BACK

The greatest risk in the development of any strategy is omission—leaving something vital out. This is why a defined decision-making process, such as the Behavioral Governance Framework, is so critical.

The strategy should act as the business plan and the essential management tool for directing and communicating the necessary activities to accomplish the defined long-term goals and objectives (Dimension 1.2). All material factors should be identified that may have a bearing on defining the strategy. These inputs should have been captured in Step 2.

To help you remember the four inputs from Step 2, we have created the acronym RATE:

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  • R – Risk (Dimension 2.1)

  • A – Assets (Dimension 2.1)

  • T – Time Horizon (Dimension 2.2)

  • E – Expected Outcomes (Dimension 2.2)

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As new inputs and information are gathered and analyzed there will very likely be a need to revise the strategy that is being considered. This requires decision-makers to be able to think outside the box and be willing to try new ideas – to be Adaptive, Aligned, Attentive, Collaborative, and Competent – all leadership and stewardship behaviors that are part of the Behavioral Governance Framework.

Your strategy will need to address how your organization’s assets will be deployed among various competing objectives. This will require that you have a thorough knowledge of:

  • The assets, their availability and usefulness
  • Other available choices/options
  • The risk/reward ratio of deploying (not deploying) different assets
  • Redeployment, rebalancing, as the market or client demands change.

In his book on Winston Churchill, Churchill on Leadership, Steven Hayward outlines several rules for effective decision-making that Churchill followed:

  • Always keep the central or most important aspect of the current problem in mind.
  • Know how to balance the chances (risk) on both sides of a decision, and keep these factors in proportion.
  • Remain open to changing your mind in the presence of new facts.
  • Don’t try to look too far ahead.
  • Try for excessive perfection.

Make decisions for decision’s sake that would better be postponed or not made at all.

If you have legal, financial, professional, or moral liability for your decision-making process you may be subject to a procedural prudence standard. As such, you’ll need to demonstrate the details of your decision-making process. The Behavioral Governance Framework has been designed to substantiate just such a process.

You need to develop your strategy with an understanding that it likely will be implemented in a complex and dynamic environment. The strategy should combine elements of planning and philosophy, and should address all ten Dimensions of the Behavioral Governance Framework.

The Law of Compounding Risk (developed by Robert Porter Lynch) states that complexity increases by double the number of new elements introduced in a business model.
Example: The complexity of (1) launching a new product, (2) with a new partner,
(3) in a new location increases the risk of failure by a factor of 6.

Formula: (N)(N-1) = Compounded Risk

The Law of Decreasing Risk* (developed by Don Trone) is the concept of incorporating generally accepted industry best practices to reduce professional liability. Simply stated, the risk of not meeting stated long-term goals and objectives proportionally decreases by the number of additional prudent practices (Behavioral Governance Dimensions) being employed.
Example: A decision-maker who prudently (1) allocates assets and resources; (2) applies a consistent due diligence process for selecting key decision-makers and service providers; (3) uses formal financial controls and procedures; and, (4) monitors the defined strategy, reduces the risk of not meeting long-term goals and objectives by 75%

Formula: (N-1)/N = decreased risk

To successfully apply the ten Dimensions of the Behavioral Governance framework, you must:

  • Maintain a macro/portfolio view;
  • Have a keen eye for identifying  and prioritizing strategic issues—focus first on determining the right things to do, then prioritize what needs to be accomplished;
  • Have a systematic approach for crafting and choosing between alternative solutions;
  • Provide clear direction to staff and service providers; and
  • Be disciplined and follow through.