Crash Course in ... Making good decisions

You've woken up from a terrible nightmare. In the dream, you hired Fred Goodwin, and he bought ABN Amro without telling you.

by Alexander Garrett
Last Updated: 31 Aug 2010

It has made you think hard about the judgments being made under your roof every day. How can you be sure they are the right ones?

Frame it. The first step is to define the decision, advises Neil Russell-Jones in his Decision-Making Pocketbook. 'Most decisions go wrong because the wrong issue requiring a decision is identified - the symptoms rather than the true causes are addressed,' he says. Adds Adrian Atkinson, chair of business psychology specialists Human Factors International: 'Decisions can be stimulated by three situations: opportunity, problem resolution and crisis.' They need to be framed in terms of a well-defined problem, he says, which usually means travelling from the current clearly described situation to the desired situation.

Whose decision? 'Ask yourself: is it important to make a decision? And if I don't make the decision, will it be made by someone else?' says Atkinson. 'If your answer is yes to the first and no to the second, you either have to take the decision or delegate it.'

Understand your mind. Most decision-making depends on two main processes, says Andrew Campbell, a director of the Ashridge Strategic Management Centre. In pattern-recognition, people base the decision on what they think is a similar situation, often from previous experience. And emotional tagging involves an emotional investment being attached to particular outcomes.

Question your objectivity. 'In each case, you may have in-built biases you aren't aware of,' says Campbell. You favour a particular course of action because that's how it was done in your previous job, or perhaps you have a personal interest in the decision: eg, re-locating an office nearer your own home. 'If there is a risk of bias creeping in, you need to introduce safeguards that will counterbalance it,' advises Campbell.

Sharpen your skills. Consider the widest range of options. People find it easier to look at one plan at a time, but you can progress and evaluate several simultaneously. 'Research has demonstrated the value of counter-factual thinking,' says Gary Marcus, professor of psychology at New York University, in his book Kluge. 'Thinking about the opposite helps us make better decisions.'

Share the burden. Form a decision-making group, and subject its activity to oversight - say, by the board. McKinsey has found that firms good at decision-making share the process and allow dissent along the way.

Don't write off intuition. 'We make certain types of decision better intuitively than analytically,' says Campbell. Nimble firms leave day-to-day decision-making with instinctive leaders who can make rapid calls on most issues, but subject difficult and bias-ridden decisions to a procedural method.

Do say: 'We have a comprehensive approach to cover all our strategic decision-making requirements.'

Don't say: 'Ip, dip, penny, chip ...'

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