From Decision-Making to Integrated Decision-Making

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Sustainable Decisions

From Decision-Making to Integrated Decision-Making

Mathijs Groeneveld Student number: 1357026

Master thesis for

University of Groningen

Faculty Management & Organisation Specialisation Business Development Supervisors RUG

1e Supervisor: Dr. J.F.J. Vos 2e Supervisor: Ir. Drs. N.R. Faber

Supervisor Company: Ir. M.M. Kuijper (Sustainable Development Co-ordinator) Groningen, April 2005

The author is responsible for the contents of this thesis; copyrights rest with the author.

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Preface 3

Preface

This research is conducted to finalise my study Management and Organisation with specialisation Business Development at the University of Groningen. For 7 months I did a research at an Operating Unit of a large Company. The research was by order of a Division of the Company. The main themes of this research are

‘sustainability’ and ‘decision-making’. These themes were practically new for me, because they were not included in my study programme. Although the extra effort it took to familiarise with these topics, it was a very interesting research.

Although everybody in the company was very busy, they all found some time to help me with getting the data correctly. Many thanks to all those people. Special thanks for my first supervisor Margriet Kuijper (Co- ordinator Sustainable Development) and second supervisor Jacob Spiegelaar (Economist) for the effort they took to help me. I also want to thank Mindy Howard and Malcolm Stephenson for there though job to correct my English. Finally I want to thank my first supervisor from the University Janita Vos and my second supervisor from the University Niels Faber for the guidance they gave to the research.

Mathijs Groeneveld, Groningen, March 2005

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Management Summary 5

Management Summary

The Company tries to incorporate sustainable development (SD) into their business, because the Company thinks it helps society and simultaneously improve the company’s performance. The Division of this research as part of the Company contributes to SD by: Integrated Decision Making, active engagement on a limited number of key SD issues and active support for making the basic premises and organisation of our societies more sustainable.

This research concentrates on the first element; Integrated Decision Making (IDM). IDM means:

1. Full consideration of people, planet and profit 2. Stakeholder engagement

3. Balance between short-term priorities and long-term needs

Due to integration, there has to be a well-defined Decision Making Process (DMP). This research is therefore divided in two different components: general Decision Making Process and Integrated Decision Making process. This led to the following central research question:

• What is the quality of the Decision Making Process in the in the Companies Division business processes ´Development`

and ´Supply Chain Management` and to what extent are the three pillars of ´Integrated Decision Making` in place?

• How can, if necessary, the Decision Making Process be improved and how can it become a more Integrated Decision Making Process?

Due to make the central question operational, the following sub questions are determined:

1. To what extent do the business processes ‘Development’ and ‘Supply Chain Management’ conforms to the criteria of the general Decision Making Processes?

2. How can, if necessary, the general Decision Making Process be improved?

3. To what extent do the business processes ‘Development’ and ‘Supply Chain Management’ conforms to the criteria of the Integrated Decision Making Processes?

4. How can, if necessary, the Integrated Decision Making Process be improved?

The quality of the general DMP is assessed with a theoretical model that divides the DMP in five steps: (1) Framing, (2) Improving your options, (3) Gathering Intelligence, (4) Coming to Conclusions and (5) Learning from experience. The quality of the IDM process is assessed with criteria determined by the Company Division.

The Company Division leadership team decided that the priority to implement SD lied in five business processes. Two business processes have been chosen to use for this research, each assessed in a separate part:

Development process (part I) and Supply Chain Management process (part II). Within these processes two research objects have been assessed: formal processes (handbook) and some case studies. In the following paragraphs the main conclusions and recommendations are mentioned.

Framing

Although framing happens extensively, in both processes (Development and SCM) there is too little attention for people and planet when framing the situation, defining objectives and generating options. For both processes counts that it is recommended to use the SD principles (determined by The Company) literal at the outset of the process and set objectives in each area. That will push to think about those aspects more broadly and generate solutions to reach the objectives. In the current situation options are mainly generated due to avoid risks. Possible excellent solutions might be left outside if there are no risks or they are low.

Improving your options

As mentioned in the paragraph above, options are mainly generated to respond on risks. In principle there is a good options generation process in place. However, people and planet do not get sufficient attention, unless the risks are high enough in those areas.

Gathering intelligence

In both processes there are many measures for a good intelligence gathering process. At some points improvements are possible. In the Development process the gate decisions whether to proceed are based on

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Management Summary 6 a submission. The information in this submission is brief and positive minded. For SD information only some points with positive technical ‘things’ are mentioned. This information is too little to make a well- considered choice. Most project teams do some pre-work to inform the Decision Review Board (DRB) about the situation and considerations to undo this problem. However it is not formalised and structured in the process, which should be done to ensure it happens in the future. Further, the submission should be restructured and more attention should be given to SD.

Information in the SCM process is pointed too much towards the preferred option. That means that the thinking process is already pointed towards that option, which means that other options are more or less excluded. It is recommendable to think first broadly and define as much options as possible and then confirm towards the best solution.

Coming to conclusions

For the development process counts that there is no structural way of coming to conclusions. The main way of coming to conclusions is responding on risks. It has to be demonstrated that the risks are decreased to a level of ALARP (as low as reasonably practical). However, that means that decisions are made with heuristic procedures, while Russo et al. (2002) prescribe more extensive methods like importance weighing or even value analysis. In order to conduct value analysis, the importance of all criteria should be determined up front.

