilities and
taking greater prominence in the decision-making process. Jennifer Chong and members of the
Finance and Management Faculty Committee look at the multiple roles played by finance.
As the economic environment becomes ever more
challenging, higher demands are being forced on
businesses to make faster decisions. As a
consequence, one of the most critical areas
encountered by decision makers is attempting to
understand the financial impact of their choices.
There is currently greater pressure on finance to
produce more timely and relevant inputs at the
planning and implementation stages of the decisionmaking process. Finance is now expected to show a
deeper understanding and stronger knowledge of the
organisation’s business model which will provide
insights and potential opportunities for value
creation.
The FD’s involvement in decision making
The finance department led by the FD, is involved in
a wide variety of activities which impact on the
decision-making process. Decisions may be local ones
in which the FD takes the lead and is ultimately
accountable – for example, in matters relating to the
people, process or structure of the finance function.
In other decisions which have business-wide
implications, finance’s role can range from simple
information provision to being an insightful
challenger (more on this below).
There are several types of decision in which finance
is involved. These were outlined in ‘The art of
decision making in business’ article (on page 07) and
include programmed, non-programmed, operational,
tactical and strategic decisions. How these types of
decision interact and some features of them are
shown in Box 1 (right).
As there is a vast amount of information available
on the role of finance in the decision-making process,
to gain a practical insight I decided to draw on the
experiences of four Finance and Management Faculty
committee members as well as Rick Payne, the
faculty's leader of the finance direction programme.
Based on these discussions, finance’s role has been
summarised into three categories which focus
primarily on tactical and strategic decisions:
• trusted information provider;
• collective facilitator; and
• insightful challenger.
These are explained in more detail below.
‘ For information to be useful, it is important
for the data to be captured correctly in a
consistent reliable manner and for effective
control mechanisms to be in place ’
Trusted information provider
Departmental teams need to rely on information and
advice provided by finance in order to make
decisions. For information to be useful, it is important
for the data to be captured correctly in a consistent,
reliable manner and for effective control mechanisms
to be in place to eliminate inaccuracies. One of the
key roles of the FD and financial controller (FC) is to
create a robust finance function to ensure strong
controls are maintained over the financial information
provided to management.
Tristan Price, group FD of M.P. Evans Group PLC
notes that ‘production of consistent reliable monthly
reporting is a platform for all types of decisions. It is
important for the FD to enforce quality control of
information used for internal decision making to
make sure it is consistent with published
information.’
However, if finance is to become more than just an
information provider then it needs to deliver more
than simply good quality. It is true that a past record
of high quality information is crucial to engender
trust, but the FD also needs to exhibit strong
Box 1 TYPES OF DECISION
Programmed
Non-programmed
Who makes the
decisions?
Jennifer Chong is
technical manager of
Finance and
Management
Faculty, ICAEW.
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
Speed of decisions
Key
Operational
Tactical
Strategic
✔✔
✔
✘
✔
✔✔
✔✔✔
Individuals or
mini-groups
Mini-groups
or functional
groups
Across multidisciplines and
departments
Fast
✘ = Rarely applicable
✔ = Few decisions
Getting faster and faster
✔✔ = Most decisions
✔✔✔ = Almost all decisions
13
‘ Finance acts as a facilitator by identifying
key relevant information that management
needs to make a decision ’
interpersonal skills, exemplary ethical standards and
make sure that he or she is in the right place at the
right time in order to truly become a trusted advisor.
Tony Powell, the faculty’s deputy chairman and a
former FD, says that by establishing confidence in the
integrity of numbers and with ethical principles
surrounding data generated, ‘the FD will gain respect
from his or her peers, be held in high regard, and
should become a confidant(e) within other
departments and a trusted sounding board for ideas.’
Powell further explains that ‘this trust and respect
mean that the FD will be perceived as supporting the
organisation’s activities and they will create a
business-partner relationship.’
Box 2 COMMON PITFALLS AND KEY LESSONS
• Irrational judgments – emotional hindrances can occur through
personal bias and often lead to counter arguments being ignored,
dismissed or underplayed leading to irrational decisions. Decisions need
to be challenged, alternatives deliberated and risks considered before a
conclusion is reached.
• Impulsiveness – making spontaneous decisions without all the facts can
be risky and can lead to premature and hasty decisions. If possible,
consider postponing a response to allow time to weigh up the
consequences and assess the risks. However, this is not an excuse for
procrastination!
