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A Fresh Approach to Managerial Decision-Making
By Jutta Tobias

Managers invariably prefer quick, intuitive judgments over systematically working through statistics and data analysis. The problem? Many of our judgements are biased and flawed, primed by forces well below our level of awareness. Worse still, if we get sucked in by a particularly elegant argument not based on coherent, logical and valid data, then the decisions we may take under this influence can be well below par, and threaten the whole organisation and its performance.

For example, time and again large investment projects across the globe fail to deliver the value they promised, as a consequence of making strategic decisions marked by delusion and deception - in other words, strategic mismanagement of information, or of the decision-making process.  In the majority of cases, research has shown that the costs of these multi-billion projects tend to overrun by at least 50% while performance typically hovers around 50% below forecast. Shareholders and stakeholders suffer dramatically as a result.  In recent years, the financial world has been rocked by some monumentally bad decisions which have shaken the foundations of our economy.

There is a solution to this. In fact, there are a range of evidence-based techniques available to leaders in organisations that can significantly enhance decision quality. Overall, the better the quality of information available to you, the more likely you are to make high-quality managerial decisions. And the best way to get to higher-quality information to input into your decisions is to focus on the decision-making process. This can result in substantial payoffs for the organisation you lead: a recent McKinsey Quarterly survey found that following a high-quality decision-making process leads to an increase in return on investment (ROI) of nearly 7%.

The tips below are intended to help streamline your decision-making process, to overcome  biased and substandard intuitions when facing a major decision.

Approach your decision process like an investigation, not advocacy

Work hard to act less like an attorney in court, advocating a single perspective, and more like a detective trying to uncover a mystery - in other words, evaluate all available information in as unbiased a manner as possible to detect the flawed argument among all your options.

One of the simplest and most effective ways to do this is to carry out a pre-mortem before every major decision you take. A pre-mortem is an exercise in thinking of as many worst-case scenarios as possible for each decision choice. Give your inner devil’s advocate free reign, and be sure to explore any potentially adverse scenarios. It is very insightful to do this in teams, with the team leader welcoming and encouraging critical perspectives with impunity. It is unlikely that a pre-mortem will radically change your organisation’s plans, but managers typically find that they can make helpful changes to their planned actions as they follow up such an exercise.

Gather evidence as opposed to opinion

You can make the process for reaching important organisational decisions more scientific - in other words, based on evidence as opposed to opinion. Rather than relying on your own estimate alone, ask a number of team members and associates what their estimates are, for example on how long a project should take to complete. This enables you to benefit from the natural variety of different people’s perceptions of reality, with the pooled estimate more accurate than one person’s judgment alone.

Limit undue influencing (or priming) of opinions

Especially when you engage others in helping you reach a managerial decision, be careful to limit the potential for unduly influencing (or priming) opinions. We are often influenced by who argues a particular way (either by uncritically agreeing, or by dismissing this person’s perspective out of hand) without consciously knowing about this unhelpful source of social influence and bias. An effective antidote to this is to conduct truly secret ballots as much as possible in team decision-making. At a basic level, have team members write down their arguments in private, and get a third party to read out the collected perspectives to the group.

Above all, the person with perceived authority over others needs to hold back from expressing their own opinion about the decision until all  team members have had a chance to express theirs (ideally through individual emails ahead of a decision meeting). By the same token, make sure that any opinion leader within the team also remains quiet until everyone else has spoken. Otherwise, less confident (or perhaps more loyal) team members may not raise critical perspectives.

Keep track of your decisions over time

Track decisions alongside their associated outcomes. By accumulating a historic record of what kinds of decisions you have taken, what they were based on, and what their effects were, you can accumulate evidence-based managerial insights. Rolf Dobelli, author of the decision-making bestseller "The Art of Thinking Clearly", recommends keeping a regular log of your predictions and then periodically comparing past predictions with how events have actually unfolded. Dobelli suggests that merely noticing how inaccurate many past predictions were may at the very least increase your motivation to approach decision-making more systematically.

Know your circle of competence

When it comes to making important decisions, Warren Buffett famously coined the term circle of competence, arguing that it is critically important for high performance in any domain to know where your competencies lie and where they end. This means that you should be ruthlessly honest with yourself whenever you need to make decisions outside your circle of competence or particular expertise - get advice or hire an expert in that case.

Finally, when in doubt...

Slow down. Consider this simple rule of thumb: when an important decision makes you feel uneasy or nervous about a particular intuition, follow that thought. Chances are that difficult organisational decisions are not clear-cut, hence you should welcome and actively explore contradictory perspectives. Babson Global professor Daniel Isenberg has identified that successful leaders cherish disconfirming and surprising evidence, and use it to their advantage.

A key message: be sceptical of your own (or other’s) overconfidence in any strategic decision. The quality of your decision depends on it.

Dr Jutta Tobias is a lecturer at Cranfield’s Centre for Business Performance. She has a broad interest in behaviour change to help improve people’s performance at work

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