Challenging your assumptions

The decisions we make, from what to wear to work and what to eat for lunch through to how to vote at a boardroom meeting, are impacted by a wide range of environmental, situational, experiential, educational and personal variabilities. One of the key building blocks for decision-making is assumptions.

Assumptions are a core part of everyday life based on our experiences, beliefs and values. They make navigating life and making decisions easier by reducing the mental energy we need to expend to make sense of the world around us. They also help us to act at pace by providing foundational knowledge to deal with the breadth and depth of issues and decisions we face on a daily basis.

A key role for directors is identifying, challenging and documenting your assumptions. Documenting your assumptions is especially important for topics such as climate, AI and innovation, where there is a growing gap between the hard, granular data that directors would like, and what science and research can realistically provide.

Speaking at the IoD and Chapter Zero NZ’s inaugural Climate Governance Forum, KPMG Partner – Sustainable Value Alec Tang highlighted that planning for the future requires long-term thinking with short-term agility, in an environment that is rapidly changing, and where history, and our assumptions, may no longer be accurate.

“Thinking about the future requires ongoing questioning of assumptions and a continuous learning mindset, not just because it’s good for the planet or a nice-to-have, but because it’s good governance practice,” says Tang.

Strategies are generally made up of three levels of assumptions: market assumptions, activity specific assumptions and foundational assumptions. “What can distinguish a good strategy from a bad strategy is the quality of the assumptions upon which it is built.”

When reviewing strategies, directors tend to focus on market forces such as competition, technology, consumers and regulation. However, systemic risks throw into question the subset of foundational assumptions that are often taken as an unchallenged basis of the operating environment.

“The imperative for business, communities and governments, as we navigate and plan for a more disrupted and volatile world, to test and question not only the often quite superficial assumptions that have historically been our focus - like consumer demands and operating models - but also the foundational assumptions linked to our activities as well as the systems and structures that have shaped our world so far.”

When developing climate scenarios or undertaking transition planning, directors need to challenge conventional thinking and business-as-usual assumptions, some of which were constructed hundreds of years ago.

Referencing the Transition Planning guide for directors produced by Chapter Zero NZ and the External Reporting Board, Tang noted traditional risk assessment methods rely on historical data. However, this data is unlikely to capture the degree of future change because of the non-stationary nature of climate change and non-linearity of impacts on human and natural systems.

During recessions, for example, we frequently look back and take lessons from similar times throughout history. Those past trends, models and decisions support us and guide us, and help us know there is a light at the end of the tunnel. With climate change, however, we are frequently operating in the dark. Ironically, Tang says the more expertise we have in an area, the harder it can be to let go of our assumptions.

Challenging assumptions needs to be done consciously. Actively questioning our underlying beliefs, biases and viewpoints has the potential to unlock deeper insights, provide alternative perspectives, and refining decision-making processes. 

So how do we get out of our own way to rid ourselves of our assumptions to walk into an unknown future without the guardrails we’re used to relying on?

Challenging your assumptions:

• Start being more aware of your assumptions
• Question your objectives – why are you favouring a particular goal or outcome?
• Challenge the status quo and what is needed to meet your objectives 
• Prioritise curiosity over certainty to remain open to new ideas, opportunities and innovation
• Adjust your mindset – what worked in the past may no longer be relevant
• Create a boardroom culture that is open to divergent and diverse viewpoints