Erb Institute Toolbox: Decision-Making for the Triple Bottom Line

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SUSTAINABILITY TOOLBOX

Decision-Making for the Triple Bottom Line


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SUSTAINABILITY TOOLBOX

Decision-Making for the Triple Bottom Line

Contents Introduction, Business Case + Link to Stakeholders............................. 1 How Sustainability Decisions Differ.... 3 Biases and Errors in Sustainability Decision-Making................................... 5 Which Active Support Tool Is Right for Your Organization?................ 9 Vignette............................................... 10 Resources............................................ 11


Decision-Making for the Triple Bottom Line

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Introduction, Business Case + Link to Stakeholders INTRODUCTION This toolbox is part of a series of Sustainability Toolboxes designed by the University of Michigan’s Erb Institute to inform and aid a wide variety of sustainability practitioners. Decision-Making for the Triple Bottom Line is the eighth topic in the Erb Institute Sustainability Toolbox series. This toolbox presents the institute’s high-level view of how managers faced with both routine and complex sustainability challenges can make sound choices and achieve goals. Per se, this toolbox does not address any one sustainability issue, whether environmental, social or economic. We designed the toolbox to be relevant irrespective of geography, industry, organization size or budget. This toolbox draws on original research conducted by Dr. Victoria Campbell-Árvai, Dr. Joseph Árvai, and Dr. Piers Steel for the Network for Business Sustainability.

Topics we’ll cover include: • why decisions in the context of sustainability are often different from other decisions • how decision-making biases can affect outcomes in sustainability decision-making • the difference between routine and complex decisions • active and passive tools to help make better sustainability decisions

THE BUSINESS CASE: DECISION-MAKING IN A SUSTAINABILITY CONTEXT Managers confront many sustainability-related decisions on a daily basis, ranging from lighting efficiency choices to mitigating the negative social impacts of business operations.

How does the manager choose among options to achieve the best result? Through understanding the decision-making process, employees and business leaders can increase the adoption of environmentally and socially beneficial actions. This toolbox provides insight into how decisions are made and how more sustainable outcomes can be achieved.

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This toolbox is most relevant to

sustainability managers who seek to encourage better choices by their employees or customers (such as how to reduce energy use or increase recycling rates).

executives seeking ways to create more transparent, inclusive decision-making processes when significant issues are at stake (such as where to site a new facility or how to reclaim land after a facility is decommissioned).

public- and private-sector decision-makers seeking to make more sustainable choices.

This toolbox can help you • understand how sustainability decisions are—and aren’t—like other decisions. • identify which decisions are most susceptible to bias. • translate decisions into actions. • create more transparent processes for making complex decisions.

LINK TO STAKEHOLDERS The stakeholders involved in social, environmental and economic sustainability issues may encompass a broad range of people and/or organizations in disparate locations and with various concerns. This toolbox’s decision-making approach allows you to take complex, sometimes conflicting input from

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many stakeholders and make sense of it to help you decide on objectives, implementation and communication of sustainability strategy. It also enables you to defend your decision to internal and external stakeholders—and even remind yourself of the criteria behind the decision.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability


Decision-Making for the Triple Bottom Line

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How Sustainability Decisions Differ Are sustainability decisions the same as other decisions managers face? In some ways, they are, but in some other important ways, they are not. Let’s take a look at how we make decisions. Economic models assume that people have access to all information and can process it without error, and they aren’t susceptible to biases. But this, as you might suspect, is not reality.

basic questions, these shortcuts can have value. For example, choosing to remain with a supplier or producer because it has performed well in the past is likely to yield an outcome that is sufficient by many standards. But in other cases—usually the more complex situations—remaining with the status quo can miss an opportunity to act in a manner that better integrates sustainability considerations (or, at the very least, in a manner that is consistent with expressed interests).