• Procrastination – missed opportunities can occur by falling into the trap
of waiting too long to get more unnecessary information and then
getting bogged down in the detail - leading to over-analysis. Don’t
delay unless there is a sound reason, as you could risk losing a viable
option.
• Lack of clarity – failing to clearly understand the reasons and
assumptions behind the underlying request can lead to
misinterpretation of the issue. If the purpose is unclear, clarify the
points before proceeding to gather the supporting evidence.
• Irrelevant information – focusing on readily accessible information
which is irrelevant to the decision can lead to an inappropriate analysis
and an incorrect set of choices. Being resourceful in your information
search will lead to more informed decisions.
• Poor accountability – poor accountability over who carries the ultimate
responsibility is a frequent contributor to poor decisions and often
leads to delays. To avoid this situation, it is important to be aware of
those involved in the process and to make clear who has the right to
veto.
• Isolation – no decision can be made in isolation. Failing to consider
how the decision impacts on the entire organisation can be detrimental
to the process. Seek input across the business to understand the wider
implications and other contributing factors before making a decision.
• Deviation – Setting a course of action and then deviating without a
compelling reason can lead to poor decisions and confusion for the
people involved. If the decision needs to be changed, consider using
groups to deliberate the alternatives before departing from the initial
decision.
14
As well as being accurate, the information also has
to be provided in a timely manner and in a form that
the end user can easily access and understand (see
‘Collective facilitator’ below for more on how the
information selected and presented can influence
decision makers.)
Collective facilitator
Good decision making depends on the useful
interpretation of financial information and the
collaboration of the entire board and senior
management team. Finance acts as a facilitator by
identifying key relevant information that management
needs to make a decision. Price comments ‘of all the
departments, finance knows the most about the
organisation’s data. The board relies on the FD to pick
the right data and the right analysis for any given
decision.’
This information also needs to be easily accessible
and presented in a way that is clear and useful to the
decision makers. Powell points out that ‘the
information presented by the FD needs to be framed
and packaged clearly into numbers, words and
graphics.’ Good communication skills are needed to be
able to cut through the complexity of the data and a
good FD is able to present a balanced set of
information in the format which is useful and
appropriate for management to make good decisions.
Finance must have a clear understanding of the
information’s purpose and underlying assumptions to
collate relevant supporting evidence. Guidance from
management can support finance in selecting,
presenting and deciding which information is
appropriate. Len Jones, FD of Practical Car and Van
Rental Limited, advises that ‘it is extremely important to
provide information in the right context which is
suitable to the particular situation.’
To achieve a truly successful partnership with the
board and senior management, the goal of finance
should be to achieve value integration – this is done by
helping the organisation think strategically as an entire
business instead of standalone departments. The FD
can assist by building solid networks in the organisation
with other departmental managers. This will improve
the way financial and non-financial information is
captured, stored and used in the decision-making
process. Powell explains ‘FDs must be able to clearly
communicate with other departments within the
company in the terms which they can understand
and be able to fairly represent what is said and
agreed.’
Insightful challenger
Effective decision making needs someone who is
willing to point out the flaws and risks in any
proposal. The FD plays a critical role in assisting the
icaew.com/fmfac
‘ A strong finance function can help
minimise any irrational biases – but biased
judgments can never be eliminated ’
board and senior management by providing a reality
check. As outlined in ‘How to avoid making bad
decisions’ on page 2, the FD often acts as a safeguard
against simple decision-making errors. Michaela
Talbot, FD of Specialty Catalog UK says that ‘the FD
often plays the voice of reason as well as promoting a
decision based on rationale.’
Powell also points out ‘it is important that the FD
challenges ideas through the application of
professional scepticism around assumptions and data
which is used as a basis in the decision-making
process. The FD must try to ensure the personal
interests of management do not affect the decisionmaking process, as often emotional decisions override
the rational ones.’
Most importantly, the FD’s scepticism must be based
on firm supporting evidence. A strong finance function
can help minimise any irrational biases – but biased
judgments can never be eliminated. After all, finance
managers are also human and exhibit biases, too.
For some practical advice and questions you should
ask before making a decision, see Box 3 (right). These
tips have been shared by Rick Payne who runs the
finance direction programme at the faculty.
