Top 10 Ways to Make a Bad Decision

I'm usually a positive thinker, but I've observed that many leaders have an easier time committing to real change when there is a clear disadvantage to the status quo.  In that spirit, here's a quick Top 10 covering sure-fire ways to make a poor decision in your organization.  Have you seen others?  Share your comments and stories about what you have experienced.

10.  Make a decision based on money and time you've already spent.

9.    Play up information that confirms your current point of view.

8.    Ignore information that doesn't.

7.    Pay too much attention to the first thing you hear, or the first data you receive.

6.    Frame a decision only on the benefits OR risks, but not both.

5.    Wear rose-colored glasses when you are estimating the results.

4.    Wear doom-colored glasses when you are estimating the results.

3.    Believe that your "gut" is the smartest person in the room.  Corollary: Justify every decision with a quote by Malcolm Gladwell.

2.   Use nothing but data.

1.   Don't use data at all.

Best of the Blog: Decision Making Traps

In reviewing the most recent Google Analytics info on this blog, I've been struck by the response to our posts on HBR's classic article on decision-making traps, which appeared some time ago. Based on the popular demand, I have posted below the links to each of the entries.

Part I: The Anchoring Trap

Part II: The Status Quo Trap

Part III: The Sunk Cost Trap (my personal favorite)

Part IV: The Confirming Evidence Trap

Part V: The Framing Trap

Part VI: The Estimating and Forecasting Trap

We're glad so many enjoyed these posts.

Burton Group Catalyst Conference: Roles-Based Access Control Highlights

Today was the first day of the Catalyst Conference general sessions and a number of the sessions that I attended were focused on Identity Management and in particular RBAC. At Big Sky we have always asserted that Identity Management begins with defining the core business processes behind on-boarding and off-boarding users (employees, contractors, etc.) It’s nice to hear from the Catalyst presenters that organizations that have experience in implementing RBAC have a similar point of view; successful implementations start with the process and not by mapping system privileges. Begin at the top and drill down to the details. A summary of the key areas that need to be understood when defining roles:

1. What does each person do in their position? (e.g., DILO study of work processes)
   
2. How do we optimize the processes for that position? (What are the value-added decisions and activities), and then
   
3. Understand what applications that person needs to be effective within that process. (Determine how to best accomplish tasks and share information)

The roles definition will naturally fall out of this exercise and allow the business need to drive the IT implementation. After all, the effectiveness of the roles you define depends on properly matching the right entitlements with the right user in the right position.

Dangers of Scores in Decision Making -- From James Taylor

James Taylor, who we've referenced on this blog on several occasions, shared his thoughts today on the dangers of scores in decision making. He provides a great example: the Body Mass Index (BMI), which is fraught with issues but is nonetheless used inappropriately by companies and health officials alike.

I've seen the misuse of scores or other numbers in some of the organizations served by Big Sky. When a model is developed that produces a number or a score -- such as with Analytic Hierarchy Process, Statistics that measure strength of relationships, or even simple weighted averages -- there are many who focus too narrowly on the number without context, or fail to realize its limitations. For example, we will often help clients use quantitative methods to prioritize budgets, but the numbers that "pop out" are really nothing more than measures of preference; they are not truth. In many cases, they aren't useful measures outside of the model, and can't even be compared to previous analyses using the same method.

Scores must be balanced with other factors -- which James correctly points out can be codified in rules and often automated. For those decisions that can't be automated because they are inherently more political or are subject to other unpredictable factors, the limitations of "scores" should be carefully and frequently communicated to all stakeholders to avoid confusion or misuse.

Thanks to James for a great post.

Decision-Making Traps Part 6: The Estimating and Forecasting Trap

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.

Techniques to overcome:

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.

Decision-Making Traps Part 5: The Framing Trap

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.

Our next post in this series will discuss the “Estimating and Forecasting Trap” outlined in the article.

Decision-Making Traps Part 4: The Confirming-Evidence Trap

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.

Big Sky sees this trap in our clients especially when executives are biased based on their past experience and knowledge, or if they are pushing for their pet projects. For example, when we help client prioritize investments, we find that some executives are very surprised with how an objective process is at odds with their “gut.” For a great read on this phenomenon, check out Moneyball by Michael Lewis. Clients who are in “The Status-Quo” and “The Sunk-Cost” traps also succumb to “The Confirming-Evidence” trap.

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.

Decision-Making Traps Part 3: The Sunk-Cost Trap

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

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

Decision-Making Traps Part 2: The Status Quo Trap

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.

Decision-Making Traps Part 1: The Anchoring Trap

John S. Hammond, Ralph L. Keeney, and Howard Raiffa wrote an article in Harvard Business Review “The Hidden Traps in Decision Making” which discusses different traps of the mind and different ways in which we can overcome these traps. All of us are susceptible to making bad decisions and judgments unless we can learn to recognize and avoid them. Even though the article was written nearly a decade ago in 1998, it is still highly relevant and important in the context of decision making. Hence, despite its age, we decided to devote a series of posts highlighting each of these six “traps,” and the techniques that these authors recommend to overcome them. This first post discusses “The Anchoring Trap” and will be followed by one post for each of the five remaining traps identified by the authors.

#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.

Why Optimizing Decisions is the Most Important Thing You Can Do, Part III

In our last post in this series, we introduced a simple, four-step approach to optimize decisions that we call Decision-Centric Business Improvement. The critical decisions identified through that four-step process represent the resource-intensive turning points of every organization’s growth. These decisions are diverse; some are large: corporate acquisitions, multi-billion dollar procurements, and 5-year strategic goals. Some are smaller: choosing a commodity supplier, making a hiring decision, or choosing the functionality of a software solution. Some decisions are manual, while some are automated. Some require one person; some require groups or even multiple organizations.