In fact, people use biased judgmental shortcuts to help make decisions quickly—and easily. While these shortcuts simplify complexity and create efficiency, they do not always result in the best long-term solution to a particular problem or issue. For many

GETTING TO A SUSTAINABLE OUTCOME When faced with a decision point, people must consider a range of more and less sustainable options. But built-in biases can push people toward choices that are less sustainable. Interventions can help people overcome or leverage biases to achieve sustainable outcomes.

unsustainable outcome

BIASES DECISION POINT

sustainable outcome

unsustainable outcome

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WHAT SUSTAINABILITY DECISIONS DO MANAGERS MAKE? Here are a few examples: • A sustainability officer is tasked with finding ways to encourage employees to reduce office waste. • A health and safety manager in a manufacturing company needs to address a broad array of environment, health and safety (EHS) and economic considerations when remediating and reclaiming the grounds of an old facility. • A director of a community-support NGO seeks to increase the adoption of energy-efficiency measures among homeowners. • A team of managers in a large university is considering options to integrate alternative energy into their campus power grid. But how can they choose among them to ensure that environmental, social, economic, educational and performance objectives are met?

Are these decisions different from other decisions these managers might make? Evidence shows that sustainability decisions can be subject to specific biases— such as preference for the status quo and the tendency to choose “wants” over “shoulds”—more often than other decisions are. By understanding which biases crop up again and again, you can manage or leverage them.

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UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability


Decision-Making for the Triple Bottom Line

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Biases and Errors in Sustainability Decision-Making As we mentioned above, sustainability decisions are more susceptible to biases than many other decisions. Four categories of biases and errors that are particularly relevant to sustainability decisions are described below in Table 1. These may cause decision-makers to consistently and predictably arrive at less sustainable outcomes.

Table 1.

BIASES AND ERRORS THAT COME INTO PLAY WHEN MAKING SUSTAINABILITY DECISIONS

Decision Biases + Errors

What Happens?

Example

Loss avoidance

We judge gains and losses relative to our present status. We don’t like to give up things we already have.

Sustainability decisions may require us to give up something (even if we get something in exchange).

Shortcuts

We focus on information that’s familiar, recent or easy to interpret, even if it’s not entirely relevant.

Sustainability decisions often involve hard-to-evaluate criteria (such as environmental benefits and human health effects), which are trumped by financial metrics.

Intuition

We over-rely on gut feelings and intuition when distracted, stressed or facing new situations.

Sustainability decisions often are novel, so people may struggle to process all the relevant factors and may instead rely on intuition.

“Wants” vs. “Shoulds”

We tend to let shorter-term “wants” outweigh longer-term “shoulds,” particularly when distracted, tired or stressed.

Sustainability decisions may yield payback only over the long term, falling into the category of “shoulds” rather than “wants.”

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WHAT CAN YOU DO ABOUT BIASES AND ERRORS? This depends on what type of decision you need to make. The two basic types of decisions are routine and complex.

ROUTINE DECISIONS are things we face daily, both at home and at work. They are usually quick, and they often are frequent, so they do not involve a lot of conscious thought. For example, recycling a coffee cup and turning on a light are routine decisions. We can improve our routine decisions and those of our employees, friends and colleagues by leveraging our built-in biases.

COMPLEX DECISIONS tend to be infrequent and require the consideration of complex technical and scientific information. Often, a great deal is riding on coming to the right decision. For example, where to site a new wind energy facility and investing in climate adaptation initiatives are both complex decisions. Decisionsupporting methodology for complex decisions breaks them down into more manageable steps and aims to overcome built-in biases and errors.

Fundamentally, there are two types of decision support, outlined in Table 2, that apply to different types of decisions.

Active decision support includes tools that help overcome our natural limitations— to arrive at a decision that reflects prioritized needs—or that help us thoroughly consider a range of competing objectives and stakeholder perspectives. When we use active decision support, we often are working against our natural decisionmaking tendencies.

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Passive decision support, on the other hand, aims to take advantage of our natural inclinations to steer us toward a particular outcome, such as a more socially or environmentally responsible one.

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Decision-Making for the Triple Bottom Line

Table 2.

OVERVIEW OF INTERVENTIONS FOR ROUTINE AND COMPLEX DECISIONS

For Routine Decisions Intervention

What It Is

Example

Why It Works

Commitment

Publicly commit to performing a sustainable behavior in the future.

“Idle free” campaigns in logistics, in which private, commercial and municipal drivers publicly pledge to turn off engines when stationary.

Public commitment enhances positive feedback for sustainable behavior and provides for negative feedback if the commitment isn’t met.

Defaults

Make a sustainable behavior the default (more obvious) choice.

Energy efficiency initiatives that require participants to opt out are more effective.

Defaults and opt-out programs build on the power of the status quo and our aversion to losses.