Conclusion
Although the role of finance is predominantly
recognised as a key information provider,
responsibilities are diverse and expand beyond just
reporting the numbers. As finance takes a lead in
supporting a number of key decision-making areas,
the FD and FC are expected to work together to help
drive growth agendas of the organisation by using
their extensive skills to supply predictive insights and
Box 3 PRACTICAL ADVICE AND QUESTIONS
• Put yourself in the shoes of other stakeholders (eg,
CEO, chairman, shareholders, suppliers, customers,
etc) and consider how they would view the
decision.
• Ask the question – would I feel comfortable
explaining my decision to the press and the
auditors?
• List your own values and interests and consider
what decision would be taken if you held different
values and interests.
• Find a trusted colleague in finance with different
interests and values to you and debate key decisions
(or at least find someone to play ‘devil’s advocate’).
• Consider what information is missing that could
produce a better decision and decide whether you
can gain access to it. If not, be clear on the risks.
• Ask what information would change the decision or
how much does a number need to move before a
different decision would be appropriate eg, cash
flows on an investment or use scenario analysis.
• Review previous decisions looking at the process
and outcomes. See what can be learnt and what
can be done differently.
assist with forward thinking ideas. It is critical for the
FD to maintain a robust finance function which
produces timely, accurate and useful financial
information, as this will ultimately improve the
decision-making process.
THANKS...
to the faculty committee members and experts who contributed to this article:
Len Jones is finance
director of Practical Car
and Van Rental Limited.
[email protected]
Tony Powell is a
management consultant
and trainer and is the
faculty’s deputy
chairman.
[email protected]
Rick Payne leads the
faculty’s finance direction
programme.
[email protected]
Tristan Price is group
finance director of M.P.
Evans Group PLC.
[email protected]
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
Michaela Talbot is
finance director of
Specialty Catalog UK.
[email protected]
15
THE BIG PICTURE – LEADERSHIP
WHY SUCCESSFUL DECISION MAKERS ARE
GOOD LISTENERS
The careers of organisational leaders – and the success of their missions – will depend on
the judgments they make. History shows that the challenge of leadership requires listening
as much as acting, as Morgen Witzel explains.
In War and Peace, Leo Tolstoy draws two contrasting
pictures of how leaders make decisions. The first
leader he describes is Napoleon, who conceived of
himself as a great leader and master strategist.
Napoleon believed that his military successes were
the result of his own genius, his ability to make the
right decision at the right time. In fact, says Tolstoy,
Napoleon’s belief in himself was an illusion. He made
very few decisions that affected events one way or
the other. During the Battle of Borodino, which
Napoleon claimed as ‘his’ victory, Napoleon spent
the day more than a mile from the fighting with his
view completely obscured by dust and smoke. At no
point did he control events.
On the other side was the Russian commander,
Field Marshal Kutuzov. Unlike Napoleon, Kutuzov
knew he had no real control over events. After the fall
of Moscow, Tsar Alexander I repeatedly ordered
Kutuzov to attack the French and drive them back.
But Kutuzov, says Tolstoy, was listening to his army.
‘Kutuzov waited until the army knew what it wanted
to do. Only when it had made up its mind did he
give the order to advance.’
Confidence
It is usually considered that it is the role of the leader
to make decisions, and the role of others to follow
those decisions and carry them out. Most companies,
indeed most organisations of any kind, are still run on
these lines. In some parts of the world, this is even a
cultural norm. In China, for example, various studies
have shown that Chinese employees expect that the
leader will take decisions firmly and decisively, and
that they quickly lose confidence in leaders who fail
to do so. In the West this view may be less overt, but
it is still there. Often, very often, we are given
targets, told the means by which we must reach
them and are rewarded when we do so, with only
minimal input into the decision-making process.
Or so it seems. But when we stop and consider
how leaders make decisions, a different picture starts
to emerge. While employee input into formal
decision-making processes may be limited, it is clear
that good decision making requires a great deal of
collaboration. Even in China it is considered to be
good business practice to listen to the views of
Morgen Witzel is fellow of the
Centre for Leadership Studies at the
University of Exeter Business School.
[email protected]
16
‘ While employee input into
formal decision-making
processes may be limited, it is
clear that good decision making
requires a great deal of
collaboration ’
workers, rather as Kutuzov listened to his army,
before taking a final decision.
