Creating space for the exercise of judgment
Judgment and customer centricity
A rules-based approach to serving customers places a ceiling beyond which the levels of satisfaction experienced by customers cannot possibly rise. The shift to a principle-driven approach allows for well-informed, reasonable judgments to be applied by those serving customers. This ability to exercise judgment provides the room to maneuver required to meet customer needs with greater flexibility. Furthermore, the exercise of judgment fosters a greater level of ownership on the part of employees for ensuring high quality interactions with customers.
Employees who believe they have to limit themselves to adhering to “rules” tend to function in a compliance mode with less engagement. On the other hand, the employees who are allowed to exercise judgment not only experience an increased level of engagement but also demonstrate a greater commitment to build strong relationships with customers. From the customer point of view, when judgment is exercised in dealing with them, they feel that their individual circumstances are taken into account – they are not treated as just a number in a more impersonal manner.
The rationale for making the shift from rules-based to judgment-based
The shift to judgment implies moving from “complying to rules” to “applying principles” which provide context and rationale to support the exercise of judgment. The articulation of these principles and their understanding on the part of those applying them become a fundamental condition for successfully making the shift from “rules” to “judgment”.
Well defined rules have the advantage of bringing clarity to situations. The difficulty with “rules” is that they have to be spelt out in specific terms to ensure compliance. By their very nature, rules cannot foresee the full range of situations that will legitimately present themselves. As a result, the blind application of rules will always leave a number of customers feeling that their own circumstances have not been fairly taken into account. The resulting lack of flexibility is seen as fundamentally wrong because of the refusal to take into account the circumstances surrounding a given transaction. Customers who have been loyal acutely feel the lack of reciprocity when apparently irrational rules are blindly applied to them.
Employees who apply judgment have to make the effort required to understand the needs of their customers and, as a result, they become more aware of these needs and can articulate them to others in the organization. Consequently, one of the key benefits of the shift from “rules-based” to judgment is to make the organization more sensitive to the needs of its clients.
Furthermore, as employees experience the shift from a rules-based environment to one where they have the confidence to exercise judgment, they are more likely to voice concerns they might have about the way business is conducted and to flag issues related to risk management.
The space for the exercise of judgment
Exercising judgment is a process used to reach a well-reasoned conclusion that is based on an understanding of all relevant facts and circumstances reasonably available at the time of the transaction involved. The exercise of judgment and the application of principles require the identification, without bias, of reasonable alternatives, and therefore, careful and objective consideration of the information available. As part of this process, the involvement of individuals with sufficient knowledge, experience, and objectivity on the matter being evaluated is critical.
The space where employees can exercise judgment has to be well defined. The limits that are placed on the exercise of judgment include respect for established processes and their rationale, understanding of the business implications of decisions made and adherence to the values and principles of the organization. The capabilities of individual employees play a key role in determining the space given to them for exercising judgment. Accordingly, judgment is not an arbitrary decision, a substitute for appropriate scrutiny or a method to rationalize a biased result. Both discipline and objectivity are essential to an appropriate judgment.
The use of judgment to arrive at a given decision should always be documented. Documentation not only describes the circumstances and the information taken into account, it also outlines the reasoning that led to the decision made. The process of documenting the rationale also helps in the development of a well-reasoned judgment. When judgment is challenged, documentation shows the analysis of the facts, circumstances, and alternatives considered at the time of the judgment, as well as the basis for the conclusions reached. The extent of documentation varies with the significance and complexity of an issue.
The exercise of judgment is not a “safe harbor” from challenge but, if well-reasoned, a judgment should not be unnecessarily questioned or second-guessed. The application of judgment may lead knowledgeable, experienced, and objective persons to reach different judgments despite similar facts and circumstances. This does not necessarily indicate that one judgment is right and the other is wrong.
Appropriate questioning to understand the procedures performed and basis for conclusions reached is different from “second guessing.” Judgments that appear to be arbitrary, not well-reasoned or not appropriately documented may not be defensible. Additionally, there may be judgments that are not supported by the facts available or do not justify overlooking standardized operating procedures. However, these situations are less likely to occur when the judgment process is appropriately applied and is well documented. Well-reasoned and well-documented judgments should be respected by management – otherwise employees will take shelter in a narrow, undeviating interpretation of the rules.
Questions to ask when exercising judgment
The following questions outline considerations that should be taken into account in the exercise of judgment. These questions should be used as a tool to support the thought process involved in applying judgment.
- Have you obtained all relevant facts and information available at the time about the subject of the judgment?
- Did you thoroughly analyze the transaction or situation?
- Have you reviewed the pertinent policies and guidance, and gained an understanding of the underlying principles?
- Did you identify all reasonable alternatives? After identifying these alternatives, did you analyze each alternative, including the pros and cons?
- Do you have, or did you obtain sufficient input from people with the appropriate expertise including your superior when appropriate?
- What rationale do you have for the alternative that was selected? Have you taken the business implications into account in weighing the pro’s and con’s of different alternatives?
- Has the alternative selected been applied consistently to similar transactions or situations?
- Did you document the judgment process, including the available relevant facts, the alternatives considered, the conclusions reached, and the basis for the conclusions?