NASA's Handbook on Risk-Informed Decision Making (RIDM) [Version 1.0 - NASA/SP-2010-576 – APRIL 2010], outlines how to avoid "Decision Traps". Here, they examine how actual decision processes shows a tendency for decision-makers to fall into certain decision traps. These traps have been categorised as follows:
- Anchoring: This trap is the tendency of decision-makers to give disproportionate weight to the first information they receive, or even the first hint that they receive. It is related to a tendency for people to reason in terms of perturbations from a “baseline” perception, and to formulate their baseline quickly and sometimes baselessly.
- Status Quo Bias: There is a tendency to want to preserve the status quo in weighing decision alternatives. In many decision situations, there are good reasons (e.g., financial) to preserve the status quo, but the bias cited here is a more basic tendency of the way in which people think. For example, there is a tendency for managers to believe that if things go wrong with a decision, they are more likely to be punished for having taken positive action than for having allowed the status quo to continue to operate.
- Sunk-Cost: This refers to the tendency to throw good money after bad: to try to recoup losses by continuing a course of action, even when the rational decision would be to walk away, based on the current state of knowledge. This bias is seen to operate in the perpetuation of projects that are floundering by any objective standard, to the point where additional investment diverts resources that would be better spent elsewhere. A decision process should, in general, be based on the current situation: what gain is expected from the expenditure being contemplated.
- Confirmation Bias: This refers to the tendency to give greater weight to evidence that confirms our prior views, and even to seek out such evidence preferentially.
- Framing: This refers to a class of biases that relate to the human tendency to respond to how a question is framed, regardless of the objective content of the question. People tend to be risk-averse when offered the possibility of a sure gain, and risk-seeking when presented with a sure loss.
- Overconfidence: This refers to the widespread tendency to underestimate the uncertainty that is inherent in the current state of knowledge. While most “experts” will acknowledge the presence of uncertainty in their assessments, they tend to do a poor job of estimating confidence intervals, in that the truth lies outside their assessed bounds much more often than would be implied by their stated confidence in those bounds.
A Performance Commitment is the performance measure value, at a given risk tolerance level for that performance measure, acceptable to the decision-maker for the alternative that was selected.
Risk-Informed Decision Making (RIDM) is invoked for key decisions such as architecture and design decisions, make-buy decisions, source selection in major procurements, and budget reallocation (allocation of reserves), which typically involve requirements-setting or rebaselining of requirements.
RIDM process ties to address 3 key issues in developing an objective hierarchy to mitigate missed expectations from past projects: 1) the “mismatch” between stakeholder expectations and the “true” resources required to address the risks to achieve those expectations, 2) the miscomprehension of the risk that a decision-maker is accepting when making commitments to stakeholders, and 3) the miscommunication in considering the respective risks associated with competing alternatives.
Risk-Informed Alternative Selection, is the process to assess a set of alternatives, and select an alternative for implementation OR asks for new alternatives. To facilitate deliberation, a set of performance commitments is associated with each alternative. Performance commitments identify the performance that an alternative is capable of, at a given probability of exceedance, or risk tolerance.
Source:Download 🔽"NASA's Handbook on Risk-Informed Decision Making (RIDM)", [Version 1.0 - NASA/SP-2010-576 – APRIL 2010],
