Julius Ceasar was reported to have said “The die is cast‘ when he sent his troops across the Rubicon in 49 BC. This quote is generally thought to refer to his having made a decision from which there was no going back.
While we can’t know what was in Ceasar’s mind, nor whether he actually used these words, the quote alludes to his having rolled the dice in a game of chance, rather than pouring molten metal into a mold with a pre-determined outcome (die-casting). Historians suggest that when he crossed the Rubicon, this was an irreversible trigger for the start of the civil war in the Roman Republic. Having made his decision, he was committed to all of the consequences that would flow thereafter. The point at which a die is cast is not the point at which an outcome is known of course. The dice are still in motion, so until they come to rest the number combination they will display is not certain.
Were his dice loaded? There are two ways in which dice are loaded to skew the odds of particular outcomes. One involves weighting one side of each die so that they tend to land showing seven or 11. The other is by virtue of the number of dots on each face and their combinations. There are more combinations (chances of) producing seven than any other number (see header image above).
So how is this relevant to non-profit governance?
Non-profit and for-purpose boards exist to make decisions. Probability is one of the key factors influencing our decision-making, Understanding some basic probability concepts could therefore be considered an essential capability for all directors.
We factor probability into our thinking about both strategy and risk, as illustrated in the two charts below. The future cone describes a range of potential scenarios that may need to be taken into account, featuring both favourable and unfavourable developments. Only some of the possibilities will be considered probable.
When the board sets strategic goals, it expresses its intentions regarding a desired future state. This is used to charge management with responsibility for implementing the actions necessary to move from the current state to a set of outcomes which, when achieved, allow the board and your stakeholders to confirm strategic impact. This intentionality ‘loads the dice’ (or places a thumb on the scales) determining likely outcomes.
As highlighted in the next two charts, there are several types of probability. Five of these are drawn to attention here, with conditional probability given special emphasis.
Negative scenarios are also explored using the future cone. The likelihood of adverse events occurring in your external operating environment is assessed, along with possible internal setbacks and hurdles. Risk heat maps are often used to help broadly assess likelihood and consequence (probability and severity) ratios, and to prioritise (rate) risks warranting defensive action. Where relevant, and to the extent possible, control and mitigation measures are then taken.
Whether making a decision or assessing risks, conditional probabilities focus our thoughts. We ask “What if?” questions to test assumptions about how something might work or to consider what could go wrong.
Conditional probabilities consider the likelihood of positive or negative outcomes occurring due to another triggering or casual event or action. Strategies assume that when certain initiatives are taken, a particular outcome can be achieved. The strategic impact we seek depends on the success of our execution plan and the effectiveness of all associated actions and activities. Risk matrices consider the likelihood and impact of adverse events occurring, and also, the likelihood that certain preventive and response measures will be appropriate to avoid or mitigate negative outcomes. Both strategy and risk are therefore informed by conditional probabilities.
Strategic theory was originally a military domain, and remnants of those origins can still be found in the language we use to describe organisational strategy and risk. Some military strategists offered us concepts that can still be readily adapted to our nonprofit (non-military) environments. The 3 Gaps identified by Clausewitz, and von Moltke’s response, provide good examples of this. The chart below contrasts their perspectives and is offered for possible adaptation to your organisation’s needs.
As a passing observation – von Moltke’s 1868 approach bears a striking resemblance to Agile Governance.
At the heart of effective governance lies the duty to make decisions. Nonprofit and for-purpose boards have the delicate task of balancing the obligation to fulfill the organisational purpose with adherence to regulatory obligations and constraints. Your Board is entrusted with strategic decision-making, financial oversight, and ensuring accountability, all while remaining true to your mission and organisational values.
NFP boards reduce the probability of inefficient or ineffective oversight by judicious application of governance rules, policies, frameworks, and guidelines. Your rules are defined in legal statutes and your constitution. Organisational bylaws, policies, and guidelines complement the rules to create the operational framework for governance. Amongst other functions, they delineate the roles and responsibilities of board members, establish protocols for decision-making, and ensure compliance with legal and ethical standards.
Your board’s governance role is defined by rules about what decisions can be made, by whom (within the organisation), in what ways, and within what limits. Some of those rules are set externally by regulators, while others are self-determined. These are best understood as a hierarchy (as illustrated in the PDF link below) with mandatory requirements providing the foundation, policies, and standards defining internal requirements, and frameworks and guidelines offering best practice and procedural guidance.
Complimenting this hierarchical overview, the PDF chart link below offers a 15-step framework, suggesting a standardised procedure for deliberation on a significant matter or proposal.
Many nonprofit organisations declare a commitment to evidence-based decision-making in their board charter, or in a decision-making policy or framework. When asked what they mean by this though, few are able to offer more than a vague aspirational sentiment.
Referring to the types of probability highlighted above, when we say we are committed to evidence-informed decision-making, we are also advocating the objective use of empirical and axiomatic probability, while eschewing classical (50:50) and subjective (“go with my gut”) methods.
The standards of evidence required to support certain classes or types of decisions (e.g. a strategic pivot) may need to be stronger than standards acceptable for other decision types (e.g. approving changes to a project budget). Guidance on those standards can be included in relevant policies, and/or in a decision-making framework, which anticipates all major types of decisions likely to be made by the board (or its delegate). Instruments of delegation and committee charters that grant certain decision rights to delegates customarily also include boundaries and limits on discretionary decision-making. They also define escalation triggers requiring that a matter be brought to the board’s attention for the ultimate decision.
The table below suggests the use of a scoring system to weigh the evidence provided in each of the four categories offered by the Centre for Evidence-Based Management (CEBMA), based in The Netherlands. It is offered here for reflection and possible adaptation, rather than as an authoritative reference.
Previous posts have advocated the adoption of standards for evidence and data quality to ensure that the information used when making a decision is valid, reliable, and relevant. A variation on the material presented in the ‘Scales of Governance‘ post regarding the principles of evidence-based practice is offered here in the form of a flow chart. The use of the 6As framework in this illustration is promoted by CEBMA.
Readers familiar with ISO 9000 – Quality Management, will recall that it includes evidence-based decision-making as one of its seven quality management principles (QMP6).
Referring once again to the CEBMA’s principles of evidence-based practice, four main sources of evidence are suggested. The one highlighted below is evidence from internal sources – or organisational data. Your board dashboard reports will feature regular summary reports on key financial ratios and indicators, and depending on the nature of your strategy and programs, various other customised status reports will be included. Some will be reported to every board meeting, while others may only be reported on a quarterly or longer cycle.
Whenever a proposal is presented for board deliberation, directors will be invited to consider the quality of evidence used to support key arguments for and against.
Role- and Stage-based Decision-Making Models (Frameworks)
Whether they are consciously aware of it or not, most NFP boards use a combination of decision-making models, some based on roles and responsibilities, and others based on processes and stages. Hybrid models also exist of course.
The PDF charts below each illustrate five examples of these two types of decision-making models. You may find one or more of these models describe similar approaches to those used in your nonprofit.
Ethical decision-making frameworks
Complimenting the 10 models highlighted in the linked PDF charts above is a collection of three ethical decision frameworks. Depending on the nature of your nonprofit, some variation on one or more of these models may also be considered and included in your decision-making policy or framework.
Weighing evidence and assessing probabilities are two essential elements of decision governance. The intentionality (i.e. use of conditional probability) behind your strategic and risk management decisions is a key success factor in responding effectively to ever more volatile, uncertain, complex, and ambiguous circumstances.
If this post has helped you to clarify your thinking about some ways you might improve your board’s decision-making, it will have achieved its intended purpose.