is such an important part of business life. Unfortunately, the human
brain is not particularly well designed for making modern business
decisions. What worked well on the Serengetti plains several million
years ago can create problems for us today. There is a substantial body
of research in psychology and behavioural economics which highlights
these flaws. Amongst other things, we are programmed to feel
overconfident; we tend to treat $10m differently from ten lots of one
million; we treat sunk costs differently from new money; we have an
innate preference for the status quo; we tend to anchor our expectations
of the future on the present; we tend to go with the herd; we often
think we have consensus when none exists.
What can be
done to avoid these pitfalls? The key is to have a robust decision
process. Here are a few simple guidelines.
Always start by carefully defining the problem. (You would probably be
amazed how many people don’t do this and end up answering the wrong
Next define the objectives. What would success look like?
Only then should you list the alternatives. After “not defining the
problem”, the most common mistake is to start with a given set of
alternatives, and then be limited by that set.
Evaluate each of the alternatives against the objectives. A “pro’s and
con’s” list only works for very simple problems. For complicated
decision problems, the human brain will definitely need some help to
keep all of the pieces in perspective. Where you have multiple
objectives, you will need to be specific about how you will trade off
one against the other.
Usually at this stage of the process it is worth going back to see if
there are any other objectives that need to be considered or if there
are any other alternatives. Iterate as often as it is useful.
Combine the evaluations and the trade offs to come to a final decision.
In doing all of
this, try to keep a visual representation of the problem where everyone
can see it. It helps keep the group focused on the problem, not on each
or complex decisions, it is worth having a facilitator to guide people
through the process. At PS2, we have expertise at
guiding groups through a wide range of decision problems, including
strategy decisions, resource allocation decisions and option selection