How Much Decision Governance Is Enough?

There are three ways to think about how much decision governance to do. I will call them 

• Overall value, 
• Incremental value, and 
• Incremental friction. 

The “overall value” approach consists of comparing an estimate of benefits of all decision governance in place, with the costs of complying with it. Benefits include:

• Reduced expected revenue at risk,
• Increased expected reduction of expenses,

Both of the above can be attributed to decision governance only if decision options identified through the compliance with decision governance should achieve greater reduction of expected revenue at risk relative (and/or greater expected expense reduction) to the first identified option. 

(“Expected” means that revenue and/or cost estimates are taking uncertainty into account. Expected revenue at risk is revenue adjusted with the probability of the risk occurring. Expected reduction of expenses is the reduction adjusted with the probability of that reduction to occur.)

The costs of complying with decision governance include labor costs to develop and provide information that helps identify more options, assemble and confront options, have stakeholders involved to the extent and in ways that governance requires, and opportunity costs of the time between the moment we know a decision needs to be made, and the moment all conditions have been met for that decision to be made – decision governance in place will influence how long that time is, as well as how that decision governance is implemented; to take a blunt example, if decision governance specifies that it is always necessary to identify at least two options for some specific type of decision, while another approach requires three or more, the latter – all else being equal – should extend the time from knowing that a decision is needed, to it being made.

The overall value approach consists of tracking and comparing benefits and costs across many decisions. As long as all benefits identified surpass compliance costs, decision governance is beneficial. There is enough of it when benefits approach costs. While it can be difficult to determine what components of decision governance lead to which benefits and costs, it is useful to think of them as processes – for collecting data, analyzing it, identifying decision options, and many others – and as such, they can be described through dedicated performance metrics, as well as in terms of resources their execution consumes.

The incremental value approach is interesting if you face the common dilemma of whether to spend more time before making a decision. It consists of identifying the type of information that is believed to be both missing and sufficiently important that it can lead to the identification of another option, which is assumed to be dominant to the most relevant one among those already known. The incremental value approach simply consists of estimating the expected cost to find or develop the missing information, and comparing it to the assumed improvement that the option it would lead to, would have over the currently known and best option. In the incremental value approach, there is enough decision governance if the incremental value is negative.

The incremental friction approach is a special case of the incremental value approach. It applies if the cost of additional time required to find or develop information also means the removal of one or more of options which were already identified. In such situations, taking more time removes known options. This means that if we make the wrong assumptions about the possibility to find or develop new information that we believe will make a difference, then we will be left with fewer options when we discover that additional information is unavailable, or falls short of our expectations. By adhering to decision governance, we lose options, and are creating friction to getting to a decision.