It means that automatically objectives are set for all SD aspects. In general most information is available to make a good decision. For the gate decisions counts that the information possibly is not sufficient, as concluded in the previous paragraph. The possible lack of information in the DRB makes a well-considered conclusion impossible. So, in order to use the right method of coming to conclusions within the DRB, the submission to the gate meetings needs to be improved.

The right methods of coming to conclusions are used in the SCM process. At various points importance weighing is conducted. For that purpose a useful tool (FPAL) is in place. However, this is quit a new tool and the information might not be sufficient yet. So, care is needed when using FPAL.

Learning from experience

Another common gap in the DMP is the lack of learning about actions and thus improving the process.

Learning from experience occurs by involvement of various people. It raises actually only content related learnings and not process related. So, improving the process happens very slowly.

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Table of Contents 7

Preface ...3

Management Summary ...5

1. Introduction ...9

1.1 Company description ... 9

1.2 Background to the research... 9

1.3 Problem formulation ... 9

1.4 Research methodology and justification... 11

1.5 Development process ... 12

1.6 Supply Chain Management process... 13

1.7 Report structure... 14

2. Evaluation Frame ... 15

2.1 Decision Making Process... 15

2.2 Evaluation criteria ... 18

2.3 Integrated Decision Making... 19

2.4 Evaluation criteria ... 20

2.5 Synthesis ... 20

2.6 Application evaluation models ... 21

Part I Development process...23

3. Formal Decision Making Process...25

3.1 General Decision Making Process ... 25

3.1.1 Framing ... 25

3.1.2 Improving your options... 26

3.1.3 Gathering Intelligence... 27

3.1.4 Coming to Conclusions... 29

3.1.5 Learning from Experience ... 30

3.1.6 Conclusions General Decision Making Process ... 31

3.2 Integrated Decision Making Process ... 32

3.2.1 People, Planet and Profit... 32

3.2.2 Stakeholder Engagement ... 34

3.2.3 Balancing short-term priorities with long-term needs ... 35

3.2.4 Conclusions... 36

4. Case studies ...39

4.1 Project X ... 39

4.1.1 General Decision Making Process ... 39

4.1.2 Integrated Decision Making Process ... 44

4.2 Project Y ... 49

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Table of Contents 8

5. Conclusions and Recommendations Part I ...59

Part II Supply Chain Management process ...65

6. Formal Decision Making Process...67

6.1 General Decision Making Process ... 67

6.1.1 Framing ... 67

6.1.2 Improving your options... 68

6.1.3 Gathering Intelligence... 68

6.1.4 Coming to Conclusions... 69

6.1.5 Learning from Experience ... 70

6.2 Integrated Decision Making Process ... 72

6.2.1 People, Planet and Profit... 72

6.2.2 Stakeholder Engagement ... 73

6.2.3 Balancing short-term priorities with long-term needs ... 74

7. Case studies ...77

7.1 Tender for Services A ... 77

7.2 Tender for Services B ... 83

7.3 Tender for Services C ... 89

8. Conclusions and Recommendations Part II...97

Part III Discussion parts I and II ... 103

9. Reflection ... 105

Abbreviations... 107

Glossary ... 109

References ...113

Tables and Figures...116

Appendix I: List of Interviewees ...119

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Introduction 9

1. Introduction

This introductory chapter sets out the problem and its context. First of all a description of the company is included (1.1). The reason and some restrictions/directions for the research are described in the background to the research (1.2). Two business processes (Development and Supply Chain Management) are assessed in this research. The next two sections (1.3 and 1.4) successively describe these processes. The objective, central question and sub-questions are determined in section 1.5. Section 1.6 gives a description of the methodology used to achieve the objective and answers the questions mentioned in section 1.5. The last section (1.7) sets out the report structure.

1.1 Company description

The company description is left out for reason of secrecy. The research is conducted within an Operating Unit of a large Company. It is carried out for a specific Division of this Company.

1.2 Background to the research

All Operating Units in the Company Group have committed to ‘contribute to sustainable development’, because the Company believes that contributing to sustainable development (SD) not only helps society, but also improves business performance (internal reference). The Division of this research is at the start of (re-) defining at European (and global) level what ‘contributing to sustainable development’ means in practice.In this Division contributing to SD consists of:

a) Integrated decision making - for all our core activities; this means full consideration of environmental, social, and economic impacts; balancing of short- and long term performance; and awareness and consideration of stakeholder interests,

b) Corporate Citizenship – active engagement on a limited number of key SD issues that are of strategic interest of The Company and society and where we have unique competencies or insights to offer (e.g.

CO2 storage for climate change, biodiversity- and impact management, reserves knowledge for management of energy resources).

c) Partners for the future - Identifying the barriers that keep us from choosing the more sustainable options and work, together with others, to remove these barriers.

This study concentrates on part a): integrated decision-making. It assesses the way it is executed now and suggests measures for improvements.

The roll-out of the Division of this research Integrated Decision Making (IDM) work coincided with this research. Five business processes were assigned to be important by the Divisions’ leadership team to implement SD. Two of these processes are considered in my research: Development and Supply Chain Management (SCM). They are separate business processes with different procedures. The study, therefore, considered the processes separately in two different parts. A short description of the content and organisation of both processes is given successively in sections 1.5 (Development) and 1.6 (SCM).

1.3 Problem formulation Objective

The following research objective is posed:

Make an analysis of the general quality of the Decision Making Process in the Company Division business processes

‘Development’ and ‘Supply Chain Management’ and evaluate to what extent the three pillars of ‘Integrated Decision Making’

are in place. This analysis will form the basis for possible recommendations about improvements of the Decision Making Process and the way it can become a more Integrated Decision Making Process.

