Big Sky Thinking

Labels: decisions, excel, visuals

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the final trap, the “The Estimating and Forecasting Trap”. Even though most of us are not very good at making estimates, we tend to be overconfident about our accuracy – which can lead to bad decisions. There are three different traps that can have a particularly distorting effect in uncertain situations because they cloud our ability to assess probabilities.

1. The Overconfidence Trap – Tend to be overconfident about our accuracy
   


2. The Prudence Trap – Over-cautiousness or prudence
   


3. The Recallability Trap – Base predictions of future events on the memory of past events.
   

Big Sky sees this trap in our clients especially when executives have strong domain or market experience. In addition, because very experienced people have excellent instincts, they can overlook trends that change the implicit assumptions in their mental decision-making process. For example, Clayton Christensen’s work on Innovation shows how the excellent customer-focused instincts of executives can actually crush the development of new, market-changing products. You can read more about Christensen’s “Innovator’s Dilemma” here.

1. Start by considering the extremes, the low and high ends of the possible range of values
   


2. Challenge estimates of your subordinates and advisers (overconfidence trap)
   


3. Always state your estimates honestly and explain to anyone if or not the estimates have been adjusted (prudence trap)
   


4. Carefully examine all your assumptions to ensure they’re not unduly influenced by your memory (recallability trap)
   

Closing thoughts on Decision-Making:

When it comes to business decisions, there’s rarely such a thing as a no-brainer. Our brains are always at work, sometimes, unfortunately, in ways that hinder rather than help us. At every stage of the decision-making process, misperceptions, biases, and other tricks of the mind can influence the choices we make.

The best protection against all psychological traps – in isolation or in combination – is awareness. Forewarned is forearmed. Even if you can’t eradicate the distortions ingrained into the way your mind works, you can build tests and disciplines into your decision-making process that can uncover errors in thinking before they become errors in judgment.

Labels: decision optimization

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the fifth trap, the “The Framing Trap” which states that the way a problem is framed can profoundly influence the choices one makes. Research proves that people are risk averse when a problem is posed in terms of gains, but risk seeking when a problem is posed in terms of avoiding losses.

Big Sky sees this trap in our clients especially when executives consciously or unconsciously frame the problem such that their proposed solution seems to be the best answer. Also, executives might focus on highlighting their pain areas which might not be a pain area for somebody else.

Techniques to overcome:

1. Don’t automatically accept the initial frame, try posing problems in a neutral redundant way that combines the gains and losses or embraces different reference points
2. Think hard throughout your decision-making process about the framing of the problem, and when others recommend decisions, examine the way they framed the problem.

Labels: decision optimization

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the fourth trap, the “The Confirming-Evidence Trap” that leads us to seek out information that supports our existing instinct or point of view while avoiding information that contradicts it. This not only affects where we go to look for evidence, but also how we interpret the information that we receive.

Techniques to overcome:

1. Confirm that you are examining all the evidence with equal rigor
2. Find someone you respect to play the devil’s advocate
3. Be honest with yourself about your motives (are you gathering information to confirm what you already think?)
4. While seeking advice of others, don’t ask leading questions that invite confirming evidence

Our next post in this series will discuss the “The Framing Trap” outlined in the article and will be posted next week.

Labels: decision optimization

In our previous posts in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the third trap, the “Sunk-Cost Trap”, that talks about our deep-seated biases to make choices in a way that justifies past choices, even when the past choices no longer seem valid. These past decisions often involve considering sunk costs in assessing the viability of a project – old investments of time or money that are no longer recoverable. One might also call this “throwing good money after bad.”

Big Sky sees this trap in our clients especially when…switching costs are high or if there are budget constraints. When huge investments have already been made, the team that made that decision tries to justify that decision. In many of Big Sky’s government clients’ large complex IT projects continue to command major investment well after it’s clear to all that the projects have failed. Rather than redirecting investment to better options, some organizations will continue to try to salvage huge IT investment by bolting on functionality or placing band-aids on system issues.

Techniques to overcome:

1. Always be mindful of long-term objectives and examine how they would be served by the status quo, if at all
2. While considering other options, evaluate the status-quo alternative if it was just another option, rather than the front-runner
3. Avoid exaggerating switching costs
4. And finally, always evaluate alternatives in terms of future as well as present context

Labels: decision optimization

In our previous post in this series, we introduced “The Hidden Traps in Decision Making” by John S. Hammond, Ralph L. Keeney, and Howard Raiffa, in which they describe six traps in organizational decision-making that can adversely affect performance. This week’s post covers the second trap, the “Status Quo Trap,” that we also observe in our clients on a regular basis. In organizations that display the Status Quo trap, decision makers display a strong bias toward alternatives that perpetuate the status quo. Breaking the status quo means taking action, and when we take action, we take responsibility, thus opening ourselves to criticism and to regret.

Big Sky sees this trap in our clients especially when…organizational cultures do not encourage change. When employees are not rewarded to take risks but are penalized for unfavorable outcomes, they choose to stay with the tested-and-tried way of doing business. For example, we have observed in some R&D clients a tendency to reward large projects that transition to operational use, but stigma is applied to failed attempts at innovation. This encourages R&D planners to over-weight project with a high probability of success and projects that are already fully funded, rather than creating a portfolio that includes some high-risk projects.

Techniques to overcome: A few ideas for avoiding the status quo trap include:

1. Remind yourself of your objectives and examine how they would be served by the status quo
2. Identify other options – don’t assume that there aren’t any
3. Ask yourself if you would choose the status-quo alternative if it was not the status quo
4. Avoid exaggerating switching costs
5. Evaluate alternatives in terms of future as well as present context

Our next post in this series will discuss the “Sunk-Cost Trap” outlined in the article and will be posted next week.

Labels: decision optimization

#1: The Anchoring Trap: When considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions, estimates, or data anchor subsequent thoughts and judgments. This pernicious mental phenomenon is known as anchoring.

• Big Sky Sees this trap in our clients when. . . time is of the essence. When organizations are under particular pressure to make a decision fast, the anchoring trap becomes particularly acute as there is little patience to wait for alternative information.
• Techniques to overcome: View a problem from different perspectives (use a different starting point to avoid the anchor), be open minded, be careful to avoid anchoring your advisor (tell them as little as possible and ask for their opinion), and be particularly wary of anchors in negotiations.

Our next post in this series will discuss the “Status Quo Trap” outlined in the article and will be posted next week.

Labels: decision optimization