How Good Are Your Decisions?
We all like to think we have good instincts, and that given the right information, we’ll make the right decision. The key, of course, is getting the right information. That’s even more critical in this economy when virtually every business decision can be a deciding factor on whether a project—or a business—succeeds or fails.
It’s obvious that businesspeople need accurate, relevant information to make good decisions. What’s not obvious is how often decisions are based on incomplete or incorrect information—or even the proverbial “gut feel.”
According to a study by IBM’s Institute for Business Value, half of business leaders say they don’t have access to the information they need to do their job. In addition, eight out of 10 of them “make major decisions with missing or untrusted information.”
That has to change, according to Dr. David Friend, CEO of Palladium Group, a management consulting firm. In a recent interview with Baseline, he stressed the need to incorporate accurate information into the decision-making process and then to act on that information. “Businesspeople need to optimize data and use it to drive performance,” he said.
A few days after my conversation with Dr. Friend, I attended an event that confirmed his assertions. On that occasion, IBM announced a consulting organization, IBM Business Analytics and Optimization Services, a new service line from IBM Global Business Services. The new organization’s stated mission is to “help clients both improve the speed and quality of business decisions, while better understanding the consequences and business outcomes of those decisions.”
“Companies need to make smarter decisions faster,” said Frank Kern, senior vice president of IBM Global Business Services, who spoke at the event. “And the decisions have to be predictive so business leaders understand the consequences of those decisions. They need insight into both opportunities and threats.”
Kern added that business leaders need to react faster, base decisions on information that is both right and relevant, understand the endgame, be able to predict consequences and then end up where they want to be.
To achieve that level of decision making, businesspeople must make a fundamental shift in the process: from decisions based on gut feel to those based on facts. That requires turning data into business intelligence that is then analyzed and optimized.
Kern and Dr. Friend also emphasized the importance of proactive risk management—the ability to identify potential risks that could adversely affect a company’s performance. “Risk must be part of the decision-making process,” Dr. Friend insisted. “Managers need to model for rare but consequential events, and then modify their strategy based on the rare occurrences.”
Surprisingly, he estimates that less than 20 percent of companies are currently includ-ing risk in this process, which means that roughly three-quarters of firms don’t identify potential risks when they are making business decisions. That’s a frightening and almost unbelievable statistic.
One example of an organization that is determined to manage risks is the Fire Department of the City of New York. At the IBM event, Deputy Commissioner Bill Eimicke reported that the FDNY is planning to use predictive modeling and advanced data analytics to “anticipate fire exposures, analyze possible impacts and improve processes that can minimize risks.” As a person who works in New York City, I certainly appreciate the FDNY’s forward-thinking use of technology solutions.
Of course, the implementation of any technology must involve the information technology organization. “IT needs to provide the intelligence to help businesspeople make good decisions,” Dr. Friend said. “IT needs to be the keeper of the truth, the enabler of good decision making. It can’t just spew out data. IT has to provide insight along with the information in order to help managers make good decisions.”
Clearly, facts are the foundation of the decision-making process, but facts without an analysis and understanding of consequences aren’t enough to achieve hoped-for results. We need a convergence of accurate information, the right technology and processes to analyze that information and provide business insights, and people who use this intelligence to make smarter decisions that optimize business performance.