Central questions

• What is the general quality of the Decision Making Process in the Companies Division business processes ‘Development’

and ‘Supply Chain Management’ and to what extent are the three pillars of ‘Integrated Decision Making’ in place?

• How can, if necessary, the Decision Making Process be improved and how can it become a more Integrated Decision Making Process?

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Introduction 10 Sub questions

The central question can be split up into sub questions in order to make them more operational. The sub questions will provide guidance for the research.

1. To what extent do the business processes ‘Development’ and ‘Supply Chain Management’ conforms to the criteria of the general Decision Making Processes?

2. How can, if necessary, the General Decision Making Process be improved?

3. To what extent do the business processes ‘Development’ and ‘Supply Chain Management’ conforms to the criteria of the Integrated Decision Making Processes?

4. How can, if necessary, the Integrated Decision Making Process be improved?

Restrictions

Research product restrictions

• The starting point for the research is an analysis of the way the Company Division of this research defines sustainability and IDM. In principle those aspects will not be discussed in general terms, but where relevant to IDM some remarks may be made.

• Both processes conclude in operating assets and, later, abandonment. These last two phases are not considered in this research. The reason is that the decisions at that point in the process do not influence the initial project anymore. They can only correct or direct decisions. Early choices are most important from an SD point of view. Alternatives can have significantly different impact in early phases. This means for the development process that phase 4 (execute) and phase 5 (operate) are not considered. The phases ‘manage contract’ and ‘close contract’ from the SCM process are not

considered.

• The Company Division has been in existence for only one year. The reorganisation has had

consequences for the processes under consideration. The companies that are now united within the Division had their own processes in the old situation, however they were generally similar to the new Division processes. Because of the long time span of the projects/processes, the initial parts of the cases considered here may have been conducted with the old procedures and, during the last year, with the new Division procedures. This situation can lead to differences in the prescribed and real situation.

I do not take the old situation into account and the cases are normalised to the new Division situation.

This normalisation makes it possible to compare and assess.

• The question whether the formal processes (as described in the business process handbooks) are easy to use and understood by everybody is not part of this research. Through interviews it became clear that both processes are commonly accepted and used.

• The SCM process is still evolving. An improvement process is on going. The possible changes are not considered in this research.

Research process restrictions

• The research had to be finished at the end of December 2004.

• Availability of key people for input, interviews etceteras.

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Introduction 11 1.4 Research methodology and justification

The research process that I used is schematically shown in the figures below.

Part I: Development process

Figure 1.1: Research design Development process Part II: Supply Chain Management process

Figure 1.2: Research design Supply Chain Management process

The methodology is described on the basis of these models step by step and by the numbers of the blocks.

The numbers of the blocks are also mentioned in the introduction of each chapter. In this study the development and SCM processes are assessed separately. Part I of this report covers the Development process and Part II the SCM process. For each process a research design is drawn up (figures 1.1 and 1.2).

Both research designs are equal, just like the evaluation model (defined in chapter 2) to assess both processes.

The same evaluation model can be used, because both processes show similarities. The phases designed for each process are comparable with decision-making phases as they are defined in the evaluation model. Using the same methodology for both processes is therefore justified.

Within each process two research objects are assessed: the formal procedures (‘handbooks’) and the way the procedures are applied in practice: case studies. Both objects are chosen because differences might exist between formal procedures and practice. Besides, the large amount of cases was chosen, because cases can also vary widely. This relatively large scope means that the applicability increases, but that the superficiality also increases. The formal procedures are described in the Opportunity Realisation Process (ORP)

(Development) and the SCM Management System (SCM process). The research objects are shown in the figures by the four blocks at the top (numbers 1A and 1B). Considering these two research objects allows determining differences in the prescriptions of the ‘handbooks’ and the implementation in practice.

1A.Opportunity Realisation

Process

1B. Two Cases

2A. Decision

Making Process 2B. Decision

Making Process 3A. Integrated

Decision Making

3B. Integrated Decision

Making

6. Conclusions and Recommendations

5B. Conclusions 4B. Conclusions

5A. Conclusions 4A. Conclusions

1A. SCM Management

System

1B. Three Cases

2A. Decision

Making Process 2B. Decision

Making Process 3A. Integrated

Decision Making

3B. Integrated Decision

Making

6. Conclusions and Recommendations

5B. Conclusions 4B. Conclusions

5A. Conclusions 4A. Conclusions

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Introduction 12 The research objects are assessed by two different sets of evaluation criteria, which are considered in chapter 2. The first set of criteria assesses the quality of the general DMP, which relates to sub-questions 1 and 2.

This part of the research is shown in both figures by number 2. The second set of criteria assesses the quality of the IDM aspects, which relates to sub-questions 3 and 4 (shown by numbers 3 in figures 1.1 and 1.2).

Both sets of criteria are presented as closed questions. Per criterion/question measures, tools or procedures that show compliance with that criterion are mentioned and explained. It is not considered whether these tools, measures or procedures are sufficient from a scientifically point of view. For example, it is not

considered whether the stakeholder engagement procedures are scientifically sufficient for ‘real’ engagement.

The extent of importance of each criterion will differ per process and per case, because the processes and the cases vary from each other. Very complex cases may include all possible elements, while simple projects only include some of them. The (I)DMP in complex cases will therefore be more complicated then in simple projects. Importance of each criterion therefore has to be determined per case. The Division of this research for instance develops many offshore projects, in which the social aspect in general will be of less importance than projects on land near habitation.

