Decision Responsibilities in Decision Governance

Being entitled to make decisions carries with it the responsibility for outcomes of actions that the decisions led to. Accountability can be implemented through decision governance by defining responsibilities for outcomes of decisions.

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.

The idea that decision responsibilities are the counterpart to decision rights is easy to understand. However, defining useful decision responsibilities involves finding the right answer to the following inevitable problems.

• The more uncertainty there is, about the likely outcomes of decisions, the more it is difficult to argue that the decision maker can be fully responsible for decision outcomes. In general, one should not be responsible for what one cannot influence, but in practice, it takes a significant effort to establish how much uncertainty there was, or is, and how much of that the decision maker can in fact influence, and at what cost.
• In firms, but in other contexts too, the decision maker may not be impacted directly by the outcomes of a decision they made. They may, by the definition of their job, make decisions that impact primarily others – other employees, customers, suppliers, and so on. 
• It may take a long time for outcomes of decisions to be observed, and so responsibility for these outcomes may only be realized much later. 
• Obvious, but rather twisted problem, is that decisions create new decision situations, which then yield new actions and outcomes. Simply put, some choices are bad because they cause others to make bad choices. Picking the wrong person for the job, choosing the wrong measure of performance and then asking people to optimize its value, and so on, are typical examples.

The above implies that decision responsibilities need to be designed with at least the following in mind.

• There needs to be an explanation for the relationship between incentives for the decision maker and their decision responsibilities. This shows up in management compensation negotiations, for example. There is no best way about this, but the better the uncertainty and impact of decision outcomes are understood, the better alignment, or the more appropriate the design of that relationship. Think about stock vesting, which is a way to deal with delayed outcomes.
• It may seem better, if you are the owner or principal in the principal agent relationship, to know more about the decision than the agent: it gives you an edge when negotiating with the agent or manager. The irony, however, is that the bigger that gap in the understanding of the complexities of the decision between the principal and the agent, the less likely is the agent the right one to accomplish what is expected.
• Decision responsibilities are inherited across the organizational chart, from the bottom to the top. This leads to some hard choices about the structure of the firm, such as between functional groups versus business units. In a functional structure, it is implicit that decision responsibilities need to go together with functional expertise, i.e., the higher the manager, the higher in principle should be their expertise in the functional area; not so in the business unit structure, where measured outcomes will require expertise in understanding interdependencies between functions.
• Decision responsibilities may exist because of regulations and industry standards. In the former case, they will not be negotiable.

In practice, the clearer the decision situation, the easier to design decision rights and responsibilities. In many interesting cases, however, decision governance will need to be applied to situations where there is partial information, uncertainty, and lack of clarify of rights and responsibilities.