If we look at Western iconic business leaders, we
find that they do much the same. Jack Welch, the
legendary former CEO of GE, was regarded as a
strong and decisive leader. In fact Welch spent much
of his time visiting GE’s business units around the
world and listening. Percy Barnevik at ABB did much
the same, encouraging employees at all levels to
speak out and tell him what was happening in the
firm. Ratan Tata, the long-time leader of the Tata
Group has spoken of how decision making within the
group is done on a consensual basis. The centre of
the group, he says, has neither the authority nor the
right to dictate policy. Other Indian business leaders
speak of similar approaches. One friend who owns a
light manufacturing business has told me that her
policy is to wait for subordinates to make decisions
themselves rather than forcing her own decisions
upon them.
Consequences
So, leaders consult and listen before making
decisions, but who actually makes the decision?
Certainly the leader is responsible for the decision;
there is a sense in all cultures that the buck stops – or
should stop – with the leader. And we can say with
some certainty too that the leader is responsible for
articulating the decision. Once a decision has been
taken, one of the leader’s tasks is to spread the word,
communicate the decision itself and makes certain
everyone understands what has been decided, what
the consequences will be and what they themselves
must do now. Allan Leighton, former chairman of
Royal Mail Group, wrote in his book On Leadership
that communicating decisions once they are made
and ensuring buy-in is one of the key tasks of the
leader.
All of us have probably at one time or another sat
around a table and listened to the flow of opinion
and debate, and then listened to the leader sum up
icaew.com/fmfac
‘ Leaders don’t take decisions; they help
others to take them and then make things
happen ’
what has been decided in the discussion in a few
pithy sentences that articulate what has been agreed.
But who actually makes the decision in these cases?
Again it could be argued that the leader listens to the
debate, weighs up the pros and cons, then makes a
decision. Some leaders believe that this is what they
do. The approach is termed ‘consultative leadership’,
and has been widely discussed in both business and
military circles. At the Royal Military Academy at
Sandhurst there used to be a saying that instructors
repeated to officer cadets: ‘never give an order unless
you are certain that it is going to be obeyed’. In
other words, never take action unless it is clear that
everyone in the organisation or team is in agreement
with the goals.
Command
But this view still assumes that leadership is a matter
of command and control, that some give orders and
others obey. Other perspectives on leadership cast
doubt on this.
The concept of ‘servant leadership’, which has
been discussed for centuries but was articulated in
full form by Robert Greenleaf in his book of that
name, suggests that the leader is responsible to the
organisation, not the other way around. Thus, the
decisions the leader takes must be in the best
interests of the organisation. And how does the
leader know what those best interests are? By talking
to members of the organisation and listening to their
views and finding out what they need.
Following on from this, Richard Bolden and his
colleagues at the Centre for Leadership Studies have
argued that leadership is not a matter of leaders
leading and others following, but of people acting
together in teams to achieve a desired result. They
term leadership a ‘social process’, in which a set of
goals are mutually agreed and then action taken to
achieve them with the leader playing the role of
guide, director and motivator but by no means solely
responsible for either decision or action. William
McKnight, who turned around the struggling 3M
corporation and made it into a global giant was such
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
a leader. He argued that it was his role to help others
make the right decisions rather than making decisions
for them.
And this is pretty much how Tolstoy described the
leadership style of Field Marshal Kutuzov. Kutuzov,
remember, waited until his army had decided what it
wanted to do, then gave the orders that enabled it to
proceed towards its goals. He was in modern
parlance a ‘facilitator’ who made things possible, but
he was not the prime decision-maker. In most
organisations, if we dig down deep enough, we find
that this is what happens.
The leader takes responsibility, meaning that he or
she gets the credit when things go well or the blame
if things go wrong. The leader frames, articulates and
communicates the decision so that all can understand
it. But the decision itself was taken before, in the
interactions of the group and often long before
anyone thought of putting it into words. Leaders
don’t take decisions; they help others to take them
and then make things happen.
FURTHER READING
• Ambler,T; Witzel,M; and Xi, C. Doing Business in
China, London: Routledge, 3rd edn, 2008.
• Bolden, R; Hawkins, B; Gosling, J; and Taylor, S.
Exploring Leadership, Oxford: Oxford University
Press, 2011.
• Ghoshal, S; and Bartlett, C. The Individualized
Corporation, New York: Random House, 1997
• Gosling, J; Case, P; and Witzel, M (eds); John
Adair, J: Fundamentals of Leadership, Basingstoke.
