Are you ready to decide?

Article from McKinsey Quarterly by Philip Meissner, Oliver Sibony, and Torsten Wulf

Some pointers that I've got are:

Confirmation bias - Our unconscious tendency to attach more weight than we should to information that is consistent with our beliefs, hypotheses, and recent experiences and to discount information that contradicts them.
Overconfidence bias - Frequently makes executives misjudge their own abilities, as well as the competencies of the business. It leads them to take risks they should not take, in the mistaken belief that they will be able to control outcomes.

Since executives won't get very far by focusing directly on biases, they should consider instead whether safeguards against them have been used. In other words, leaders should ask about the process used to develop the proposal, not about the proposal itself or the degree of confidence it inspires. Questions below helps in the evaluation of the process in the context of the two main categories of biases described earlier.

This 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 is a good indicator that the initial assumptions of the decision process have not gone unchallenged.

• Have the recommenders checked their assumptions?
• In their analysis, have they considered factors that would make the project exceed its initial goals?
• Have they compared their assumptions with those made for a comparable external project?
• Have they compared their assumptions with those made for a comparable internal project?
• Have the recommenders integrated a diverse set of opinions?
• Have they assembled a diverse team for the decision making process?
• Have they discussed their proposal with someone who would most certainly disagree with it?
• Have they considered at least one plausible alternative to the course of action being recommended?

A second set of questions "Consideration of downside risk" asks whether the possibility of negative outcomes - including company-, industry-, and macro-level downsides - has been thoroughly evaluated. Such an evaluation can act as a safeguard against overconfidence

• Inside the organization, what are the decision's two most important side effects that might negatively affect its outcome? Have the recommenders considered these side effects?
• Side effect A
• Side effect B
• In the company's industry, what are the two most important potential changes that might negatively affect the outcome of this decision? Have the recommendation considered these changes?
• Potential industry change A
• Potential industry change B
• In the macro environment, what are the two most important potential changes that might negatively affect the outcome of this decision? Have the recommenders considered these changes?
• Potential macro-environment change A
• Potential macro-environment change B

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. This scoring will place the proposed decision in one of the four quadrants, leading to different courses of action. 

• Decide (3+ yes "Consideration of downside risk and 3+ yes "Consideration of different point of views"). 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 (3+ yes "Consideration of downside risk and 0-2 yes "Consideration of different point of views"). Proposals that fall in this quadrant have been tested for their resilience to downside risks but may still be based on overly narrow assumptions. Decision makers should consider techniques that broaden their perspectives and help them generate meaningful alternatives. One such technique is the vanishing-options test: executives force themselves to generate new ideas by imaging that none of the proposals on the table are available. 
• Stress test (0-2 yes "Consideration of downside risk and 3+ yes "Consideration of different point of views"). Decisions in this quadrant reflect a variety of viewpoints but, nevertheless, may not have been sufficiently challenged and could therefore be tainted by overoptimism. Executives should consider a thorough outside 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 (0-2 yes "Consideration of downside risk and 0-2 yes "Consideration of different point of views"). When this appears, the process has probably not been comprehensive. Decision makers should therefore follow a dual strategy that generates both new perspectives and new reviews of risks. 

A key question is who answers the questions in the tool. Since individuals developing a recommendation will not be aware of their biases, they cannot be expected to assess their own decision readiness. The answers must therefore come from the outside: Not the executive who has driven the decision process, but other ho have a more neutral view.

In practice, decision makers will be in one of two situations. In the first, and easiest, they reviewed recommendations prepared by others but had minimal involvement in developing them. In that case, decision makers are well placed to address the screening tool questions themselves.

But in the second and more frequent case, the decision makers were actively involved in studying decisions that have now reached the final stage. In this case, they 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 organisation; 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 void having a respondent who shares the decision maker's point of view.

Yours,
Something Small Thinking Big