how good is your decision making? … and are you certain about that?

At the very heart of being human is the ability to have rational thought and ultimately make decisions, whether it be the smaller every day decisions we may make without much thought, such as what to have for breakfast or more life defining moments with significant consideration behind such as deciding whether to emigrate. Some studies estimate the average adult makes around 35,000 remotely conscious decisions every day [1]. That’s a lot of decision making. But how can you be certain you have made the right decision?

Translating this in to the workplace, whether looking at the broader context of the oil and gas industry or very specifically in terms of highly complex megaprojects, being certain you are making the right choices is critical. Indeed achieving high levels of certainty in your decisions and the implications that then follow on, can be the difference between projects being brought to market or failing at FID.

As such, a key question for employees and companies alike should be how we can create greater certainty in our professional decision making. One such way to solve decision problems with higher quality and more certainty is through the application of techniques founded in behavioral psychology. This can be described as the theory of learning based on the idea that all behaviors are acquired through conditioning. Conditioning occurs through interaction with the environment. Therefore behavioral psychologists believe that our responses to environmental stimuli shape our actions.

Behavioral psychology has been used and tested in industries as diverse as aviation [2] and retailing, and disciplines from economics to marketing. Indeed the concept should not be new to anyone working within the oil and gas industry either, most, if not all, safety programs include a behavioral aspect investigating why people undertake unsafe activities and identifying robust mitigation actions. At io, we believe in drawing on the best practice of oil and gas safety programs and applications in other industries, such as the use of game theory to inform the competitive landscape during the deregulation of European Railways [3], to recognise the benefits of behavioral psychology that can be applied beyond the safety arena.

In another example, the field of economics has long used behavioral psychology to reduce risk and bring greater certainty. One area in particular has been improving the quality of decisions by mitigating the influence of cognitive bias. Cognitive biases are innate human tendencies, flaws in our thinking that distort reasoning and introduce uncertainty to decisions. Amongst the many cognitive biases, three key types are: confirmation bias which describes the act of people ignoring information that is contrary to their pre-existing ideas; in-group bias, which speaks to the tendency to overestimate the ability of a group of which we are part, while we underestimate the ability of other groups; and status-quo bias, which drives us to view change as a negative and makes us more likely to resist a new approach. It is easy to see how these biases can impact reasoning, particularly in the context of developing disruptive and creative solutions to transform existing ways of problem solving. Therefore if our decisions, designs and solutions are exposed to human biases and fallibilities then we cannot be certain we are making the best decision in the context of the overarching value drivers on a project. For example, the commonly experienced decision to adopt an aggressive schedule and early FID to achieve early first oil, which more often than not leads to inadequate planning and risk mitigation.

Many discussions of cognitive bias seem to stop before offering a solution, yet it is not a case where we can reduce our biases by simply being aware of them. In fact, through analysis of the two systems of thinking; system one, our intuitive thought process; and system two, our reflective thought process, as popularized in books such as ‘Thinking Fast, Thinking Slow’ by Daniel Kahneman, we can see it is impossible to identify our own biases at an individual level. However, biases can be identified in other people’s thinking. This is one specific area where io deliver greater certainty to our clients by employing our unique ‘io way’ which leverages the theories of behavioral psychology and uses Decision Analysis (DA) and Decision Quality (DQ) to deliver increased certainty.

DA encompasses the theory and practical application of techniques required to rationally, without bias, identify and assess the variables in decision making, and develop a recommendation for action. DQ is an extension of DA, which provides a framework for teams to not only solve decision problems but also assure the effectiveness of decisions as they are made.

The DQ framework is based on six elements: appropriate frame, viable alternatives, reliable information, values and trade-offs, logically correct reasoning, and commitment to action. Establishing the correct frame for any problem is critical to ensuring all stakeholders are aligned on purpose, hence io strive to work with our clients to ensure we start with the end in mind. Once the problem has been framed, viable alternatives are identified. io use a variety of tools to do this, including systems thinking and focused workshops. The quality of the decision then relies on the information available to inform each alternative, here io are unique with our access to cost and schedule data from our parents. In terms of assessing the values and trade-offs for each alternative and applying logical reasoning to identify the best course of action within the context of the initial frame, the io way includes robust economic modelling and dynamic systems models. A decision is only as good as the action it delivers, therefore the last step in the DQ framework is commitment of resources to act.

By adopting DQ as a key component of how io work and specifically our ‘io way’, we not only reduce the likelihood of cognitive biases, we also provide a means of testing and proving the quality of decisions as they are being made. This allows for more efficient consensus behind better quality decisions, driving collaboration between stakeholders and increasing the certainty in every decision made.

Ultimately certainty is at the heart of everything we do at io and this approach and the theory outlined here is one on the many ways io helps deliver certainty and how we help bring more projects to sanction in today’s potentially “lower forever” environment.

[1] http://go.roberts.edu/leadingedge/the-great-choices-of-strategic-leaders
[2] http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/putting-behavioral-psychology-to-work-to-improve-the-customer-experience
[3] http://link.springer.com/article/10.1007/s12544-012-0084-7