In a time of change and upheaval our leaders are being asked to make complex and difficult decisions. What tools and approaches can we draw on to ensure our leaders are making better decisions? Michael Brennan, Chair of Australia’s Productivity Commission shares his insights with Tim Ryan, Principal Consultant at Aither.

This insight brings together the highlights of a discussion held earlier this month between Michael and Tim. To listen to the full discussion follow this link.

Michael Brennan joined the Productivity Commission in 2018. This follows a number of significant roles in various governments such as Deputy Secretary, Fiscal Group for the Federal Treasury, Deputy Secretary, Economics in the Victorian Department of Treasury and Finance and Chief of Staff for the Victorian Treasurer.

While Michael concedes in the interview that the pressures and constraints on decision-makers are significant and it is difficult to point to a ‘holy grail’ for improving decision-making, he also identified three underlying principles that guide his decision-making:

  1. accountability and governance that is cultivated by evaluation and continual improvement
  2. planning for uncertainty and maintaining a flexible approach to delivery
  3. data can help make an informed decision, however, it won’t make the decisions.


Accountability and governance that is cultivated by evaluation and continual improvement

“It’s not necessarily the quality of the decisions but the quality of the accountability for the decisions that are made – that’s the essence of good democratic decision-making.”

When decision-making is difficult, Michael argues that the focus needs to be on the ability to hold decision-makers to account. Doing so will foster a culture of transparency, continuous improvement and focus on developing skills and tools needed for effective decisions. Decisions are complex and organisations shouldn’t aim for perfection, but rather progression.

Critical to accountability is post-realisation evaluation. Michael outlines that post-realisation or policy evaluations drives accountability for decisions and leads to valuable lessons in how decisions are made. Naturally, people have a tendency to not want to dwell on previous decisions and can potentially be defensive of their decision-making. However, an effective post-realisation evaluation does not simply reflect on the decision itself, but also other factors that can impact on the ability to realise the desired outcomes.

Post-realisation evaluation should be part and parcel of taking a flexible modular approach and there is value in it being seen as part of an ongoing decision-making process. This helps to reflect on new information that has come to the fore, but also to acknowledge the distinction between what was a good decision up front (ex-ante) and the undesirable outcomes that followed. This process requires a strong, objective approach to ensure learnings can be appropriately captured.


Planning for uncertainty and maintaining a flexible approach to delivery

There is significant inherent uncertainty associated with a lot of decisions and understanding one’s ability to be flexible to future events is key. Utilising approaches to do this, such as a real options framework, is essential to robust decision-making.

“The key to dealing with uncertainty is not about how you can predict what’s going to happen but really about how you adjust when it occurs.”

A real options framework refers to choices and investment decisions that a decision-maker may or may not take advantage of throughout the time horizon of a decision tree or investment. There are challenges in the intricacies of option quantification but Michael believes it’s the qualitative aspects of real options that brings power to policy-making. One of the key takeaways is that the greater the uncertainty, the greater the value of flexibility. The nuances, and where Michael sees the greatest opportunity, is in understanding when to cash in that flexibility and apply qualitative rigour to execute a more definitive action. Often, people can dither where they need to act decisively in order to maintain flexibility and a degree of optionality, which isn’t always the right course of action.

By adopting a modular approach to decision-making, decision-makers can retain that flexibility within the process. This can allow for signalling of where new information may identify a new direction within the decision tree, whether to keep going with the decision or ‘shift gears’.


Data can help make an informed decision, however, it won’t make the decision for you

In Michael’s view, rigorous analysis has two blades: one being strong analytical or conceptual analysis, and the second being a commitment to real-world evidence. The latter is important to provide a greater understanding of the likelihood of realising the desired outcomes.

Technological advances mean decision makers have access to large amounts of data and many analytical tools. This can lead to more robust analysis, however Michael emphasises that a balance between quantitative and qualitative analysis is required. Technological and data improvements can be revolutionary but we need to first understand the potential limitations of the data to utilise it effectively. Michael considers that to enable the most robust approach for incorporating data within decision-making, you must first start with your own hypothesis, or ‘first-principles’ view, and use the data to then test that hypothesis. In doing so, the decision-maker must be prepared to accept the data when it disproves the hypothesis.

If we look back to before we had access to this level of information, a lot of good decisions were based on a strong sense of qualitative judgement from the decision-maker. Even now, judgement based on strong principles and conceptual understanding has led to decisions which stand the test of time.

“A lot of decisions, and perfectly good decisions, get made based on judgement as much as we exhort our decision makers to use as much of the tools and data available to them.”

Concluding thoughts

Our discussion with Michael Brennan serves as an important reminder of the ongoing need to use judgment, critical thinking and real-world evidence to inform decision-making. Making better decisions has a big ripple effect on many aspects of economic and social wellbeing. Consider this in a setting where significant reallocation of resources is underway, and change is occurring at an increasingly rapid rate, and the importance of utilising these lessons cannot be understated.

Listen to the full interview and download the transcript below