On Making Good Decisions

Decision-making is what leaders and managers do in the business everyday.  Good decisions help the organisations become successful. In the information age, despite all the resources and information available to managers, they often make poor decisions.

There are many reasons why bad decisions are made. Managers think of major decisions as choices they must make. The thinking is ‘great men make great decisions’. In making their choices, they rely on their experience, preferences and judgement. While these are necessary, they are not enough to make sure that good decisions are made time and again. There are many ‘decision traps’ that managers fall into. To avoid these traps, one needs to treat decision-making as a process and not just a choice. Like all work, when there are right people, tools and processes are brought to bear, the results can be consistently good.

In this insight, we shall explore what are the decision traps and how to avoid these. We will also look at what makes up a good decision-making process.

Decision Traps

BeartrapDecision traps are barriers to good decision-making. These are typical errors decision makers make. Learning to make good decisions means getting good at avoiding these decision traps while making decisions. In the book ‘Decision Traps’ authors Russo and Schoemaker list the following:

  1. Plunging in – Jumping in to collect data and getting ready for drawing conclusions without thinking about the core issue and how the decision should be made.
  2. Frame blindness and control – How we frame questions can cause us to solve the wrong problem. We may also fail to consciously define the problem in different ways.
  3. Overconfidence – Thinking that we know best and failing to get more advice.
  4. Shortsighted shortcuts – Inappropriately relying on “rules of thumb” or only readily available information.
  5. Shooting from the hip – Thinking that we can hold all the information in our heads and make a good decision.
  6. Group failure – Belief that getting smart people together will result in the right decision being made (without the need for a systematic process).
  7. Convenient feedback – Selectively interpreting the feedback that supports our decision or bias.
  8. Not keeping track / auditing – Not recording  decision-making successes and failures in the past and learning from these.

Avoiding the Traps

Thinking about the crux of the problem or the large issue we are facing and asking questions like: Does this problem need solving? How much time should be spent on it? This would avoid the trap of plunging in.

Just like a window defines what we see, a mental frame helps simplify the problem on selecting where we focus on. But the frame may be incorrect or inappropriate for the problem. Understanding what the problem is and what is not a problem, is important. Getting different stakeholder perspectives also helps overcome the frame blindness.

Overconfidence, short-sighted judgement and shooting from the hip can all be avoided if we treat the decision-making as a process and not a personal choice. A well-managed decision process can also help avoid group failure.

Our own biases make us filter feedback. We rationalise and create explanations for the failures. Experience provides data, not knowledge. Keeping track of past decisions and the outcomes provides information for future learning and understanding our biases.

View Decision Making as Work

In the book the book Judgement Calls, authors Davenport and Manville analysed major good decisions.  Their major theme is “Don’t make all the decision work yourself’.  They suggest that a CEO or a single person should only rarely make major decisions. They offer some management advice:

Bring a big toolkit to decision work – Many decision makers use their favourite toolkit to aid their decision-making. Having a variety of decision tools such as analytical models, ‘wisdom of crowds’, experimentation, intuition may be used in different situations.

Measure before deciding – Decision-makers should make an effort to gather data and do analysis before deciding.

Systematically review your work – Decisions will get better if you make a habit of reviewing them after the fact. This requires “a culture of honesty and self-examination”. If your organization can’t shine a light on past decisions to learn what went well and what didn’t, you are very likely to make bad ones.

Have a process for decision work – Decisions are sometimes viewed as an ad hoc activity with no need for process, but if they’re serious work, they need a process to guide them. The process flow dictates who gets involved when, what kind of data and analysis should be applied and how quickly the decision needs to be made.

A Structured Decision-making Approach

Bain and Co recommends a structured process for making decisions. This brings many elements from the above discussion.

Decision process

Criteria

Decisions cannot be made without criteria. Is the goal cost reduction or growth? Is it staff morale or speed of change? Many organisations do not make the criteria clear. As a result, new considerations arise when of decision and the decision-making suffers.

Facts

The goal here is not to get all the data but enough facts to understand the current situation, consider alternatives and make good choices. Unless new or other data enhances understanding or creates more alternatives, it is probably not needed.

Alternatives

In a study conducted by Bain and Co, 82% of executives said they did not routinely consider alternatives when making decisions. Often people compare a new way with present way of doing business, but not a range of alternatives. Other times the alternatives are for namesake only. Without good alternatives it is difficult to make sound decisions. Before making decisions, managers should ask what alternatives were considered and why they were rejected.

Commitment

Once the decision is made, the organisation must commit to the decision. Principle of cabinet solidarity should apply once a decision is made, even if some do not agree with the decision. Intel, such as, expects everyone to “agree and commit, or disagree and commit, but commit.”

Closure

Deciding to do something is not doing it. If you don’t commit to the decision, establish responsibility and timelines for implementation and set-up a feedback loop to check performance, nothing will happen. Paying attention to closure is important as the implementation may face obstacles more resources may be necessary. In cases of unexpected outcomes, decisions may need to be refined. An effective feedback process would enable quick actions and course correction.

Decision Enablers

Set decisions up for success – Planning for success means asking questions such as what decision are we trying to make? What are the criteria? What data we need? Who will take part? What is the timeline? Answers would enable getting the right people involved from the start.

Meetings – Avoid the temptation to do it all in one meeting. Avoid strategic decisions and operational performance reviews in the same meeting. Where possible have a session to make sure right facts and options were available. Then in a second session decide between the options.

Escalation – Not everyone will agree with the decision. Articulate a clear process for escalation.

Tools and Templates – Encourage the use well understood tools and approaches to structure decisions. This also allows employees to become familiar with the tools and processes.

Summary

Consistently making good decision processes is an important competency for organisations. It is not about individual brilliance. Understanding and avoiding decision traps and instituting a good decision process is probably equally important as having a good production or service delivery process.