Feedback

Provide verbal, written or digital feedback (preferably in real time) on behavior outcomes.

In-home digital displays provide real-time feedback on electricity usage and can even be appliance specific.

Feedback makes long-term costs tangible and relevant now; it enhances the “good feeling” of meeting sustainability goals.

Goal setting

Set an expected level of performance or compliance for a sustainable behavior.

Office-based efficiency and waste reduction efforts begin with a goal or target.

This improves the meaning of feedback by providing a benchmark against which to judge progress.

For Complex Decisions Intervention

What It Is

Example

Why It Works

Structured decision-making (SDM)

Diagnose the problem with stakeholder input; break down the decision into manageable steps; make a decision based on the alternative that performs best against decision criteria; solicit broad input at all stages; use a facilitator to guide process.

A utility company uses SDM to find constructive and sustainable solutions to competing river use demands.

Decisions are seen as an opportunity to clearly identify objectives, include diverse perspectives and deal with difficult tradeoffs. This avoids solutions that are attractive only because they are obvious or easy or because “it’s the way we’ve always done it.”

Multiple-criteria decision analysis (MCDA)

Set decision criteria, weight them and enter criteria into a a computer program that calculates an overall score for each alternative.

A municipal authority uses MCDA to decide among various solid-waste management options, including the siting of new facilities.

This reduces complex, diverse considerations about options into a single score; decision options are ranked according to score; the decision-maker chooses the option with the highest score.

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CHOOSING DECISION-SUPPORT TECHNIQUES To choose a support technique, a manager should consider:

Is the decision routine or complex?

What are the characteristics of the decision and context that you must address?

Which interventions are most likely to help you get to a more sustainable outcome?

Here’s a flowchart that can help you understand the process for choosing a particular decision-support technique:

• Loss avoidance, shortcuts, “wants” vs. “shoulds”

Predictable Biases Exist

• Occur in individuals and organizations • Can reduce quality of decision-making

• Decide whether the decision is routine or complex

Decision Support Techniques Help

• Routine decisions get passive support techiques • Complex decisions get SDM or MCDA

• Routine decisions—commitment, defaults, goals, feedback

Choose the Best Support Techique

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• Complex decisions—SDM breaks issues down into manageable steps • Complex decisions—MCDA filters multiple criteria into a score

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability


Decision-Making for the Triple Bottom Line

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Which Active Support Tool Is Right for Your Organization? Sustainability managers may consider using a version of structured decision-making (SDM) and multiple-criteria decision analysis (MCDA) to consistently improve the quality of their complex decisions. Because both SDM and MCDA share many of the same principles, they can be applied across a range of situations. Organizations with a high need for transparency and/or stakeholder engagement have found these tools especially useful. But in considering whether to use active decision support in your organization, realize that both SDM and MCDA can require significant time and resources. These tools work best as consistently applied organizational approaches to complex decision-making.

Let’s look at some of their characteristics: SDM

MCDA

Allows for the complexity inherent in sustainability issues

Weights decision criteria and ranks possible outcomes

Builds in mechanisms to help make tough trade-offs

Brings rigor to the decision-making process

Uses mathematical models and computer algorithms to rank solutions from best to worst

Focuses on building legitimacy and trust through the process

Views decision-making as an opportunity to meaningfully incorporate stakeholder values throughout the process

Brings transparency to the decision-making process

From this table, you should be able to quickly ascertain the subtle but important differences between these two complex decision-making support tools.

Consider your needs. Which approach is most likely to get you to the most sustainable result with the smallest expenditure of resources? You could always pilot one approach, see how it works for your organization, and then make a longer-term choice.

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Vignette

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The lessons outlined in this toolbox were used to develop a framework for crafting an energy strategy for a large, public Midwestern university.