Conclusions are drawn up per research object (formal processes and cases) and per set of evaluation criteria (DMP and IDM). The conclusions are shown by the blocks with numbers 4 and 5.

Finally, common conclusions are drawn up per business process (numbers 6). These conclusions are made on the basis of the evaluation criteria as determined in section 1.5 (Synthesis). Differences between the formal processes and the cases are also determined. Differences are not automatically bad, because the cases vary widely. Therefore they might require a different process compared to the prescriptions. On the other hand it is possible that bad practices occur, because the formal procedures are not carried out. The recommendations are primarily intended to improve the general DMP and integrating IDM elements.

The final goal is IDM. The reason of assessing first the general DMP is because IDM cannot be embedded if there is no well-organised DMP in place. The elements of IDM have to be embedded in the general DMP.

Research of the formal processes (ORP and SCM Management System) took place by desk research. All the procedures and tools are described in ‘handbooks’ and other documentation available to staff through the Company Intranet. Desk research is also the main approach to the case studies. A lot of information is available regarding the cases and can be ascribed to the different phases of the processes. Some documentation also describes how the decisions arise within the processes. Therefore most of the

information needed in order to assess the quality of the general DMP and the IDM process, can be gathered by desk research. Information that was unavailable on paper or unclear was gathered by interviews with key persons involved in the cases.

In the next two sections a short description of the content and organisation of both processes is given successively.

1.5 Development process

This section describes the development process. It is a description of the formal procedures (handbook) as defined by the Division. These formal procedures, together with some cases, are assessed in this study. The phases of the ORP are presented schematically below (The Company, OPMG, 2001: C.2 - p.2).

Figure 1.3: Opportunity Realisation Process Legend

Value Assurance Review

Pre Start-up Audit

Decision to Proceed

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Introduction 13 The Division of this research has developed the Opportunity Project Management Guide (OPMG), which describes the Opportunity Realisation Process (ORP). The ORP is the formal procedure that provides a common process for the development of the various opportunities and projects. It describes what steps to take at what moment and who to involve. The Development process is thus covered by the ORP.

The Development process manages a portfolio of opportunities. The development process is concerned with projects and opportunities covering the whole life-cycle of physical assets from concept development, via operations to abandonment. The development process develops, operates and abandons off-shore and on- shore locations, like drilling platforms and gas storage locations. The duration of individual projects differs from one year to 5 or 6 years. It depends amongst other factors on the complexity of the projects and the case with which permits can be obtained. Successful opportunity maturation requires consideration of various aspects, like schedule, SD and safety.

The ORP requires an integration of all disciplines’ activities (petroleum, well, field, operations, maintenance, planning, cost, safety, etc.) across the five ORP phases that have been defined. ORP is a decision-based, frond-end-loaded process that is divided into the five logical phases that all opportunities will pass through in their realisation. Decision-based means that a decision checkpoint (“gate”) punctuates each phase. Front-end loading means that the concept is matured to a considerable degree of detail before the final investment decision at the end of phase 3 is made. This has been proved to substantially reduce the risk to cost and schedule. The ORP has been developed according decision-making models/theories (interview Division Head Economics and Budgeting). It has the same kind of phases as those models/theories.

1.6 Supply Chain Management process

The Supply Chain Management (SCM) process provides a co-ordinated delivery of common processes, standards and tools to support business assets. The aim of the processes and tools is the optimisation of all parts of the supply chain for goods, services and logistics including demand management, optimised

purchasing, order fulfilment, information streams and cash flows. SCM has a primary objective to ensure the Division derives the best value from its US$12 billion annual spend on goods and services. The SCM process is schematically shown below. It is described in the SCM Management System, which describes what steps to take at what moment and who to involve. The following phases are defined:

Figure 1.4: SCM Management System (The Company, SCM Management System, 2004: C.1 – p.11)

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Introduction 14 The SCM process also has similarities with decision-making models. The same kind of phases can be defined.

In each phase there are one or more decision points, made by the contract owner/functional manager. The decisions in phase 2 to 5 are preceded by a review from the Tender Board (TB). This review ensures commerciality of strategy and contract proposals and compliance with the company’s contracting principles and objectives (The Company, SCM Management System, 2004). The TB is split in a Major TB for large projects and the Supply Chain Council for smaller projects. This distinction has consequences for the kinds of people that are involved. In this report the term TB is used for the Major TB and for the Supply Chain Council, because further distinction is generally irrelevant. If it is relevant to this research the distinction is made.

Relation to ORP

The SCM process is a business process on its own. The relation with the ORP lies in the fact that within a project, which is organised by the ORP, goods and services have to be procured. The procurement is organised by the SCM process. In addition to its use in the ORP, the SCM process supplies goods and services for non-project related aspects. This research does not concern the relation of both business process, but deals with them as separate business processes.

1.7 Report structure

Two business processes are evaluated. They are successively discussed in part I (Development process) and II (SCM process). The research design model in figure 1.1 is developed for part I and the research design model in figure 1.2 is designed for part II. The structure of the chapters is the same for both business processes. It starts with an assessment of the formal DMP. Chapter 3 assesses the formal Development process. Within this chapter the general DMP is assessed with the evaluation frame as determined in chapter 2. The IDM process is assessed with an evaluation frame as determined by the Companies Division. The same assessment is conducted for the Development cases (practice) in chapter 4. Differences that exist between the evaluation model, formal process and practice are considered in chapter 5. Improvements in the general DMP and the IDM process are also recommended here. The same structure is used for the Supply Chain Management process in part II, chapters 6, 7 and 8. Finally, chapter 9 discusses the problem, research and some findings that not directly relate to the research.

