You have all reviewed trends that show how your business has performed over a period for the metric being measured. Traditionally and possibly because of our training, we often restrict ourselves to only seeing the performance of a business in these trends.
Have you ever queried the trends to reveal more about your business?
Where would the graph trend if you were drawing the chart?
And what if, upon querying the trends deeply, you realized that it was in fact your decisions that was directing which way the graph trended?
Interestingly, these trends can also give us a big insight into leadership personalities and decision biases within a company. Reviewing trends in order to analyse and scrutinise the decisions made within a business can be extremely insightful, and provide you with a deeper understanding of your business’s decision making.
Categorizing decisions is a good place to start and from my studies, I found decisions can be categorized in multiple ways. In this article, I will share one of the many interesting ways decisions can be grouped.
1. Myopic Decisions
Myopic decisions are made when decision makers focus on information immediately related to their judgement whilst ignoring other, less prominent, pieces of information. Such decisions are made to avoid short term risks or to advert and contain a crisis by implementing rapid changes to business processes.
Typically, these decisions do not consider any implications after a crisis. In most instances, the required results are achieved but the decision is permanent; this is why a Myopic decision is often referred to as a band-aid solution.
Decision makers that rely on Myopic decisions are likely to use phrases such as “Just do it’’ or “That doesn’t matter”.
2. Mental Decisions
Such decisions are based on a number of considered, hypothetical scenarios. In business, for example, a decision maker might have to delay a product delivery to a client to prevent going over budget, mentally considering the impact of the decision. Or perhaps they might have to agree to a deal or to hiring new staff based on a mental construct of the pros and cons of a decision.
Decision makers using this method will use vocabulary such as “Let me think this through” to inform others that they are analyzing the situation and calculating a solution.
3. Over-confident Decisions
Such decisions are risky and are usually made without reliable facts or a strong basis. Experience is often the key driver of over-confident decisions. But, occasionally, bias towards a comfortable idea over an unknown and new alternative can also trigger this type of decision making. Scenarios in which decisions are made without the outcome of previous decisions being known can also signify over-confident decisions. When decision makers use vocabulary such as “That’ll be alright”, you will know that they are making over-confident decisions.
4. Hindsight Decisions
Hindsight bias (also known as the ‘knew-it-all-along’ effect) is the inclination to see an event as having been predictable after it has occurred, despite there being little objective basis for its prediction. The most common vocabulary used when making this type of decision would be “I told you so”. History, learnings and experience drive these types of decisions – this is why businesses will recruit experienced professionals. Common in technical businesses, decisions to alter (or not to alter) processes and systems based on historical results and learning fit well into this category.
5. Even Decisions
This category usually contains high-risk decision making used to recover losses or to bounce back from setbacks caused by previous decisions. Significantly cutting spending or restructuring a business to compensate for losses because of previous decisions are perfect examples of even decisions and will often feature vocabulary such as “This should make up for…”
6. Representative Decisions
Such decisions originate from a space of optimism, often with the hope and assumption that things will get better. You should categorize decisions to hire people for future work and to invest in upcoming/fresh technology as examples of representative decisions, especially if vocabulary such as “In the future…” is used.
7. Gamble Decisions
As the name suggests, decisions in this category are based on over or understated probabilities. The decision maker will take a bet on performance, usually in situations where multiple factors are at play.
Typically, one would place investment decisions in this category. However, this can include decisions to deliver a product when critical issues are yet to be resolved with decision makers using vocabulary such as “Let’s see what happens”.
8. Framing Decisions
Framing decisions are based on how the information is presented to you. This category is now very common due to the evolution of pitching within the business sector, where managers and directors will often use vocabulary such as “This is a good idea, what are the next steps?”.
9. Regret Avoidance Decisions
These are heart driven decisions taken for the sake of avoiding regrets in the future. They are also used as a necessity, even if you may not agree with it. Using vocabulary such as “I don’t have a choice but to…” whilst terminating high performing staff for breach of contract or accepting a deal from a difficult customer due to cash flow problems are common examples in this category.
Moving Forward
There is no correct or incorrect way to decide and in fact, decisions can be a combination of the above categories. For example, you might be asked to make a framing decision but your final approach might be to use a regret avoidance decision since you are afraid of losing a customer.
We must remember that decision making in businesses are made under a variety of constraints; the most common constraint being time. Nevertheless, you have to remember that situations in which no decisions are made are just as important as those that feature one of the categories of decision making discussed earlier. In the words of philosopher William James, “No decision is, in itself, a decision”.
Reflections and reviews of decisions made in the past can provide great insights into the decision styles that work best for both you and the company, as well as the industry that you are in. But what is the best approach when it comes to analyzing the decisions that your business makes?
- Start by reviewing data that is set over an extended period of time and identify any changes in trends or any times in which major decisions were made.
- Recount how those decisions were made and identify which category(ies) they fall within.
- It is also important to review if the decisions made led to a positive or negative outcome. At this step, you should also consider if there were any other decisions that could have been made. Could the outcome of the decision have been better or worse?
- Explore how negative outcomes can be avoided in the future and how any decisions with a positive outcome could be exploited further to get even better outcomes.
- Finally, be aware of what you have learnt from the review process as you move on and continue to make decisions.
The inspiration for this blog comes from ‘Managing Equity Portfolios: A Behavioural Approach to Improving Skills and Investment Processes (The MIT Press)’ by Michael Ervolini. You can view more information about the book here.
Written by
Shivendra Kumar
Shivendra Kumar is a highly regarded leader, known for delivering organizational transformation through innovation and process improvement. With a unique approach and inspirational leadership style that creates a culture of change in businesses, he develops organisational capability needed for both short and long term results. His blogs cover topics related to business improvement, metrics and innovation.