The last step in Decision-Centric Business Improvement is optimizing decisions along three angles: strategic relevance, technique, and technology. When optimizing decisions, it is critical that an organization work through each of these angles to build a coherent, balanced approach to the decision in question. The figure below illustrates these three “angles” of decision making.


The Decision Strategy Angle
The first angle of effective decision making is how the decision influences advancement of the organizational strategy. To clearly understand this angle, an organization should isolate the most important strategic metrics of the organization and describe the decision in terms of those metrics. If a decision cannot be shown to have a measurable impact on strategic goals, there is little chance that the decision can be successful.

The right approach in this angle is not to develop a new strategy, but rather to understand the strategy (whether implicit or explicit) and to define a particular decision in the context of the strategy. Traditional strategic planning tools—such as SWOT analysis, multiple forces analysis, or Value Chain Analysis—may be useful in this angle but should be focused on the decision.

The Decision Technique Angle
The second angle of effective decision making is the selection and application of the right tool for the job. A carpenter wouldn’t use a sledgehammer to drive carpet tack; similarly, a good decision maker chooses the tool that is just complex enough—but no more complex—to do the job. In this angle, an organization must understand both the soft and hard aspects of the decision. Hard aspects include the required speed and frequency of a decision, as well as the number of variables involved and whether the decision requires descriptive (backward-looking) or predictive (forward-looking) results. Soft aspects invlude the level of organizational buy-in required, political consequences, human factors, and transparency requirements.

For an automated supply chain decision, an organization might choose to develop a sophisticated algorithm that completes on the fly multivariate analysis. For a one-time strategic decision at a board meeting, it might use a decision tree or a consensus building method. Hypothesis testing, analytic network process, analytic hierarchy process, real options are other approaches that might be used to aid decision making.

The Decision Technology Angle
The third angle of effective decision making is the application of appropriate technology to enable the decision. Most organizational decisions will benefit from better management and distribution of information aided by technology, but not all. Knowing if, when, and how to apply technology is the component of decision optimization least understood and most prone to error.
Good decisions result from a qualified decision maker armed with the right information, delivered at the right time in the right context.

Rather than selecting one-off technology solutions, an organization should understand their “Decision Architecture” – an architecture optimized for effective decision-making. In many cases, this architecture may be comprised of existing systems rather than expensive new ones. Effective organization and adaptation of organizational IT can transform decision-making capabilities in many organizations.

While “hard” decisions—those with many variables or high speed requirements—are the most obvious candidates for the application of technology, technology can be a critical enabler of softer decisions too. Collaboration tools, role-based access control, and innovative application of existing technology (like wikis) can be critical enablers of infrequent, collaborative decision-making. In every analysis of a critical decision, whether “hard” or “soft,” technology should be considered as a important enabler of long-term success.

Why optimizing decisions is the most important thing you can do

The most important piece of advice we can give to organizations and their leadership for the next 30 years is this:

Optimizing decisions is the single most important factor in long-term organizational success. It's more important than strategy, organization design, quality, customer relationship management, innovation, or any other business model, technique, or practice.

That statement is provocative, but it's the reason why we started a company. It also begs the question, "What has changed to make optimized decisions so important?" This post outlines some of the reasons why; the next post will discuss ideas on what to do about it. The reasons are far too many to list here, but below are my views of the key interdependent factors.

1) Business model innovation. Innovations in business models--the underlying mechanisms that define the way organizations operate to provide goods and services--have been changing at breakneck speed in the last 15 years, and there is no reason to expect a coming period of stabilization. Organizations that are successful don't adopt a model and stick with it; they are hyper-adaptive to new business model opportunities when they emerge. The number of choices in business models and the resulting consequences are rapidly multiplying.

2) Intensifying expectations for regulatory compliance. Companies and governments entered a new era after 9/11 and the Enron scandal marked by a dramatic intensification of oversight by shareholders, regulatory authorities, Congress, OMB, and others. Not only is there pressure to make critical decisions quickly and accurately, but organizations must explain to overseers why the decisions were made. This new emphasis on transparency of decision-making is not supported by 20th century decision-making processes.

3) Compressing decision cycles. As business models shift and information becomes more accessible and available, organizations are faced with compressing decision cycles, particularly in critical capability processes. They have less time to choose options, and more options to choose from. In any decision, data must be aggregated, criteria established, options considered, and decisions made. Organizations have less and less time to pass each gate.

4) Advancing decision automation. Advancements in artificial intelligence compound the severity of the decision making problem. More and more decisions may be automated every year, placing additional pressure on manual decisions to either be expedited or automated themselves. Critical decisions will either be severe time traps in critical processes, or the source of substantial competitive advantage. Ignore this technology at your peril--over the next ten years the ability of software to solve complex, unstructured problems will revolutionize what organizations define as their core capabilities. James Taylor writes the best blog out there on decision automation.

5) Accelerating acceleration. As everyone knows, the innovation in technology, business, and life is accelerating. This is well documented---Moore's Law and studies of technology adoption curves are just two good pieces of evidence. However, what places so much more pressure on decision cycles is that the rate of change is also accelerating. Why? Because enablers of innovation are themselves undergoing rapid, logarithmic change. Ray Kurzweil and Alvin and Heidi Toffler have done some great writing on this phenomenon.

These are just five thoughts on my list. . . it's certainly not exhaustive. Our next post will focus on how we view solutions to the challenge--specifically, decision-centric capability development.