Well, Actuarially...

The latest actuarial industry news, upcoming events, lessons learned and common questions about our actuarial consulting services.

Use John Boyd's OODA Loop to Make Better Business Decisions

October 27, 2020 / by Ben Cohen, FSA, MAAA

The OODA loop (Observe, Orient, Decide, Act) is a four-step approach to rapid decision-making in chaotic situations. US Air Force Colonel John Boyd developed it specifically for fighter pilots. The good news is the OODA Loop isn't a classified system. Everyone can use it in their personal and professional lives. In the insurance industry, actuarial firms consider this decision-making method often.

Boyd's OODA loop focuses on assessing available information and putting it into context to make the best choice quickly, with the understanding that the situation may change.

The OODA Loop is especially useful in business scenarios where ferocious competition is involved, when your ability to react to changing circumstances faster than an opponent becomes an advantage. 

Today, we'll explain how OODA works and why. We'll break down the steps involved and point out a few criticisms, too. Remember, the team at Wakely Actuarial is here to help. Contact us if you need more thoughtful, practical, and useful advice.

Making Business Decisions Using the OODA Loop

In the wake of the COVID-19 pandemic, business in the US (and around the globe) is volatile, uncertain and complex. For insurers, in particular, survival in this uncertain business climate rests upon fast, successful decision-making.

  • Still, training staff specifically for decision-making is something many insurers fail to accomplish.
  • While it's evident that an insurance professional will immediately notice diminishing returns in the face of adverse underwriting decisions, field underwriters are failing to learn from the experience.
  • The OODA loop acknowledges this and provides an approach to help make improvements.

Let's take a closer look at the four steps of the OODA Loop.

The Four Steps of OODA Loop: Observe, Orient, Decide and Act

1. Observe — Gather Data & Feedback

Feedback is data on the results of actions. The digital age is an amazing era — half of all the feedback data assembled since the beginning of time is available for web-savvy searchers. Insurance professionals can collect massive amounts of data in the forms of:

  • "Big Data" from databases, bookkeeping and accounting records that can be analyzed with software
  • "Small Data" from customer emails and anecdotal conversations
  • Claims reports
  • Field underwriters
  • And actuarial models

Using the OODA Loop, fighter pilots gather relevant information quickly and discard excess data. Whether you're practicing OODA in your personal or professional life, this is a crucial point. Keep it simple when you can, and don't get bogged down in information that doesn't apply to this specific decision.

2. Orient — Use Analysis and Experience to Consider Your Decision

Once your information is collected and visible in black and white, base your decision-making on analysis and experience. 

3. Decide

Make your choice. Commit to it for now.

4. Act — Make Your Choice a Reality

Take the steps needed to bring your choice to fruition. Perhaps your organization needs more staff, or maybe it's time to adjust rates. By acting rapidly, you can monitor the situation if it changes or alter your methods. You won't be dead in the water.

The OODA Loop: Why it Works for Rapid Decision-Making

We are reminded of that silly quote by an unknown author: "The road of life is paved with flat squirrels."

  • In other words, when faced with a challenging decision to be made immediately, the worst action you could take is none.
  • Errors are correctable. Knowledge and experience can be gained. 

Still, while the OODA Loop is ideal for fighter jet pilots operating aggressively at Mach 3 — 2,300 miles per hour — in a three-dimensional battlefield, it's not always appropriate for the insurance industry. 

Inspirations of the OODA Loop

Boyd's first ideas were obvious: a pilot that makes faster decisions than the enemy will probably win. But why did he start thinking that way? It begins with an unusual kill ratio between two types of fighter jets. He wondered why slower, less maneuverable F-86 jets seemed to continually demolish faster, more athletic MiGs.

  • Boyd's inspirations came from his observations that F-86 fighter pilots in bubble canopies could better orient themselves in 3D space than MiG pilots in forward-facing canopies.
  • Therefore, pilots who could see more could orient themselves better.
  • It was also easier for the F-86 pilots to observe the MiG pilots than it was for his enemy to watch him.

So it became clear to Boyd that even though MiGs were faster and more maneuverable jets than F-86, human decision-making abilities and access to data made the outcome.

We can imagine a fighter jet pilot learning to rely on an incredibly rapid mental process: look around, take what you know, make your decision and move NOW. This repeating pattern becomes a foundation for fast choices in a dangerous, dynamic environment. It gives pilots a stable point of focus when adrenaline is pumping, and g-force is heavy.

However, the insurance industry moves at a snail's pace in comparison. 

Criticisms of OODA Loop

Supervisors, managers and professionals in the American insurance agency are better educated than ever before. We HAVE critical thinking skills. We have incredible amounts of data at our fingertips in this age of information. Best of all, we have the tools to analyze this data quickly and accurately to help us address many choices. 

  • Furthermore, while actuarial errors are not immediately dangerous to your survival, they can be financially catastrophic to an insurer.
  • And while insolvency itself would be your primary fear, it's rippling effects would damage taxpayers, other insurers, and most importantly: your trusting customers.

Our Final Thoughts

Considered by itself, Boyd's OODA Loop is not especially interesting from an organizational point of view. The decision-making model / method is not backed by psychological research or tremendous amounts of black and white data. And there is very little you can do with it if you think about it alone. OODA works well when applied in a dog-fight. It's less meaningful in the insurance industry.

Yet Boyd meant it only as a common-sense illustration of how fighter pilots should think and react. If the OODA loop is obvious to you, there's a good chance you've studied — or been otherwise exposed to — some light psychology and critical thinking topics. Sometimes it's the mental exercise that matters — learning new ways to think, or think about thinking!

New call-to-action

Topics: Insider, Insights

Ben Cohen, FSA, MAAA

Written by Ben Cohen, FSA, MAAA

Ben serves as Wakely Actuarial’s President & Consulting Actuary. He joined Wakely in 2002 and enjoys the variety in the day-to-day of his current role.

Subscribe to Email Updates

Join our mailing list to get expert insights, lessons learned, and FAQs about actuarial consulting services delivered straight to your inbox.