But it is hard to make the practical connections between ‘big issue’ agendas (such as climate change, energy transition, sustainability and social responsibility) and our day-to-day actions, priorities and habits. This applies both in the workplace and in our personal lives. Deciding what, and how much, to sacrifice in the short term, for the benefit of the long term – and perhaps a multi-generational long term – is very difficult. And this is especially so if every day is already being spent in trying to keep multiple interests happy, with resource and time constraints. The problems have several manifestations:
In tackling such challenges, SALVO research has shown how the good disciplines and processes can force the right questions to be asked, more consistently, and how we can put a quantified value on risk, sustainability and intangibles. The research also revealed better ways to handle trade-offs and compromise, how to deal with uncertainty in a safe and transparent manner, and how to build consensus between stakeholders.
Sustainability, environmental and social responsibilities are essentially ‘business drivers’ like cost, risk and performance. They can be incorporated into a Value Framework, with scales of significance, and they can be included in cost/benefit evaluations and justifications. But, like risk, they are ‘fuzzy’ when compared to hard cash or performance metrics. The potential long-term impacts are inherently uncertain, both in degree and in significance. They are also extremely difficult to measure, even indirectly with presumed ‘predictive indicators’. Success or failure will not be evident until it is too late.
These issues make it imperative that our decision-making skills are given a boost. And I don’t mean just the ‘big decisions’ about strategy and capital investment. The most profound global effects are likely to come from groundswell adjustments in the many small decisions that are being made daily by everyone. In all levels of decision-making, we can learn and practice
An example of the learning that is needed lies in a common conceptual mistake when handling trade-offs and compromise. Just think how often you hear the term ‘balancing’ costs/ risks/ performance etc. Yet this is NOT what we should be trying to do. Balancing seeks a point of equality, where the pain equals the gain, or the costs/risks are the same as the benefits. The optimal decision is quite different: it is a maximum degree of imbalance of benefits to costs and risks. In other words, it is the highest ‘gain to pain’ ratio, where all stakeholder impacts, positive and negative, have been included, and over a time horizon in which they will occur. This is what we need to call ‘best value’.
Of course, future impacts are already considered in many evaluation and decision-making processes. We use discounted cashflow to convert future costs and benefits into today’s equivalent value. But can we do this also for existential threats or sustainability concerns? The effect of such discounting will tend to undermine our motives for long-termism, by creating an inherent bias towards the concrete and immediate. A pound/dollar/euro in the hand today is worth more than one we might receive in 10 years’ time. But what if the benefits of waiting are disproportionately important? Should we be considering, perhaps, a form of ‘negative discounting’ to force a positive long-termism bias into our evaluations and justifications?
These and other questions need to be addressed in our decision-making frameworks, both formally, in our organisations, and informally, in our personal choices, values and habits. One thing we can be sure of, however, is that our decision-making will be in the spotlight during the decisive decade, along with the efforts and commitment needed to implement the resulting changes.
Watch our contribution in The Institute of Asset Management (IAM) and ITN Productions Industry News programme Planning for the Long Term, exploring the vital role of whole life management of physical assets and how to increase the value they provide to society and the economy.
With 30 years’ experience in utilities, oil & gas, transport and other sectors, John is one of the most widely known experts in integrated asset management projects for some of the largest companies in the world.
John is a Founder and Life Fellow of the IAM; he has written 4 books, chaired the development of BSI PAS55 and represents the UK on the ISO55000 committee.
He also led the international MACRO and SALVO collaboration projects in optimised asset management decision-making.