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KPIs for Decisions and Decison-making

“When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts advanced to the stage of science.”

William Thompson (Lord Kelvin), 1824-1907

You can’t start an article about KPIs and measurement without quoting Lord Kelvin!

Mostly, the scientist is paraphrased or misquoted to emphasise control and targets. However, his true emphasis is on knowledge and understanding. This is particularly true when making a decision. Obviously the greater the extent to which you are informed, and the greater the quality of that information, then the more “informed” your decision will be.

There are two classes of metrics pertinent to making good decisions:

  1. Decision metrics – those that relate to the nature of the decision being made
  2. Decision-making metrics – those that apply to the process of making the decision.
This article considers both classes.

1. Decision KPIs - reducing uncertainty

50% of major management decisions are wrong! That’s an unbelievable statistic, but true. Professor Paul C Nutt found this through his research into management decision-making. Most management decisions are based on opinion and not data and information. Opinions, and intuition, are important, but shifting the mix toward data and information will improve your decision-making) and your opinions)!

A decision based on opinion is degraded by bias, misinformation, disinformation and confusion. But beware! Data that is collected without an understanding of the appropriate metrics to use, the necessary methods to be used in taking the measurements, and the uncertainty/variation limits of the data, are but opinions expressed in numeric terms.

That said, there are some effective approaches to informed decisions making, and they depend on reducing uncertainty.

1.1 Uncertain goals and objectives

As part of your decision making, you’ll at some point need to evaluate alternatives. Uncertainty in what you are trying to achieve (the outcome of your decision) will affect which alternative you choose.
Consider also the uncertainty of your context. For example, if you are making a decision on which market segment in which to focus your marketing and sales effort, you need to consider your organisation’s overall business strategy. If this is not clearly defined or communicated, a poor decision on market segment may result.

1.2 Uncertainty in how which alternatives to consider

Let’s say you were intending to increase the number of salespeople you employ and you decide to consider the impact of hiring 2, 3 or 4 people. Why not one (1) only, or zero? Why four (4) maximum? What constraints have you assumed and why? How sensitive to your ultimate objective is a change in the project headcount increase?

1.3 Uncertain benefits and costs

Many business (and personal) decisions will involve consideration of the likely payoffs of the various alternatives. The more accurately you can predict these, the more informed your decision. Again, consider sensitivity. What will be the impact on your overall payback estimation of only a slight variation in the assumptions underlying it?

1.4 Uncertainty beyond your control

Of course, predicting what these may be is a challenge? In a business context, one approach is to consider the whole process under consideration, and attempt to quantify the probability and impact of such an event. You can then consider what form of preventive action is justified. Business Continuity/Disaster Recovery Planning is a good example of how this could be relevant to major IT decisions.

2. Decision-making KPIs - improving your decision-making

In “The Decision Driven Organization”, Blenko Mankins and Rogers (three Bain & Co. consultants) state that better organisational performance depends on its “ability to make and execute key decisions better and faster than competitors”. They offer four metrics that can be used to assess and improve your decision making:
  1. Quality - whether decisions proved to be right more often than not)
  2. Speed – how quickly decisions are made (getting through that window of opportunity)
  3. Yield - how well decisions were translated into action
  4. Effort - the time, trouble, and expense required for a key decision)
Their research shows a strong correlation between decision making effectiveness and organisation performance.