In 2008, the university relied on a structured, triple-bottom-line decisionmaking approach, like the one outlined in this toolbox, to develop a new strategy for long-range energy generation on their campus. The goal was to transition away from a fossil fuel–based (coal and natural gas) energy strategy to one based entirely on renewables by about mid-century. The team advising the university began by holding a series of workshops with university officials to define the decision problem (for example, the desire to transition from fossil fuels to renewables) and identify the boundary conditions for the decision-making process (for example, identifying stakeholders whose ideas would be critical to the process). These sessions were followed by focus groups with stakeholders to identify the range of objectives that were important to consider in this decision, as well as performance measures that would be useful for tracking their achievement. A critical step at this stage was developing an energy system model capable of forecasting the anticipated outcomes of alternative energy strategies, in terms of the key objectives and related performance measures. This model was the centerpiece of an online triplebottom-line decision-support platform that people used to develop and evaluate different strategies. This platform was designed to engage people—stakeholders and, ultimately, decision-makers—in the process of learning about energy systems, including their environmental, economic and social considerations.

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But, beyond simply educating people, the triple-bottomline framework also challenged users to evaluate their portfolios in comparison with a broad array of others representing markedly different priorities. In doing so, participants in this triple-bottom-line approach had to be explicit about the pros and cons of each energy strategy option under consideration. For example, how much additional cost were they willing to bear in exchange for reduced greenhouse gas emissions or the warm glow that comes with being at the leading edge of innovation? Conversely, to what extent were users willing to compromise on air quality or employment as a means of keeping costs near the status quo? To inform these comparisons, the decision-support platform included a module that helped users confront trade-offs and make internally consistent choices (that is, choices that reflected objectives of greatest concern). A scaled-down version of this decision-support system is now on display at the Marian Koshland Science Museum of the National Academy of Sciences in Washington, D.C.

For more information about this work, see: Bessette, D., Arvai, J., & Campbell-Arvai, V. 2014. Decision support framework for developing regional energy strategies. Environmental Science & Technology 48:1401–1408. Arvai, J., Gregory, R., Bessette, D., & Campbell-Arvai, V. 2012. Decision support for the development of energy strategies. Issues in Science and Technology 28:43-52.

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Decision-Making for the Triple Bottom Line

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Resources Bessette, D. L., Campbell-Arvai, V., & Arvai, J. 2016. Expanding the reach of participatory risk management: Testing an online decision-aiding framework for informing internally consistent choices. Risk Analysis 36: 992-1005. Description of an online tool for supporting triple-bottom-line decision-making.

Arvai, J. April 3, 2012. Thinking fast and thinking slow: how our minds make us behave sustainably. The Guardian. This short piece, part one of a three-part series, identifies decision-making shortcuts that people routinely apply and how these can lead to systematic biases.

Arvai, J. May 8, 2012. Structuring decisions in the interest of sustainability. The Guardian. Part two of the series describes how to overcome biases in judgment by using techniques such as structured decision-making.

Arvai, J., & Campbell-Arvai, V. October 1, 2012. Nudging people towards sustainability. The Guardian. The final article in the three-part series describes how people tend to choose the status quo or default option: for example, using the default setting on a showerhead. Policymakers and others can build on this tendency to help people make more sustainable choices.

Arvai, J. 2014. An appeal for smarter decisions. Policy Options 35:40-43. How policymakers and others can make better decisions.

Hammond, J., Keeney, R. L., & Raiffa, H. 1999. Smart choices: A practical guide to making better decisions. Harvard Business School Press, Cambridge, MA. A road map for resolving complex decision problems.

Arvai, J., Gregory, R., Bessette, D., & Campbell-Arvai, V. 2012. Decision support for the development of energy strategies. Issues in Science and Technology 28:43-52. A decision support case study: energy planning at Michigan State University.

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Notes

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UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability


Decision-Making for the Triple Bottom Line

DECISION-MAKING FOR THE TRIPLE BOTTOM LINE | JUNE 2017

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BASED ON THE ORIGINAL PUBLICATION BY: Dr. Victoria Campbell-Árvai Assistant Research Scientist School for Environment and Sustainability University of Michigan

TOOLBOX SYNTHESIS BY: Robert W. Kuhn Kuhn Associates Sustainability Advisors LLC June 2017

Dr. Joseph Árvai Faculty Director Erb Institute | Business for Sustainability University of Michigan

With Contributions from: Terry Nelidov Managing Director Erb Institute | Business for Sustainability University of Michigan

Dr. Piers Steel Professor Haskayne School of Business University of Calgary

Maya Fischhoff Knowledge Manager Network for Business Sustainability Ivey Business School, Western University, Canada

Prepared for the Network for Business Sustainability Ivey Business School, Western University, Canada 2012

© 2017 by the Regents of the University of Michigan


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