Making decisions for growth
- 1. Making Decisions for Growth & Improved Performance 5th Annual American Mining Summit Omni Interlocken Resort – Broomfield, CO June 8, 2015 Ken Taylor, VP Corporate Development, Intrepid Potash
- 2. Safety Share A Bad Safety Decision Can Hurt for a Long Time! 2 Lift with your Legs, not your Back!
- 3. Introduction Applying the Latest in Decision Research to Mining 3 Going to Stanford – A decision that has led me here
- 4. System I – Fast, Automatic “The normal state of our mind is we have intuitive feelings and opinions about almost everything that comes our way.” We take cognitive shortcuts that lead to biases Blink, Malcom Gladwell System II – Slow, Logical, Deliberate Exerting cognitive effort on a problem e.g. when doing math. Systematically working through a problem. This is a scarce resource, we simply don’t have the energy to engage system II for every decision we make Decision Making Psychology Humans Thinking Can be Fast or Slow 4 Spotlight – We see what is immediately before us, based on our experience Thinking Fast and Slow, Daniel Kahneman
- 5. System I Example Quaker Made a Couple System I Decisions and… 5 “We should have had a couple people arguing the “no” side of the equation.” William Smithburg, former CEO of Quaker Purchased for $220mm in 1983 Purchased for $1,800mm in 1994 Sold for $300mm in 1997
- 6. Decision II History System II Analysis is Often Applied to Big Decisions 6 Most companies use an AFE form to spur System II Analysis 1700’s Pros vs. Cons, or moral algebra Modern era, Decision trees with risk weightings and financial analysis
- 7. Typical Mining Decisions • Life of Mine Decisions – Long lead times – Large capital outlays • Acquisition decisions • Major Opportunity projects • Sustaining capital budget • Equipment selection and changes Typical Process • Approval For Expenditure (“AFE”) – Injects “effort” into the decision process – If designed well, can help eliminate bias • One option or “inside the fence” options dominant and receives lots of focus Typical Decisions in Mining Mining Decisions Typically Require System Processing 7 Big Decisions – Mean mining companies need good decision processes
- 8. – Hiring: A study of 20,000 executive searches found that 40% of senior level executives are pushed out, fail or quit within 18 months. – Career Choice: An American Bar Association survey found that 44% of lawyers would not recommend a career in law – M&A: According to one study, 83% of corporate mergers and acquisitions failed to create any value for shareholders. – “There are two main causes of poor decision making: insufficient motivation and cognitive bias.” HBR May 2015 Decision Struggles Data Indicates Bad Decisions Abound Even When Using System II 8 System II is not full-proof. It can fail due to lack of effort or cognitive bias
- 9. Dan Lovallo, professor at Univ of Sydney and Olivier Sibony, director of McKinsey & Company investigated 1,048 decision over five years. They found that, “Process mattered more than analysis – by a factor of six” A good process led to better analysis, by ferreting out faulty logic. The Decision Process is What matters Process Needs More Emphasis than the Analysis 9 Focus on the right process and better decisions will follow
- 10. Narrow Framing Why the Bad Decisions? The Four Villains of Decision May Cause System II Failures 10 We often frame decisions around what we know or own
- 11. Confirmation Bias Why the Bad Decisions? The Four Villains of Decision May Cause System II Failures 11
- 12. Short Term Emotions Why the Bad Decisions? The Four Villains of Decision May Cause System II Failures 12 Emotions tempt us to make a decision based on the moment
- 13. Why the Bad Decisions? The Four Villains of Decision May Cause System II Failures 13
- 14. Widen your options – overcomes a narrow frame Reality test your assumptions – avoids confirmation bias Attain distance before deciding – minimizes the impact of short term emotions Prepare to be Wrong – Mitigates overconfidence Overcoming the 4 Decision Villains The Heath Brothers Propose a WRAP Process to Avoid Biases 14 It’s the System, not the Analysis, that will make your decision process
- 15. – Avoid a narrow frame – what else could we do? – Multitrack – consider several options simultaneously – Find Someone who has solved your problem – internal or external Widen Your Options Overcome Narrow Framing by Widening Your Options 15 Mining companies often frame in terms of what they own or know
- 16. – Consider the Opposite – disconfirming evidence – Zoom out, Zoom in – trust the averages – Ooch – small tests avoid big risks Reality Test Your Assumptions Avoid Confirmation Bias by Reality Testing Your Assumptions 16 Greenfield projects face a stiff base rate test
- 17. – Overcome short-term emotions • 10/10/10 • What would a successor do? – Honor your core priorities Attain Distance Before Deciding Minimize the Impacts of Emotions by Attaining Distance 17 Emotion alters our analysis, manage the politics of a decision
- 18. – Bookend the Future – prepare for both success and failure. – Set a tripwire – to remind you that you have a choice – Trust the process – bargaining takes time but leads to better results Prepare to Be Wrong Mitigate Overconfidence by Preparing to Be Wrong 18 Gatorade, it turns out, is quite different than Snapple
- 19. – Study on experts making predictions that used 284 experts making predictions in their field of expertise – Study conducted by Phil Tetlock, Professor of Psychology and Management at the University of Pennsylvania. “… it is impossible to find any domain which humans clearly outperformed crude extrapolation algorithms.” Example of Overconfidence Experts Aren’t Really Good at Predicting… 19 Ask an expert or build a regression?
- 20. In other words, the trend line is a better predictor than experts. Overconfidence Example Trend will likely Predict Better than My Opinion 20 Trends are base rates – Experts are good at predicting base rates Experts in the media… worse than non-media experts Some good news, Experts… usually better than novices Extra education… does not boost prediction accuracy
- 21. 1. If the option you’re currently proposing were to vanish as a feasible alternative, What else could we do? 2. Imagine that the proposed alternative will actually turn out to be a terrible decision. Where could you go looking for the proof of that right now? 3. How can we dip a toe in this decision without diving in headfirst? 4. If you were replaced tomorrow, what would your successor propose? 5. Six months from now, what evidence would make us retreat from this decision? What would make us double- down? Cliff Notes for your Process Add These Heath Brother Questions to your Decision Process 21 Protect your decisions from decision villains with a stronger process
- 22. – We naturally have fast and slow cognitive decision tools, both are needed – Mining typically requires an effortful decision process, but can still get nailed by decision villains – Build protections against villains into the decision process – For more understanding of the protective measures you can take, read Decisive by Chip and Dan Heath Conclusion Improving Decisions Starts with Improving the Decision Process 22 Protect your decisions from decision villains with a stronger process
- 23. Supplying a Growing America® ® Appendix ® Supplying a Growing America® Questions