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Evaluation Frame 15

2. Evaluation Frame

Many models about decision-making indicate that decisions commonly arise in a couple of phases. Such a model is also used to assess the Decision Making Process (DMP) in this research. The first section (2.1) describes the background of the model, resulting in a set of evaluation criteria in section 2.2. Justification for this specific model is also given. This section is the answer of sub-question 1 (How can the quality of the general DMP be determined?). The second aspect of the research concentrates on Integrated Decision Making (IDM). Some background information to this subject is given in section 2.3. Section 2.4 enumerates the IDM-criteria, which are used for this evaluation. This section answers sub-question 4 (How can the quality of IDM be determined?). The last section (2.5) shows the relation between the two sets of criteria. It integrates both criteria. This integration is the starting point (guideline) for the improvements and

recommendations.

2.1 Decision Making Process

Thinking of decision making as a process consisting of phases has a long intellectual tradition (Russo &

Schoemaker, 2002). Dewey (1910) characterised problem-solving as consisting of (1) defining the problem, (2) identifying the alternatives, and (3) choosing the best one. Simon (1977) similarly proposed a four-phase process consisting of intelligence, design, choice and learning.

Both business processes (Development and Supply Chain Management) contain similar steps (see process descriptions 1.5 and 1.6) as the DMP steps. Roughly speaking, the business process steps can be divided into the different phases that are mentioned above. The processes start broadly with defining the situation and generation alternatives. Both processes end with confirmation by choosing one option and learning.

The quality of the decision-making process is being assessed. That implies an assessment of the steps that are taken to make the decisions. An evaluation frame that incorporates DMP phases (process) is therefore appropriate. Evaluation and thinking of solutions can then be pointed more directly to specific actions and steps in the business process.

Studies of decision-making in the real world suggest that most of the time not all alternatives are known, that not all consequences are considered, and that not all preferences are evoked at the same time (March, 1994).

The phases of the DMP as defined above are not always executed properly. Business decisions are often based on little more then a quick scan of appropriateness (Christensen and Raynor, 2003). The different phases as described above apparently do not appear rational. It means that although decision-makers try to be rational, they are constrained by limited cognitive capabilities and incomplete information, and thus their actions may be less than completely rational in spite of their best intentions and efforts. This phenomenon is called bounded rationality. In recent years, ideas of bounded rationality have become sufficiently integrated into conventional theories of rational choice to make bounded rationality viewpoints generally accepted.

Integration of these generally accepted viewpoints is a requirement of the evaluation frame.

Russo et al. (2002) describes a comparable four-stage process that provides a broad, conceptual framework for approaching virtually every decision. Multiple intellectual disciplines that are related to decision-making are included; from behavioural decision theory and decision analysis through artificial intelligence and problem solving to group dynamics and creativity. Russo et al. (2002) are aware of the fact that decision- making is not only process related, but also involves cognitive (thinking), social, and emotional components.

Their model is based on theories about bounded rationality. It thus satisfies both requirements for the evaluation frame mentioned above, namely: defining different decision making steps and beware of bounded rationality.

Other arguments that support using the model of Russo et al. (2002) are:

A. This model put much attention to the first phase: defining/framing the situation. This is proper in the light of IDM. According to March (1994) framing direct attention to different options and different preferences. Besides, decision-makers typically frame problems narrowly rather than broadly. They decide about local options and local preferences, without considering all tradeoffs or all alternatives.

This implies that in order to consider all relevant aspects (including all sustainable development aspects) sufficiently, they should be considered and integrated at the outset of the process. Otherwise, they will not be considered sufficient in the subsequent phases. This statement fits in the ‘rational model’ from Heller et al. (1988), which is developed to analyse the participation in the sequence decision phases. This model postulates that the first phase of decision-making is the most important

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Evaluation Frame 16 since goals are defined within this phase, while in the following phases only means for goal

achievement are considered. According to this hypothesis, the first step has strategic function while all other steps are to some extent dependent on it or even programmed by it (Burns, 1967). Mintzberg et al. (1976) accepts this implicitly by saying ‘diagnosis is probably the single most important routine since it determines in large part, however implicitly, the subsequent course of action'. The framing phase is thus an important decision making phase.

B. The model draws on multiple intellectual disciplines – from behavioural decision theory and decision analysis through artificial intelligence and problem solving to group dynamics and creativity.

Considering so many elements makes the model comparable to business reality and therefore applicable.

C. The Division requires risk management in the DMP. Risk management is required because the business is exposed to a lot of uncertainties, like: changing oil price, changing dollar price and estimation of reserves. Russo et al. (2002) incorporate risk management into their model. It is included in the gathering intelligence phase, but affects all phases/elements of the process. This integration ensures a fit with the need of an Exploration & Production company.

D. The model also incorporates group decisions. The fact that it is integrated in the model ensures a good connection with the other elements of the model. Both business processes (Development and Supply Chain Management) have to deal with group decisions. This element therefore has to be taken into account.

The model of Russo et al. (2002) thus represents many elements of decision-making. The content and explanation of each phase of the model is described below. Some related topics from other researchers are also mentioned.

1. Decision-framing: framing determines the viewpoint from which decision-makers look at the issue and sets parameters for which aspects of the situation they consider important and which they do not. It

determines in a preliminary way what criteria would cause them to prefer one option over the other and thus defines the objectives. These objectives should be defined clearly in order to direct the process.

