Good decisions can be extremely difficult to make, especially when different decisions may involve similar paths to action. Bias in planning and making a decision may also complicate the picture. It is important to know how to reduce bias in your planning and decisions, even for apparently simple decisions.
The Road Not Taken
“The Road Not Taken,” is the most famous poem by popular American poet Robert Frost (1874-1963). Published in 1915, Frost’s poem articulates the decision-making quandary. The final lines of the short poem have echoed down the years to millions of people:
Good managers—even outstanding ones—can make spectacularly bad decisions. Some decisions result from bad luck or poor timing, but research suggests that many are caused by cognitive and behavioral biases. While techniques to “debias” decision-making do exist, it’s often difficult for decision-makers at any level to know when they are worth applying – because their own biases may be part of the problem. This article, based on a McKinsey paper, “Are you ready to decide,” provides a simple, checklist-based approach, below, that can help identify times when the decision-making process may have gone astray and you need to intervene in the process. The McKinsey research suggests this is about 75% of the time!
Understanding and applying knowledge on how to “debias” the planning and decision-making process will greatly help you when you are involved in organizational planning and if you are a member of your organization’s executive committee. Even if you are not, you can speak knowledgeably to executives about debiasing. And you can also gain the benefit of applying the principles in your own planning and decision-making within the communication function or any other corporate area.
How to reduce bias in your planning and decisions
Two types of bias are most experienced in business planning and decision-making:
- Confirmation bias – this is our unconscious tendency to attach more weight than we should to information that consistently aligns with our beliefs, assumptions, and recent experiences, and to disregard information that contradicts them.
- Overconfidence bias. This bias frequently makes people misjudge their own abilities, as well as the competencies of their business. It leads these people to take risks they shouldn’t take, in the mistaken belief that they will be able to control outcomes.
The combination of misreading the environment and overestimating skill and control can lead to major problems. For instance, a decision made by Blockbuster, the video-rental giant, in the spring of 2000. A promising start-up firm approached Blockbuster’s management with an offer to sell itself for $50 million and join forces to create a “click-and-mortar” video-rental model. Its name? Netflix. As a former Netflix executive recalled, Blockbuster “just about laughed [us] out of their office.” Netflix was worth $176 billion in 2022. Blockbuster filed for bankruptcy in 2010 and has since been liquidated. In our own experience, most of us can think of times when we have over-estimated the ability of ourselves or the ability of our organization to plan and deliver a major project.
Overconfidence and confirmation biases weren’t the only biases in the Blockbuster case, of course, just as in most organizations. But they are a good example of the terrible outcomes that result from biased decision-making.
A stubborn problem?
Fortunately, debiasing techniques can help to reduce bias in your planning and decision-making. These techniques aim to limit the effects of overconfidence by forcing the planners and decision-makers to consider downside risks they may have been overlooked or underestimated. And they can reduce the dangers of confirmation bias by encouraging different points of view. in the decision-making process.
Examples of such techniques include either the systematic use of a devil’s advocate or a “premortem,” in which a project team imagines that a project or organization has failed, and then works backward to determine what potentially could lead to the failure of the project or organization.
Another technique is to organize a formal scenario-planning activity—expanding the range of core assumptions involved in a plan—or even a war game, in which participants put themselves in their competitors’ shoes. Scenario planning helps you to think through key uncertainties and anticipate possible problems in the future of your project, strategy or organization.
Research has shown that when a company uses a range of debiasing techniques, its return on investment rises considerably. For high-impact, repetitive decisions, such as big investments, it is sensible to embed debiasing techniques in the formal decision-making processes.
What about daily decision-making?
This doesn’t solve the countless daily decisions facing executives. A war game or a scenario-planning exercise requires a significant time commitment. In view of this, how do you know when such a commitment is worthwhile? Also, the nature of biases means that you will find it difficult to judge whether further debiasing is needed. Indeed, you may be experiencing the confirmation bias and overconfidence yourself at the crucial time.
When you make an ordinary mistake, such as a calculation error, you can learn from your experience and avoid repeating it. But when biases lead you astray, you aren’t aware of what’s happening, so experience doesn’t help you become better at debiasing yourself, and you can’t just stay alert to keep biases in check.
If you wish to actively reduce bias in your planning and decisions within your projects, department or organization, McKinsey consultants have developed two simple, strategic initiatives to help people tackle business bias:
- “Decision-making checklist” of questions just requiring “yes” or “no” responses. This is in two parts: (a) “Consideration of different points of view” and (b) “Consideration of downside risk.”
- “Screening matrix” suggesting your broad courses of action based solely on your “yes” answers from the decision-making checklist. Refer below for the checklist and matrix.
