Hindsight is a wonderful thing and we all have 20/20 vision after the event. Sure, it’s easy to make fun of the Chief Executive of the confectioner Mars who said “no” to Steven Spielberg when offered to feature M&Ms in the movie “E.T.” And it’s tempting to wonder how Blockbuster could have passed on the chance to buy Netflix for a bargain price and then abandon its digital offering just when it started to get traction. But who could have predicted that “E.T.” would become one of the most popular movies of all time? (Err, Spielberg had only made “Jaws” five years earlier.) And why would anyone have thought that moviegoers would abandon video rental stores for the convenience of online streaming? (Well, because it makes complete sense.)
It’s easy to think that poor decision making is only in business, but what about the pinnacle of the science and engineering sector (NASA). NASA’s mistakes with decision making have been well documented for both the Space Shuttle Challenger disaster and later the Columbia disaster. There are several great books that detail the decision making mistakes for both disasters. The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA is perhaps the best known for detailing the decision making process problems that NASA had.
The political arena is also a great source of entertainment when it comes to poor decision making. John F Kennedy is often quoted as saying “How could I have been so stupid” after the failed Bay of pigs invasion in 1961. Fortunately, President Kennedy proved capable of learning from his mistakes as his actions in the wake of the next major crisis that occurred on his watch, The Cuban Missile Crisis of 1962, prove. Here’s a link to a great article detailing Kennedy’s problem with decision making for the Bay of Pigs invasion. Kennedy is not the only politician to have problems making decisions and perhaps the greatest compliment we can give him was that at least he learned from his mistakes (I can think of many who haven’t, or won’t admit to have made a poor decision in the first place e.g Margaret Thatcher and the poll tax, read about the decision here).
So having a solid decision-making process in place is vital in all walks of life, but for business owners having a process can help them avoid making massive mistakes by giving them mechanisms to generate alternative choices and structure to their choosing as well as providing a framework for learning from both successful and unsuccessful decisions.
Using a step-by-step approach is an efficient way to make thoughtful, informed decisions that have a positive impact on your businesses short- and long-term objectives.
The business decision-making process is commonly divided into seven steps. Business owners may already follow many of these steps without realising it, but gaining a clearer understanding of best practices can improve the effectiveness of your process.
Steps of the decision-making process.
The following are the seven key steps of the decision-making process:-
Step 1. Framing: Structuring the question. Defining what must be decided and determining in a preliminary way what criteria would cause you to prefer one option over another. When we face a new issue, the good decision-maker creates a decision frame specifically designed for dealing with that new issue. Decisions makers often ‘Lack of Frame control’ because they often do not choose frames. They stumble into them and find ourselves using an inadequate frame.
Controlling the frame of a decision can be a source of both power and wisdom. Making decisions through inferior frames, or with no well-organised frames at all, eventually leads to disaster. Frame control demands that every major decision includes at least four steps:-
- Identify the frame you or your organisation would automatically (and often unthinkingly) use.
- Find one or more reasonable alternative frames.
- Analyse where each frame fits and what it distorts or leaves out of bounds.
- Match the frame to the problem, i.e choose from the alternative frames the one (or ones) that you consider most appropriate.
Step 2. Gathering Intelligence. Seeking both the knowable facts and the reasonable estimates of ‘unknowables’ that you will need to make the decision. There are many problems that decision makers have when it comes to gathering intelligence for their decisions. As human beings we suffer from a number of cognitive biases that have major impacts on our information gathering including:-
- Overconfidence in what they believe, even if their belief entails a negative view of their own worth and abilities. To address this we should size up what we know – that is, collecting information and using it systematically will reduce the dangers from overconfidence, availability bias, and anchoring. Avoiding overconfidence means developing good secondary knowledge, having a good understanding of what you know and what you don’t know, whereas primary knowledge consist of facts and principles you believe are true.
- Confirmation bias, where people’s fondness for evidence that will confirm, rather than challenge, their current beliefs, will lead them to search more for confirming information than disconfirming information. In short confirming feels good and disconfirming feels painful. Look for information that disconfirms what you believe, there maybe none which is great but there maybe that little something that is at odds with what you believe.
- Availability bias or the availability heuristic refers to the human tendency to judge an event by the ease with which examples of the event can be retrieved from your memory or constructed anew. In other words information that is easily available gets a higher level of credence that it perhaps deserves. The answer to this is to have search criteria that actively looks for hard to retrieve information.
How to gather information:-
- Insist that people state estimates in terms of ranges and confidence levels.
- Create Feedback
- Ask Questions
- Use decision modeling where appropriate
- Avoid collecting too much information.
Step 3. Identify alternatives
Once you have a clear understanding of the issue and gathered the necessary information, it’s time to come up with a range of solutions at your disposal. It’s likely that you have many different possibilities when it comes to making your decision, so it is important to come up with a number of options. This helps you determine which course of action is the best way to achieve your objective.
Step 4. Weigh the evidence
In this step, you’ll need to “evaluate for feasibility, acceptability, and desirability” to know which alternative is best. Decision makers need to be able to weigh pros and cons, then select the option that has the highest chances of success.
It may be helpful to seek out a second opinion from a trusted source to gain a new perspective on the issue at hand.
Step 5. Choosing among alternatives
When it’s time to make your decision, be sure that you understand the risks involved with your chosen route. You may also choose a combination of alternatives now that you fully grasp all relevant information and potential risks. This is where the temptation maybe to shoot from the hip rather than have a proper decision making process. Too many people pose their questions carefully, collect their intelligence brilliantly, but then wing it when it comes to actually deciding!
- Make Simple decisions, where little is at stake intuitively or with simple decision rules.
- Use Statistical decision rules based on objective linear model to make important decisions.
- Use Subjective Linear model for decisions that can’t use Objective model.
Doing something systematic is better in almost all cases than a ‘seat-of-the-pants’ decisions.
Step 6. Take action
Next, you’ll need to create a plan for implementation. This involves identifying what resources are required and gaining support from employees and stakeholders. Getting others on board with your decision is a key component of executing your plan effectively, so be prepared to address any questions or concerns that may arise.
Step 7. Reviewing your decision
An often overlooked but a vital step in the decision-making process is evaluating your decision for effectiveness. Ask yourself what you did well and what can be improved next time. Don’t forget it’s not just about the outcome of the decision but also the decision making process itself that you’re reviewing. To improve with experience you need to:-
- Regularly Analyse what you’ve learned.
- Conduct experiments.
- Learn from both the decision outcomes and process.
If you’d like to find out how good you’re at making decisions why not take our decision making test. To take the test click here.
Twelve intensive half-day meetings.