In order to get the right frame for a specific situation/problem, three steps should be considered.

A. Awareness: notice what frames you and others are using.

B. Evaluate fit: evaluate whether your frames fit the problem at hand. If they match, you’re on track. If not, proceed to step C, otherwise wrong intelligence will be gathered and possible a wrong choice made.

C. Find or built a better frame: for yourself, find a better frame, of build one if necessary. When working with others, help them change their frame.

March (1994) describes framing as a process that fundamentally simplifies information processing and problem solving. The model of Russo et al. (2002) uses the same definition and tries to anticipate on this cognitive process. The purpose to integrate sustainability into the DMP fits perfectly in the description above to think of a broader range of options. It might generate more sustainable and possible better options.

2. Improving your options: The next step in the DMP is improving your options (Russo et al., 2002).

Options are very important elements in decisions. Without good alternatives to choose from, it is impossible to make a good decision.

Two ways of improving options are considered: (A) generating more options and (B) generating more flexible options.

3. Gathering intelligence: intelligence-gatherers must seek the knowable facts and options and produce reasonable evaluations of “unknowables” to enable decision-making in the face of uncertainty. On paper, the process for gathering intelligence appears trivial: Ask the most appropriate questions. Interpret the answers properly. Decide when to quit searching further.

In practice, there lurks a series of all-too-human traps in each step, traps that stem from common biases in the way people - in the absence of training - process information. The most important are: undue optimism and false efficiency.

Undue optimism: broad rubric of biases stemming from an inflated sense of knowledge and ability.

A. Overconfidence: to hold your beliefs with utter conviction without considering whether the available information justifies the depth of that conviction.

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Evaluation Frame 17 B. Seeing what you believe: most of us possess a built-in tendency to favour evidence that supports our

current beliefs and to dismiss evidence that challenges them. (Psychologists call this tendency

“confirmation bias”)

False efficiency: two of the most dangerous shortcuts in the intelligence-gathering phase are:

A. The tendency to pay too much attention to the most readily available information.

B. The tendency to excessively anchor opinions in a single statistic or fact that from then on dominates the thinking process.

Undue optimism can bias what information we seek. False efficiency distorts how we filter or interpret the information we have.

In this context March (1994) describes also four information constraints imposed by methods of organising diverse individuals:

Problems of attention: time and capabilities for attention are limited. Not everything can be attended to at once.

Too many signals are received. Too many things are relevant to a decision.

Problems of memory: the capabilities of individuals and organisations to store information are limited. Even more limited are individual and organisational abilities to retrieve information that has been stored.

Problems of comprehension: decision-makers have limited capacities for comprehension. They have difficulty organising, summarising, and using information to form inferences about the causal connections of events and about relevant features of the world.

Problems of communication: there are limited capacities for communicating information, for sharing complex and specialised information. It is difficult to communicate across cultures, across generations, or across

professional specialties. Different groups use different frameworks for simplifying the world.

These biases mentioned by March partly cover those from Russo et al. (2002) and partly complement them.

As mentioned above, the gathering intelligence phase has to deal with uncertainties. Russo et al. (2002) believe that decision-makers must reduce uncertainty as far as they can, then they must manage it. Decision- makers must acknowledge uncertainty: uncover it, recognise it, understand it, and deal with it in an unbiased way. The kind of tool to manage the uncertainty depends largely on what type of uncertainty is being faced.

In principle the simplest tool can be used, without underestimating the complexity of the decision. It means that it is not necessary to do exceptionally much effort for a simple decision. March (1994) says it depends on three sets: risk estimation, risk-taking propensity and structural factors within which risk taking occurs.

4. Coming to conclusions: sound framing and good intelligence does not guarantee a wise decision. People cannot consistently make good decisions using intuition alone, even with excellent data in front of them (Russo et al., 2002). A systematic approach will lead to more accurate choices-and it usually does so far more efficiently than hours spent in unorganised thinking. This is particularly through in group-settings.

Which decision-making method you choose matters. Different methods weigh criteria differently-and will likely lead you to choose different options (Russo et al., 2002). Unfortunately there is no simple formula to determine which approach to use. March and Simon (1958) indicate that human beings can decide somewhat rational for well-defined programs but of limited complexity. For more complex situations another decision approach is essential. Russo et al.(1993, 2002) provided a pyramid of choice with the four types of methods.

A. Intuitive choice: a quick and easy decision, based on knowledge or a strong feeling to be right. This method is unreliable for all but the most repetitive decisions, where expertise has become truly

“automated”. But because it takes so little effort, it may be appropriate for some small decisions with limited complexity.

B. Heuristic procedures: decisions based on rules. Rules are quick and often clear ways to approximate an optimal response without having to incur the cost of a detailed analysis. They take a little more effort, provide a bit more quality, are easy to explain and can often be used to defend a decision. However, they have built-in biases and dangers that must be carefully considered.

C. Importance weighing: decisions based on weighing factors, which are determined by ourselves. This method takes some effort the first time, but it can be used quickly thereafter. It yields high-quality decisions and very high clarity, but your importance weights are totally transparent. And the

environment shouldn’t change much if you’re going to apply today’s model to tomorrow’s decisions.

D. Value analysis: value analysis refines importance-weighting techniques by considering how factors affect broader objectives and how increases in the rating of a factor add value. It links factors to key

objectives. Providing the highest-quality decisions requires a maximum level of effort and may be very

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Evaluation Frame 18 difficult to explain and use. Nonetheless, the final decision will be highly explicit in terms of the data employed, assumptions made, and values and weights assigned.