Palgrave Macmillan, 2007.
• Greenleaf, RK. Servant Leadership, Mahwah, NJ:
Paulist Press.
• Schlevogt, K-A. The Art of Chinese Management,
Oxford: Oxford University Press, 2002
17
THE BIG PICTURE – THE DATA REVOLUTION
TRENDS IN INFORMATION
MANAGEMENT FOR DECISION MAKING
Better data should enable us to make better decisions. Mike Kennerley looks at the
development of decision-making processes in business and at the concepts that drive
these trends.
Today, more than ever, companies have to work harder
to keep up with the pace of change and increased global
competition. To succeed in rapidly changing
environments organisations need to make accurate
informed decisions quickly and there is a growing
demand to leverage the data they have at their
disposal.
In today’s connected digital economy, it is very easy
to get data. Increasingly organisations have access to
almost unlimited amounts of data of various types. It is
becoming cheaper and easier to store large amounts of
data. Yet, and possibly due to this phenomenon, it has
become increasingly difficult to convert this data into
meaningful information upon which they can make
decisions. Managers today complain of ‘drowning in
data while thirsting for information’.
Attention
Most managers have enormous amounts of data and a
plethora of tools and techniques exist to analyse and
interpret data. There is research evidence suggesting
that better use of information can improve decision
making and this is receiving considerable attention with
academics and consultants attempting to provide
insights into how this can be achieved. There is
growing evidence that greater use of effective analysis
tools delivers better financial performance.
It is argued that traditional bases for competitive
advantage have evaporated and that leading
organisations are ‘competing on analytics’ by using
sophisticated qualitative and statistical analysis using
information technology to improve the information
available to managers.
The assumption is that if we have better data this will
enable us to have better information leading to better
knowledge and hence better decisions. This is a rational
view of decision making which is implicit in much of
the management research in the field. Indeed, many
tools, techniques and technologies have been
developed to support this.
However, the collection and manipulation of this data
consume considerable time, effort and resources. As a
result, the way in which this information can be used to
increase the value extracted from it, improve decision
Dr Mike Kennerley is the strategy,
planning and performance
manager at the University of
Leeds.
[email protected]
18
making and ultimately improve the outcome or
performance of the organisation is the subject of
intense focus within organisations both large and small.
Whilst management research contributes
considerably to the subject, other disciplines including
social science, information technology, psychology and
measurement theory also provide perspectives. It is not
surprising therefore that there is not complete
agreement on the mechanisms and approaches to
decision making.
To extract the maximum value out of the data that is
available, a structured approach should be used. Tools
and techniques can be applied to improve the
execution of each stage:
• data collection;
• extracting information from data; and
• decision making.
Data collection
The foundation for improving evidence-based decisions
is the data on which the information is based. It is
therefore important that the right data is collected and
that the data is of the necessary quality. The Audit
Commission (2007) describes six key characteristics of
good quality data:
• accuracy;
• validity;
• reliability;
• timeliness;
• relevance; and
• completeness.
Collecting the right data that is fit for purpose requires
an understanding of the decisions that are to be taken
or the questions that need to be answered. The
concept of enterprise architecture is concerned with the
alignment of the technical infrastructure and
information systems with business processes. This
ensures that data is appropriately managed, and that
changes in business processes are reflected in the
information systems.
The history and theory of measurement, which has
evolved through the physical sciences and philosophy
rather than the more recent focus on performance
measurement, teach us a number of lessons about data
which we collect and measurements that we take. This
field argues that data and information are attributed to
entities by people and hence should not be considered
to be fact or truth. In fact a number of scholars have
remarked that the concept of objectivity in accounting
is largely a myth, although performance measurement,
accounting and auditing are still seen as objective
evaluations of reality by most academics and
practitioners. In addition, the context of, and purpose
for, which it is collected can significantly affect data
and its interpretation.
icaew.com/fmfac
‘ Decision making is a reasoning process
which can be rational or irrational, and can
be based on explicit assumptions or tacit
assumptions ’
A number of subject areas support ‘Goodhart’s Law’
(named after Charles Goodhart, an economist and
former Bank of England adviser) which states that
once a social or economic indicator or other surrogate
measure is used as a target it becomes useless for its
original purpose of measurement or assessment. This
highlights the need to take care when using data for
purposes other than that for which it was intended.