Two tests of decision readiness
Since you won’t get very far by focusing directly on biases, you should look instead whether safeguards against them have been used. In other words, you should ask about the process used to develop the proposal, not about the proposal itself or the degree of confidence it inspires. Exhibit 1 suggests questions for evaluating the process within the two main categories of biases described earlier:
Different points of view
The first set of questions (“Consideration of different points of view”) aims to determine whether the confirmation bias has been kept in check. These questions focus on the sources of assumptions and the diversity of opinions expressed. A broad set of sources (including outside views) or a diverse set of opinions are good indicators that the initial assumptions of the decision process have not gone unchallenged.
A second set of questions (“Consideration of downside risk”) asks whether the possibility of negative outcomes has been thoroughly evaluated – including downsides at the company, industry, and macro-level. Such an evaluation can act as a safeguard against overconfidence.
On each dimension, the questions are designed to be flexible, so that the circumstances of the decision at hand can be taken into account. Once the questions have been answered (with a simple yes or no), the responses can be transcribed on a matrix (Exhibit 2).
Four quadrants leading to action
This scoring will place the proposed decision in one of four quadrants, leading to different courses of action:
- Decide. This quadrant represents the most favorable outcome: the process that led to such a decision appears to have included safeguards against both confirmation bias and overconfidence.
- Reach out. Proposals in this quadrant have been tested for their resilience to downside risks but may still be based on unnecessarily narrow assumptions. You should consider techniques that broaden your perspectives and help you generate meaningful alternatives. One such technique is the vanishing-options test: force yourself to generate new ideas by imagining that none of the proposals on the table are available.
- Stress-test. Decisions in this quadrant reflect a range of viewpoints but, nevertheless, may not have been sufficiently challenged and could therefore be tainted by overoptimism. You should consider a thorough external review of the possible risks – for instance, by conducting a premortem or asking an outside challenger to play the role of devil’s advocate.
- Reconsider. When a decision appears in the bottom-left quadrant, the process has probably not been comprehensive. You should therefore follow a dual strategy that generates both new perspectives and new reviews of risks.
If you don’t have the resources to follow up all the points in the checklist, you can simply use it as a guide to review your own planning and risk environment, and then you can follow up as you see fit on any of these questions and on the broad courses of action suggested in the matrix.
By using this decision-screening tool, you can learn if you need to expand your focus and options in the strategy process. McKinsey consultants applied a version of the tool together with 26 senior executives of European corporations from a variety of industries, ranging from construction to manufacturing, services, and retail. They asked these executives to analyze a strategic-decision proposal that a project team within their own organization (but not the participants) had recently made.
Only just over a quarter of the proposals, it emerged, were truly decision ready. The bar for readiness on each dimension (three positive answers out of six questions) was relatively low. Yet a striking 73% of the respondents judged that the decisions they were reviewing didn’t pass these tests. They then used the prescriptions of the matrix to revisit the decisions.
How to use the decision-screening tool
A key question is who answers the questions in the tool. As a person developing a recommendation, you will not be aware of your biases, and you can’t be expected to assess your own decision readiness. The answers must therefore come from the outside: not from those who have driven the decision process. Involving others who have an external and more neutral view will be a positive step to reduce bias in your planning and decisions.
In practice, you will be in one of two situations. In the first, and easiest, you have reviewed recommendations prepared by others but had minimal involvement in developing them. In that case, you are well placed to address the screening tool questions yourself.
But in the second and more frequent case, you are actively involved in studying decisions that have now reached the final stage. In this case, you no longer have an outside view of the process and will need to seek out answers from informed observers: staff members, such as the CFO; colleagues from other parts of the organization; or outside advisers. Some companies will wish to define this role in advance and make it a formal part of their decision-making process, to avoid having a respondent who shares your point of view.
In an environment of change and disruption, many leaders fear—rightly—that their companies don’t take enough risks or will fall prey to “analysis paralysis” and let opportunities slip away.
Some risks are worth taking: those taken knowingly in pursuit of a worthwhile outcome. But some risks are taken recklessly because the risk takers are blind to their own overconfidence or have failed to consider alternative viewpoints.
The disciplined use of decision aids such as this screening tool offers a way to spot bad decisions before they happen, without significantly slowing down the decision process. This approach will free up resources for value-creating projects.
You can read the original McKinsey article, “Are you ready to decide” (free subscription access) by Philip Meissner, Olivier Sibony, and Torsten Wulf.
In addition, you are likely to benefit from reading my article, “Communication planning should directly support organizational strategic planning for best results.”
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