How Do You Know You Are Making The Right Decisions?
Even the best people occasionally make bad decisions.
Mark Seabright
Even the best people occasionally make bad decisions. That doesn't mean these people are incompetent. We're all human after all.
But if we can improve our strike rate, we can have a big impact on our business. These are a few examples of how and why we get it wrong sometimes. We make decisions based on one, two or three key facts.
That's fine if you're deciding what kind of coffee to have. But if it's a big business decision, you might want to collect more evidence. We underestimate how long things will take and how much they will cost.
Psychologists call this the “Planning Fallacy”. And it happens just as often to your local builder as it does to governments and big businesses. We see patterns that don't exist in our observations of random events.
Behavioural economists call this, “Regression to the Mean”. It's helpful to remember that just because a few things happen in sequence, it doesn't mean they caused each other. We overvalue things when we are selling and we undervalue them when we are buying.
The technical term for this is “Loss Aversion”. Good negotiators are able to overcome loss aversion by not taking things personally. We create teams who always achieve consensus on their decisions.
This can be due to groupthink and often happens in boardrooms which lack diversity, either due to a strong CEO or a group of long-serving directors. These are some things you can do to help you get it right more often.
- Plan your decisions.
Put a meeting in the diary inviting all the relevant people as soon as you know you have to make a big decision about something.
- Gather all the relevant evidence.
- Consider context.
Get one or more views of the situation from outside of the business.
- Keep it about business.
- Remember it's not a personal decision, so leave your ego out of it.
- Have a tenth man.
When nine out of ten people are in agreement, make sure that the tenth person in the group has the job of making the case for opposing the decision.
You might not change your minds, but at least you will have considered the alternatives.
Review every decision and share the knowledge afterwards.
This will make you better prepared for next time.
Thank you!