Adapting a Decision Process to Comply with a Policy

Given a specific policy that an organization needs to comply with, how can we adapt the organization’s decision processes to comply with that policy? Or, how does that organization’s decision governance change to help ensure compliance? The background to why this question is important is in another text, here.

This text is part of the series on the design of decision governance. Decision Governance refers to values, principles, practices designed to improve the quality of decisions. Find all texts on decision governance here, including “What is Decision Governance?” here.

Let’s assume that an organization has an internal process for assessing and choosing the investments it needs to do in its infrastructure. These processes tend to be more prominent in manufacturing organizations, for instance, and more generally, any in which core competencies require specialized physical assets. Importance comes from the fact that such processes allocate significant resources over long periods of time.

Suppose that this process involves the following steps that an internal decision maker, be it an individual, such as the CEO, or a team – an investment team – takes:

• Reaction: The stage when the decision maker has observed something that leads them to believe that they need to take action. At this stage, the decision maker has not decided yet what the right action should be. 
• Explanation: The stage during which the decision maker is building an explanation of what happened, why it happened, and why the decision maker believes they need to take action in response. 
• Search: The stage when the decision maker is identifying and refining options, each involving different possible actions the decision maker may be able to take. 
• Decision: The decision maker commits to an option. 
• Action: The stage during which the decision maker is performing the actions described by the option they committed to. 

We will also assume that the organization is in a country where there exists a public policy similar to the Energy Policy Act (EPAct) of 2005 in the USA. Let that policy have the following characteristics.

• Scope: The policy is designed to address energy production and consumption. It includes provisions encouraging energy efficiency.
• Key Mechanisms used to stimulate compliance with the policy include:
  • Tax Incentives: Provides tax credits to businesses that adopt energy-efficient technologies and practices, such as efficient lighting, HVAC systems, and building insulation.
  • Loan Guarantees: Supports firms investing in renewable energy or energy-saving projects by reducing financial barriers.
  • Performance Standards: Establishes energy efficiency requirements for federal facilities and equipment, indirectly influencing the private sector through market shifts.

An organization may consider such measures as the following.

• Upgrade its facilities with energy-efficient lighting and install advanced heating and cooling systems to reduce energy use.
• Claim a tax deduction for these upgrades to lower its overall tax liability.
• Market its sustainability initiatives to be more attractive to environmentally conscious customers and investors.

To align its infrastructure investment decisions with the policy and benefit from policy incentives, the organization needs to implement policy-motivated guidelines at each stage of the decision-making process. Sample guidelines are listed below, for each stage of the decision-making process.

1. Reaction Stage: Implement guidelines to recognize situations where energy efficiency improvements can address business challenges or opportunities. Sample guidelines:
   1. Establish Energy Efficiency Triggers: Define clear criteria for identifying opportunities where energy-efficient upgrades are needed, such as aging infrastructure, rising energy costs, or regulatory requirements.
   2. Monitor Energy Metrics: Use energy audits or monitoring systems to track consumption patterns, inefficiencies, and opportunities for cost savings.
   3. Regulatory Awareness: Ensure decision-makers are informed about policy provisions, including available tax credits and deductions for energy-efficient investments.
2. Explanation Stage: Guidelines should help build a strong case for energy-efficient actions rooted in compliance with the policy and operational benefits.
   1. Quantify the Impact: Analyze energy usage data and calculate potential cost savings and environmental benefits from energy-efficient upgrades.
   2. Link to Policy Goals: Clearly articulate how the proposed actions align with the policy objectives, such as reducing energy consumption or utilizing renewable energy sources.
   3. Evaluate Non-Action Risks: Highlight risks associated with not pursuing energy-efficient investments, including higher energy costs, missed incentives, and reputational damage.
3. Search Stage: Prioritize options that maximize energy efficiency and align with policy incentives.
   1. Explore Eligible Investments: Focus on options that qualify for tax deductions according to the policy.
   2. Use Industry Benchmarks: Compare potential solutions against industry standards and best practices for energy efficiency.
   3. Engage Experts: Consult with energy efficiency consultants or vendors familiar with policy provisions to identify appropriate technologies and ensure compliance.
   4. Perform Cost-Benefit Analysis: Assess the financial implications, including upfront costs, operational savings, and potential tax benefits for each option.
4. Decision Stage: Include guidelines that favor commitment to a solution that aligns with policy objectives and delivers tangible benefits.
   1. Document Compliance: Ensure the selected option meets policy requirements for tax benefits or other incentives and document eligibility criteria.
   2. Set Clear Goals: Define measurable outcomes, such as energy consumption reductions or payback periods, to evaluate the investment’s success.
   3. Consider Long-Term Impact: Choose options that provide sustained energy efficiency benefits and align with the company’s broader sustainability goals.
5. Action Stage: Include guidelines to ensure the chosen option is implemented effectively, so that the benefits can be realized from compliance.
   1. Leverage Financial Incentives: Ensure timely submission of tax deduction claims in accordance with policy provisions.
   2. Monitor Performance: Track energy savings and verify that the implementation achieves the projected benefits.
   3. Report and Share Results: Document the outcomes and share success stories internally and externally to reinforce the company’s commitment to energy efficiency.
   4. Evaluate for Continuous Improvement: Use the implementation experience to refine future decision-making processes and identify additional energy efficiency opportunities.

Given a specific policy that an organization needs to comply with, and a decision process the organization may have in place, the process can be changed to ensure compliance. How exactly it needs to be changed for these compliance to be achieved will depend on the correct understanding of the policy, the relationships of the policy to the operations of the organization, and the competence of the designers of decision governance. The text illustrates, using a simple and generic decision process, the variety of ways in which compliance with a policy will shape how decisions are made.