Thus decision makers need to understand the data
upon which information is based, to ensure that there
is the appropriate interpretation. Ideally there should
be an ‘operational definition’ that allows a common
understanding of the data collected.
Extracting information from data
The conversion of data into usable management
information requires analysis and interpretation, which
is the translation of analysed data into intelligible or
familiar terms. It is at this point that data becomes
‘information’, having been given context. Ideally this
should lead to the ‘a-ha’ moment – when the
messages in the data become clear. Information
visualisation can be key to interpreting data, seeing
trends or linkages that can inform decisions.
There are a wide range of systems and tools to
support the analysis and interpretation of data.
Estimates of the size of this global software market
range between $10 billion and $35 billion. The
market continues to grow robustly, with business
intelligence and analytics rated the top priorities in
corporate IT.
These investments are concerned with the
development of management information and
business intelligence programmes to exploit the data
that is available within, and external to, the
organisation. This includes production of static reports
as well as analytics tools that allow bespoke analysis
and interpretation of data, including large data sets
(known as ‘big data’).
Much of the recent literature has also emphasised
the need for support capabilities, including:
• information technology practices (for operational,
business, innovation and management support);
• information management practices (sensing,
collecting, organising, processing, maintaining); and
• information behaviours and values (integrity,
formality, control, sharing, information transparency
and information proactiveness). In addition, there
will be people (skills), process, systems and cultural
issues to be managed appropriately.
These highlight the need for a process that coherently
brings together skills for analysing and interpreting
complex information from a variety of sources and the
ability to present complex technical information to
non-specialists, and an ability to add insights.
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
Decision making
Decision making is the cognitive process leading to the
selection of a course of action among alternatives.
Every decision-making process produces a final choice.
It can be an action or an opinion. It begins when we
need to do something but we do not know what.
Therefore, decision making is a reasoning process which
can be rational or irrational, and can be based on explicit
assumptions or tacit assumptions.
A caveat to the rational approach to decision making
is that people don’t necessarily take a rational approach
to making decisions. The field of psychology contains
extensive research on decision making including
normative (how we ought to behave rationally),
descriptive (how people actually make decisions) and
prescriptive (how normative theories are applied)
theories.To improve decision making we need to
understand how individuals make decisions and what
role data and information play in that process.
The concept of the ‘naturalistic decision making’
(NDM) framework emerged two decades ago as a
means of studying how people actually make decisions
and perform cognitively complex functions in
demanding situations. These include situations marked
by time pressure, uncertainty, vague goals, high stakes,
team and organisational constraints, changing
conditions, and varying amounts of experience. NDM
argues that the brain is able to cope with making
decisions in these circumstances.
The work of the pioneering research psychologist
Gary Klein and his colleagues emphasises the fact that
the brain can cope with far more complexity than our
conscious mind would think possible. Decision makers
can use this capability to apply the individual’s mental
model and experience to a situation and make an
appropriate decision.
Intuitive approaches to decision making can be
flexible and deal with complexity and uncertainty
quickly. However, consideration must be given to the
cognitive biases that affect the way people make
decisions and use information to support them. With
cognitive approaches, the need remains to align the
mental model of the decision maker with the entity and
decision being made.
The vast majority of decisions are based on a
combination of rational (evidence based) and
judgmental or intuitive elements. The balance of these
will be influenced by:
• the type of decision being made – formal, structured
decisions for which rules can be defined or poorly
defined, unstructured, complex decisions where the
information requirements are less clear;
• the availability and perceived reliability of the data;
• the certainty of outcomes associated with different
options;
• the experience or expertise of the decision maker;
19
‘ Ensure that systems and technologies are
aligned to business processes, and that these
deliver reliable and accurate data ’
• the decision-making environment;
• the personality of the decision maker(s) – tools such as
Myers-Briggs Type Indicator (MBTI) can give an
indication of a person’s preferred decision-making
approach; and
• the cognitive biases that influence the decisions in a
given situation. It is generally agreed that biases creep
into our decision-making processes affecting the way
decisions are made and the evidence used to support
decisions. So, while it is agreed that decision making
can be biased, it can be difficult to identify the specific
cases of the different types of bias.
By understanding these factors in different contexts and
for different decision makers it is possible to better
understand how decisions are made and provide the
appropriate information in a manner that is most likely to
influence the decision in question.