Teams, on average, make better decisions than individuals. But some of the absolute worst decisions are also made by groups (Russo et al., 2002). Groups offer greater thinking capacity, multiple viewpoints (frames), a broader information bases and links to activities taking place in various parts of the organisation. Discussion and the need for consensus moderate extreme views. Participation in the DMP can generate widespread buy- in when time for action comes. Although group decisions have a lot of advantages in comparison with an individual decision, it is not automatically a good decision. They have to be managed.

Two kinds of failures within a group process are considered.

A. Debating society: decisions that drone on and on without resolution, or deep, divisive conflicts that lead to a hostile impasse. In such groups the DMP forever expands. There is no closure, and no action. It is the failure of not coming to conclusions.

B. Groupthink: too much conformity. When a group strives for premature harmony, too few alternatives are examined and too few objectives taken into account. The decision frame or policy alternative first put on the table may be adopted, whether good or bad. Intelligence gathering becomes one-sided,

especially concerning the risks inherent in the preferred option. Confirming evidence is sought;

disconfirming evidence (and disconfirming speakers) shunned.

5. Learning from experience: only by systematically learning from the results of past decisions can decision- makers continually improve their skills. Further if learning begins when a decision is first implemented, early refinements to the decision or implementation plan can be made that could mean the difference between success or failure.

Some of the barriers for learning are built into the organisations or the environment. They have to do with how and where information is stored and shared (or not), the way the real world distorts feedback on outcomes that are influenced by a complex mix of decision and action, and the organisational norms that determine whether learning behaviours are rewarded or punished. These barriers are not completely under your control; you will need the co-operation of others to change them.

According to Simon (1977) the cycle of phases is far more complex than the sequence of these phases suggests. Each phase in making a particular decision is itself a complex decision-making process. Russo et al.

(2002) designed for this purpose a framework that should be used flexible.

Improving your options

Framing Gathering Intelligence Coming to Conclusions

Learning Figure 2.1: Framework Decision Making Process

2.2 Evaluation criteria

Some criteria are set up in order to assess the general DMP. They are derived from the decision-making model and underlying theory as described in section 2.1. These criteria correspond with blocks number 2 of the research design models from section 1.4. The structure of the criteria is derived from the model of Russo et al. (2002). For each phase of the DMP different criteria are being considered. The criteria are presented as closed questions. Importance of each criterion has to be determined per case, because cases vary from very complex to very simple and repeatable. Evidence of the answers is given in the form of explanation about measures, tools and procedures.

1. Decision Framing

1. Is there awareness of the frame that is being used? Is the fit of the frame with the problem evaluated?

And, if necessary, a better frame built or found?

2. Is it clear what the decision objectives are?

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Evaluation Frame 19 2. Improving your options

1. Has a broad range of options been identified?

2. Have flexible options been identified, in the light of uncertainty?

3. Are ideas not filtered or discarded prematurely?

4. Are perspectives shifted to see things in a new light?

3. Gathering Intelligence

1. Are measures in place to avoid overconfidence and confirming own assumptions?

2. Are measures in place to avoid the tendency to pay too much attention to the most readily available information and to excessively anchor opinions in a single statistic or fact that from then on dominates the thinking process?

4. Is key information always available, missing data identified and is there enough time, budget, or people to gather the intelligence needed?

5. Are risks identified and managed?

4. Coming to conclusions

1. Is the right method of choice used?

2. Are measures in place to avoid the failure of not coming to conclusions?

3. Are measures in place to avoid groupthink?

4. Is the available information complete and reliable to support a clear decision and is attention drawn to key issues and uncertainties?

5. Learning from experience

1. Does the Division capture information on the results of their actions – those options they passed over as well as those they chose?

2. Do people learn from others (one human, another part of the organisation, another organisation or another industry)?

3. Are formal procedures in place to capture information in order to transfer knowledge?

4. Is experience used?

2.3 Integrated Decision Making

In this report IDM is used as it is defined by the Division. No theoretical considerations underlie the explanation and criteria of IDM. The terminology and criteria used for this assessment might be different from that used in the procedures and/or practice, but it can (partly) cover the same topics. Other terminology that covers the same content is of course also valid. The content instead of the terminology thus will

determine the extent of IDM.

IDM for all Division core activities means full consideration of environmental, social, and economic impacts;

balancing of short and long-term performance; and awareness and consideration of stakeholder interests (internal reference). The Company translated SD into 7 Business Principles, which is a further sub-division of the environmental, social and economic impacts, also called people, planet and profit (triple-P) (internal reference):

1. Generating robust profitability (profit) 2. Delivering value to customers (profit) 3. Protecting the environment (planet) 4. Managing resources (planet)

5. Respecting and safeguarding people (people) 6. Benefit communities (people)

7. Working with stakeholders (integrated in all)

Taking a “triple-P” perspective is also common used in diverse literature (e.g., Jorna and Van Engelen, 2002;

Kaptein and Wempe, 1999). The last principle, working with stakeholders, serves to improve all other principles. Achterkamp and Vos (2003) also mention the combination of the “triple-P” perspective with the stakeholder notion. The reason for that is the fact that sustainability is relative. Something is sustainable in relation to something else. Achterkamp and Vos (2003) mention that it is not only important to ask the

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Evaluation Frame 20 question “sustainability of what”, but also the question “who should be involved answering this what-

question”. They refer to the stakeholder identification problem and note that stakeholders should provide answers on the “what”-question. The Company also takes this perspective. Because of this importance, stakeholder engagement is seen as a separate part of IDM.

