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How to Make Better Decisions

[ 0 ] May. 5, 2014 | SBO Editor

right-from-the-start-lgAvoid these top five hurdles that will help you make better decisions.

By Michael Menard

Despite the wealth of information available to us these days, many of today’s best and brightest business leaders still make poor decisions. This is unfortunate, because sound decision-making is at the heart of every company’s success.

Even if you have the best education and years of experience, it’s still possible—and common—to make poor decisions. Why? Today’s decision-makers are up against a long list of pitfalls and obstacles that prevent them from making sound decisions. Here are the top-five decision-making pitfalls that get in the way of success. You can learn to make better decisions.

Make Better Decisions

“We need to change, only not today.” (Avoiding the decision). It’s one thing to know about change and imagine future benefits, but we often avoid deciding to take action right now because change means some level of immediate discomfort. Realize, though, that no business or individual grows without change and risk. However, risk aversion is basic human nature. The paradox is that we want something different without having to change.

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With the recent economic downturn, many companies are employing a bunker mentality. They’re staying put and not taking action. Instead of playing to win, they are playing not to lose. Remember, any decision is a choice. Choosing not to choose is a choice.

“It’s such a simple decision.” (Oversimplification of the challenge). No matter how well intentioned we are, under pressure our desire for simple answers to complex questions increases dramatically. The red flags go up. When we imagine we don’t have time or resources to address a problem adequately, we start to look for a single explainable cause that fits into our existing framework. Paying too much attention to what we directly see in front of us is called the present bias. Oversimplification discounts contributing factors and exaggerates what already stands out for us. Oversimplify and we set ourselves up for poor decision-making. Focus on this point and you will make better decisions.

“Everything is GREAT!” (Happy talk). Project advocates would never get the ear of senior management without predicting optimistic outcomes. Politicians would never be elected if they didn’t promise a sunny future. Optimism is ingrained in American culture. Attempts to confront it with reality are consistently dismissed with the discussion-ending judgment of negativity.

But who wouldn’t rather think they are going to enjoy a positive future rather than pain, suffering, and gnashing of teeth? However, due to unrealistic optimism, who hasn’t miscalculated how long it will take to get to a destination? Who hasn’t underestimated the real cost of time and effort to reach a particular goal? The optimism bias shows up every time a company has to restate its earnings. Project-cost overruns, delays and benefit shortfalls result from this combination of wishful thinking and the inability to recognize complexity.

Of course, optimism is not a bad thing. It can stem from genuine responsible confidence, and confidence may lead to bold, necessary and effective action. But optimism without a foundation sunk into the ground of reality is unstable and self-delusional. The optimism bias underestimates necessary contingent factors—as any insurance salesman would be happy to point out to you.

“I can’t wait that long.” (The time factor). Given the choice, would you prefer to have $100 today or $300 tomorrow? Most of us can defer immediate gratification and wait an extra day for a significant monetary increase. However, studies show if we have to wait one year for $300 or we can take $100 today, most of us demonstrate what’s called present bias and go for the $100 right now.

Studies show that under similar conditions, as the time to realize the benefit is increased, the majority of us would reverse our decisions. Without short-term reinforcement of long-term goals, our objectives remain mirages and greatly affect our decision-making ability.

“According to my Magic 8-Ball…” (Magical thinking). While any prediction about the future or how a decision will turn out is a guess, educated guesses are more likely than magical thinking to deliver results we want. However, we should be aware of our tendencies to oversimplify, as we discussed, by focusing only on what we think is relevant.

Cognitive scientists call this bias anchoring. Once this anchor has securely fixed itself in a crevice in the seabed of your mind, it’s not easy to shift. Then you interpret information based on this what-you-think-is-relevant anchor.
It gets worse. You ignore other possible relevant factors.

About the Author

Michael Menard is the author of “A Fish in Your Ear: The New Discipline of Project Portfolio Management,” and cofounder and president of The GenSight Group, which provides enterprise portfolio management solutions for strategic planning, project portfolio management and business performance optimization. A holder of 14 U.S. patents, Menard has utilized his expertise to advise senior executive at Coca-Cola, Cisco and the U.S. Department of Energy to name just a few. To learn more about Mike Menard, please visit www.afishinyourear.com

 

 

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