Conclusions
There is a strong case that better use of information can
improve decision making and can be developed into a
competitive capability for organisations. However,
considerable care should be taken when using data.
Finally, people don’t necessarily take a rational approach
to making decisions. There is a need to understand how
individuals make decisions and what role data and
information play in that process.
ACTION POINTS
• Be clear about what you are trying to achieve – drive
management information and business intelligence
as programmes focused on the information needed.
• Ensure that systems and technologies are aligned to
business processes, and that these deliver reliable
and accurate data that is fit for the purpose of
decision making as well as its operational uses.
• Focus on human processes as well as technology –
ensure that information is aligned to decisionmaking processes, develop a culture that encourages
the use of information in decision making and
management meeting/reviews that focus on
interpretation.
• Understand how decisions are made, recognising the
influence of judgement as well as facts.
• Build decision support capability – information
analysts in the business can support managers in
making decisions by developing specialist analysis
and interpretation skills. Tools also exist that put
greater control of analytics and business intelligence
in the hands of decision makers.
• Information visualisation tools and techniques can be
incredibly powerful in extracting valuable insights
from data and communicating them to others to
achieve the ‘a-ha’ moment.
REFERENCES
• Davenport, TH and Harris, JG (2007), Competing on Analytics:
The New Science of Winning, Harvard Business School Press,
Boston, MA
• Davenport, TH; Harris, JG and Morison, R, (2010), Analytics at
Work: Smarter Decisions, Better Results, Harvard Business School
Press, Boston, MA
• Goodhart, CAE (1975), Monetary Relationships: A View from
Threadneedle Street, in Papers in Monetary Economics Volume I,
Reserve Bank of Australia
• Hemmingway, C (2006), Developing Information Capabilities:
Final report of the From Analytics to Action research project,
Cranfield School of Management research report
• Herrmann, K (2001), Visualizing Your Business – let graphics tell
the story, John Wiley & Sons
• Kennerley, M and Mason, S, (2008), ‘The Use of Information
in Decision Making’ Literature Review for the Audit Commission,
Centre for Business Performance, Cranfield School of
Management
• Klein, GA (1986), Validity of analogical predictions, Technological
Forecasting and Social Change, 30, 139-148
• Marchland, DA, Kettinger, WK and Rollins, JD (2001),
Information Orientation: The Link to Business Performance,
Oxford University Press
20
• Morgan, G (1988), ‘Accounting as reality construction:
Towards a new epistemology for accounting practice’,
Accounting, Organizations and Society, Vol 13, pp 477-485
• Neely, A, Micheli, P and Martinez, V(2006), Acting on
Information: Performance Management for the Public Sector, AIM
Executive Briefing prepared for the National Audit Office
• Pfeffer, J and Sutton, RI, (2006), Evidence Based Management,
Harvard Business Review, Vol 84, No 1, pp 62-74
• Pfeffer, J and Sutton, RI (2006), Hard Facts, Dangerous HalfTruths and Total Nonsense:
• Spence, R (2001), Information Visualisation: Design for
Interaction, Prentice Hall. , Addison Wesley
• Audit Commission (2007) ‘Improving information to support
decision making: standards for better quality data’, The Audit
Commission, November 2007
Some referenced work includes case studies – such as
Davenport’s work on analytics, Marchland’s Information
Orientation, Pfeffer & Sutton’s Evidence Based Management and
the Neely, Micheli and Martinez report for the National Audit
Office
icaew.com/fmfac
APPENDIX – FURTHER READING
BOOKS, JOURNAL ARTICLES AND
MORE...
The ICAEW Library and Information Service offers further resources on decision making
and related subjects. The selection below is available to ICAEW members – for further
information, see icaew.com/library.
ELECTRONIC RESOURCES
Briefings
• SWOT analysis
Directors’ Briefing produced by BHP Information
Solutions, 2011
ICAEW members
can obtain all of
these books and
articles from the
Library &
Information
Service. Books can
be posted out free
of charge to your
work or home
address. Journal
articles can be
supplied for a small
charge.
Contact the Library
on +44 (0)20 7920
8620 or
[email protected]
Online articles
• ‘Good data won't guarantee good decisions’
by Shvetank Shah et al, Harvard Business Review, April
2012, Vol. 90 Issue 4, pp.23-25.
