Even good business leaders can make bad decisions if they don’t understand what’s at stake.
Despite the wealth of information available these days, many of the best 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. Fortunately, once you know what you’re up against, you can take the proper steps to correct it. Here are the top five decision-making pitfalls that get in the way of organizational success.
1. We need to change, only not today. (Avoiding the decision)
Saint Augustine (b. 354 – d. 430) prayed, “Lord, make me chaste, but not yet.” It’s one thing to know about change and imagine future benefits, but often we 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. This is like the teenager who wants her parents out of her life but first wants to be dropped off at the mall.
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. Without a realistic vision of what’s both possible and probable, organizations will continue to play it safe and delay making decisions. But this so-called safety is an illusion. Organizations must keep moving, employ their assets, and create value. That value comes from the decisions they make and the projects they implement.
Any decision is a choice. Choosing not to choose is a choice.
2. It’s such a simple decision. (Oversimplification of the challenge)
Telephone numbers are seven digits long because most of us can only keep this much information in our short-term memory. We naturally chunk information into intelligible bites. Likewise, difficult and complex situations can overwhelm us, so we unconsciously and erroneously make them simpler. However, this natural tendency to simplify information can hinder decision making.
Of course, let’s not confuse oversimplification with the highly valuable ability to reduce a problem to its essentials. After all, decision making needs to be both effective and efficient. But we must distinguish between these two words. We can be efficient without being effective by doing the wrong task well.
No matter how well intentioned our actions, our desire for simple answers to complex questions increases dramatically under pressure. 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.
3. 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.
4. 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 go for the $100 right now.
The perceived length of time to realize a benefit has a significant impact on our selection, so let’s change the time factor. Imagine you are given the choice between gaining $100 one year from today or $300 in one year and one day. Most people given such a choice can wait the extra day. 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.
5. According to my Magic 8-Ball… (Magical thinking)
“Mirror, mirror on the wall, who’s the fairest of them all?” The evil queen in Snow White wanted to know about the future, and so do we. She had a magic mirror. We have educated guesses. 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. Not only are you focusing on wrong information, but you’re ignoring information that could be vital to long-term success. Falling prey to magical thinking and not testing your assumptions —not anchoring — can capsize the whole enterprise.
It’s Never Too Late
If you’ve ever realized that a decision you made was less-than-stellar, don’t feel badly. It happens to us all. But by understanding the top five things that get in the way of most decision-
makers, you can analyze your decision with a new perspective and make the best choice for you, your organization, and your future.
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. Menard has advised senior executives at organizations such as Coca-Cola, Cisco and the U.S. Department of Energy. To learn more
about Mike Menard please visit www.afishinyourear.com.