Since Sustainability needs to be part of the DIVISION business, for some decisions a switch is needed from adding on SD after a decision has been made to full integration in the DMP. It means full attention for SD is required in all DMP phases. Other decisions are relatively simple and do not influence most of the SD principles and thus less attention is required.

These SD principles are developed due to contribute to longer-term SD objectives, like decreasing climate change, improving biodiversity, and avoid the increasing extremes of poverty and wealth (internal reference).

2.4 Evaluation criteria

Different criteria are considered for the three elements of IDM (People/planet/profit, stakeholder

engagement and balance between long- and short term). As mentioned in the first restriction in section 1.3, the definition of IDM is literally derived from the Division. The criteria they have set for IDM are also used in this part of the research. These criteria are derived from a checklist with questions that managers could ask in order to improve their decision-making (The Company, Management checklist for IDM, 2004). The most relevant criteria are chosen in dialogue with the Division supervisor (Sustainable Development Co-ordinator).

This checklist is made by the Division and relates to the seven Company SD principles in section 2.3. These criteria are also formed as closed questions. Importance of the criterion should be determined per case as well, because the cases vary from complex to simple. Evidence for the answers on these questions is also given in the form of measures, tools and procedures. This set of criteria corresponds with number 3 in the research design models.

1. People, Planet and Profit (triple-p)

1. Are the three elements considered in the objectives?

2. Are the seven Company SD principles used for brainstorming?

3. Is it clear what MEF (most environmentally friendly), MSA (most socially acceptable) and ME (most economic) options are?

2. Stakeholder Engagement

1. Are stakeholders identified as early as possible (preferably at the outset)?

2. Has a broad range of stakeholders been identified (not only the ones that can stop/influence activities)?

3. Is it clear when & where input from stakeholders, experts, etc, will be required?

4. Are stakeholders’ opinions assessed with credible sources?

5. Is feedback asked from stakeholders and after the decision feedback given to stakeholders?

3. Balance short-term priorities with long-term needs

1. Is compliance assessed of all options with current legal requirements and expected future requirements?

2. Are costs & benefits, risks and impacts assessed for all options as objectively as possible, based on life cycle analysis?

3. Do longer-term objectives get sufficient weight when coming to conclusions?

2.5 Synthesis

Both research aspects (DMP and IDM) and their criteria are interrelated to each other. First of all the

elements of IDM are or have to be integrated in the DMP. Actually there should not be a distinction between them. But in order to create awareness of the necessity to think about the IDM elements, this distinction is inevitable. To connect the DMP and IDM the researcher will refer in the IDM analysis to the DMP. It means that is mentioned to what phase of the DMP the IDM criteria is related. This will happen partly automatically through the criteria of IDM, for instance in People, Planet and Profit (Are the tree elements considered in the objective?). Some other overlap will occur, but the focus will be different. The recommendations are pointed to a fusion of both processes. That means that improvements in the IDM process are directly related to the

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Evaluation Frame 21 DMP. Therefore both sets of criteria are integrated in a new set of criteria, which will be used as a guideline for the overall conclusions and recommendations. This set of criteria corresponds with number 6 in the research design models.

1. Decision Framing

1. Have People, Planet and Profit been considered when framing the situation?

2. Have stakeholder interests been considered when framing the situation?

3. Are People, Planet and Profit considered in the objective?

4. Are stakeholder interests considered when defining the objective?

5. Are the seven SD principles used for brainstorming in order to get the right frame and/or objective?

2. Improving your options

1. Has a broad range of options been considered including MEF, MSA and ME?

2. Has flexible options been considered, in the light of uncertainty?

3. Are ideas not filtered or discarded prematurely?

4. Are perspectives shifted to see things in a new light, for instance shifted to SD components?

3. Gathering Intelligence

1. Are measures in place to avoid overconfidence and confirming own assumptions?

2. Are measures in place to avoid the tendency to pay too much attention to the most readily available information and to excessively anchor opinions in a single statistic or fact that from then on dominates the thinking process?

3. Is key information always available, including all triple-p information, and is there enough time, budget, or people to gather the intelligence needed?

4. Are risks and impacts identified, with the use of the seven SD principles, based on life cycle analysis and are they managed?

5. Are stakeholders interests considered in risk and impact identification?

6. Are current and expected future legal requirements considered?

7. Are costs & benefits assessed for all options as objectively as possible, based on life cycle analysis?

4. Coming to Conclusions

1. Is the right method of choice used?

2. Are measures in place to avoid the failure of not coming to conclusions?

3. Are measures in place to avoid groupthink?

4. Is the available information complete and reliable to support a clear decision?

5. Are triple-p information, stakeholder interests and differences between short-term and long-term interests taken into account?

5. Learning from Experience

1. Does the Division capture information on the results of their actions – those options they passed over as well as those they chose – with attention to SD?

2. Do the people learn from others (one human, another part of the organisation, another organisation or another industry)?

3. Are formal procedures in place to capture information in order to transfer knowledge, including SD information?

4. Is experience used, including SD experience?

2.6 Application evaluation models

All three sets of criteria are evaluated in both parts of the report. The criteria to assess the general DMP (section 2.2) are applied in the evaluation of the formal processes (sections 3.1 and 6.1) and the evaluation of cases (sections 4.1.1, 4.2.1, 7.1.1, 7.2.1 and 7.3.1). The criteria to assess the IDM process as determined in se