• ‘Before you make that big decision...’
by Daniel Kahneman, Dan Lovallo and Olivier Sibony,
Harvard Business Review, June 2011, Vol. 89 Issue 6,
pp.50-60.
• ‘The case for behavioral strategy’
by Dan Lovallo and Olivier Sibony, McKinsey Quarterly,
2010, Issue 2, pp.30-43.
• ‘Strategic decision-making: Models and methods in the
face of complexity and time pressure’
by Noushi Rahman and George L de Feis, Journal of
General Management, Winter 2009/2010, Vol. 35 Issue
2, pp.43-59.
• ‘The seasoned executive's decision-making style’
by Kenneth R Brousseau et al, Harvard Business Review,
February 2006, Vol. 84 Issue 2, pp.110-121.
• ‘Decisions without blinders’
by M H Bazerman and D Chugh, Harvard Business
Review, January 2006, Vol.84 Issue 1, p.88-97
• ‘Data drivers: Analytics solutions pull data from
disparate sources to provide a big-picture view of
operations and exposures’
by D Bedell, Global Finance, September 2010
Supplement, p.19-20
• ‘Are you ready for the era of 'big data'?’
by B Brown, M Chui and J Manyika, McKinsey Quarterly,
2011, Issue 4, p.24-35
• ‘The use of participation in decision making: A
consideration of the Vroom-Yetton and Vroom-Jago
normative models’
by W F Brown and K Finstuen, Journal of Behavioral
Decision Making, September 1993, Vol.6 Issue 3, p.207219
• ‘When can you trust your gut?’
by D Kahneman and G Klein, McKinsey Quarterly, 2010,
Issue 2, p.58-67
• ‘Evidence-based decision making’
by B Marr, CMA Magazine, March 2011, Vol.85 Issue 1,
p.24-41
• ‘Governance groupthink’
by K Martyn, New Zealand Management, March 2011,
Vol.58 Issue 2, p.55-56
• ‘A Vroom-Yetton evaluation of subordinate participation
in budgetary decision making’
by W R Pasewark and R B Welker, Journal of
Management Accounting Research, September 1990,
Vol.2, p.113-127
FINANCE & MANAGEMENT SPECIAL REPORT June 2012
• ‘Strategic decision-making: Models and methods in the
face of complexity and time pressure’
by N Rahman and G L de Feis, Journal of General
Management, Winter 2009/2010, Vol.35 Issue 2, pp.4359
• ‘Practicing servant-leadership’
by L C Spears, Leader to Leader, Fall 2004, Vol.2004
Issue 34, p.7-11
OTHER RESOURCES
Books
• Behavioral economics
by Edward Cartwright, Routledge, 2011, viii, 476pp
ISBN: 9780415573122
• Predictably irrational: The hidden forces that shape our
decisions
by Dan Ariely, Harper, 2009, xxxii, 257pp
ISBN: 9780007256532
• An introduction to behavioral economics
by Nick Wilkinson, Palgrave Macmillan, 2008, xiv,
511pp
ISBN: 9780230532595
• Key management ratios: The 100+ ratios every manager
needs to know
by Ciaran Walsh, FT Prentice Hall, 2008, xiii, 393pp
ISBN: 9780273719090
• Problem solving and decision making: Hard, soft and
creative approaches
by Michael J Hicks, Thomson Learning, 2004, xiii,
427pp
ISBN: 1861526172
• The dark side of risk management: How people frame
decisions in financial markets
by Luca Celati, FT Prentice Hall, 2004, xviii, 373pp
ISBN: 0273663461
• Decision analysis for management judgment (3rd ed.)
by Paul Goodwin and George Wright, Wiley, 2003, xiii,
477pp
ISBN: 0470861088
• Accounting for managers: Interpreting accounting
information for decision-making (4th ed.)
by P M Collier, Wiley, 2012, 558pp
ISBN: 9781119979678
Articles and reports
• ‘Strategic decision making and groups’
by T Powell, Finance & Management, No. 193,
November 2011, pp.10-13.
• ‘Improving the decision-making framework for financial
crisis management’
by J R Labrosse, Financial Regulation International,
Vol.14, No.10, December 2011/January 2012, p.5-13
• ‘Avoiding flawed decisions’
by J Whitehead and A Campbell, Finance and
Management, No.181, October 2010, p.6-9
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