Challenge and choices - Risk Advisory Blog | Deloitte Australia has been saved
“Whatever else it produces, an organization is a factory that manufactures judgments and decisions. Every factory must have ways to ensure the quality of its products in the initial design, in fabrication and in its final inspections.” - Daniel Kahneman, Psychologist and Nobel Laureate.
Regulators and organisations alike recognise the importance of mature risk decision-making processes and the embedding of effective challenge as a foundation of a sound risk culture. APRA recently highlighted decision-making and challenge as the second lowest scoring dimension in its industry benchmarking, noting organisations are lagging in the development of practices that support constructive challenge, embed respect for diverse opinions, encourage new and different perspectives, and ensure risk is considered in all significant business decisions.
These findings come at a time when many of the organisations surveyed have made considerable efforts to clarify executive accountabilities and responsibilities, restructure risk functions, and uplift governance and risk processes. APRA’s results suggest these efforts are still some way off from delivering lasting change in the way decisions are made and reviewed.
Organisational decisions, especially those involving risk, are complex.
Decisions made within an organisation involve multiple parties, multiple sub-processes and sub-decisions, estimating probabilities of potential outcomes, weighing the reliability of incomplete information, judging cost-benefit ratios and, ultimately, choosing and acting on a preferred course of action. There are also complex social interactions, inter-relationships between decisions, explicit and implicit norms, and assumptions and biases at each stage of the decision-making process that further add to this complexity.
While clarifying accountabilities and defining processes can help navigate some of the complexity by guiding how decisions should get made, alone they are not sufficient to bring about better decisions. It is relatively easy to assign accountability and even develop a decision framework, but it is the degree of capability development as a group that will lead to lasting improvement. Without a deep understanding of how decisions get made in practice and creating new habits of consultation, reflection and debate to support better analysis, information sharing and psychological safety, meaningful change is unlikely to occur.
Feeling safe is critical to constructive challenge
Challenge, by its very definition, implies two opposing viewpoints placed in competition with each other, or a questioning of validity and truth. While APRA have, quite rightly, sought to focus on ‘constructive challenge’, navigating successful challenge in decision-making relies on the right mindsets and behaviours to avoid unproductive conflict.
Without a sense of psychological safety, that is the belief that team members won’t face adverse consequences for making mistakes or speaking up, being challenged on a decision can be perceived as a threat to an and individual or team’s reputation. This “threat” can initiate a host of psychological and physiological responses, often termed the ‘fight or flight’ response, leading to both defensive and avoidant behaviours. The common practice of defining second line teams as responsible for ‘check and challenge’ of first line decisions can actually exacerbate the issue where psychological safety is lacking, relationships are immature or there is perceived misalignment of goals or status. In these situations, challenge can be interpreted as unfair criticism by someone in an ‘outgroup’ who ‘just doesn’t understand our business’ or is being obstructive to progress.
Building constructive challenge (the type that results in robust critical analysis of decisions and their underlying assumptions, supports information sharing and reduces the potential for conflict) means cultivating a number of key underlying behaviours and mindsets including:
Organisational processes will also need to adapt to accommodate a broader range of stakeholders, better navigate the complex social processes and mitigate the impact of inherent biases to avoid challenge turning to conflict.
Indeed, it may be more productive to remove the term challenge altogether and focus instead on what is really needed. Introducing inclusive and cooperative processes to examine the problem, surface different views, normalise speaking up and drive perspective taking, which when embedded, are more likely to result in the desired improvement than processes which place groups in opposition to one another.
Challenge the process, not just the decision
Current approaches to challenge are also problematic due to timing. In many cases, challenge comes after an initial decision has been made and a course of action proposed. By this time people are attached to their ideas and are more likely to be defensive of them. This practice neglects critical aspects of how the decision is defined and informed, who gets consulted for input, how options are ideated and assessed and how the ultimate course of action is selected and communicated to those it impacts. The best chance of improving decision-making is to look across all parts of the process.
There is no single right answer, different stages of the decision-making process require different inputs, skills and perspectives. While it is critical to assign an accountable decision-maker, seeking to improve decision making through one action alone limits the opportunities for change. Taking a more holistic view, informed by a deep understanding of how decisions are made in practice, will surface greater opportunities to create new behaviours, build shared understanding, embed genuine critical reflection and ultimately, deliver better outcomes.
How we can help
Our team draws on deep experience in organisational psychology and risk management to support our clients in understanding and transforming how their people make decisions about risk. We provide programs for leaders and their teams to establish decision making frameworks, uplift group decision-making practices and improve communication and consultation.
Victoria is a Partner in Risk Advisory, and brings over 20 years of expertise in ethics, cultural integrity, and corporate responsibility. Throughout her career, Victoria has helped organisations in Australia and globally understand and address ethical challenges, minimize risks, maintain trust with stakeholders, and reduce social and environmental impacts. Victoria’s consulting and commercial experience has seen her lead cross disciplinary teams predominantly servicing energy & resources, consumer, government and financial services, amongst other sectors.
Murray is a Director in the Ethics & Risk Culture team in Sydney. He has extensive experience in researching how people evaluate risk and make decisions under uncertainty. He is passionate about understanding the cultural drivers of decision-making and building cultures to support better risk outcomes. Murray has led major consulting projects for corporate clients in Australia and internationally in the resources and financial services sectors to align risk decision-making, develop responsibility and accountability frameworks and review risk controls. He has also supported the assessment and change of operational risk cultures within Australian government agencies. Murray is a specialist interviewer, having undertaken advanced training with the Australian and US law enforcement agencies. Murray holds a PhD in the cognitive neuroscience of human decision-making and an MBA. He has taught qualitative and quantitative research methods in universities and is a Certified Fraud Examiner and Certified Anti-Money Laundering Specialist.
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