Brokerage Ops the March 2023 issue

How to Make Sound Decisions

There are internal and external factors that influence decision making. You can identify and deal with them.
By Elizabeth McDaid Posted on March 1, 2023

Wow, that’s pretty intense, right? Well, three times this week, in three completely different circumstances, I heard that quote. It got me thinking that (1) the universe is trying to tell me something and (2) maybe I really need to pay attention to the decisions I am making. So I did a little research on the art of decision making, and I thought I would share with you what I learned.

Making sound decisions is a skill set that can be developed and is essential for any good leader. However, the complexity of today’s business landscape, coupled with the increasingly high expectations of performance and the speed with which most decisions must be made, creates a recipe for disaster for today’s business leaders. “…[A]nyone who operates outside of a sound decision making framework will eventually fall prey to an act of oversight, misinformation, misunderstanding, manipulation, impulsivity or other negative influencing factors,” writes Mike Myatt in a Forbes article titled “6 Tips for Making Better Decisions.”

In this column, we’ll explore (1) what is going on inside your head that impacts your ability to make good decisions, (2) what outside influences are impacting your decisions, (3) some techniques to help you deal with both internal and external influences, and (4) a decision-making framework that can help you make the soundest decisions possible.

Influences Inside Your Head

To help us make better decisions, it’s important to understand how our thought process works. According to Daniel Kahneman in Thinking, Fast and Slow, our brains have two agents (no they don’t sell insurance) called System One and System Two.

System One is often referred to as our intuition or gut feeling. It operates automatically with little to no sense of control. System One thinking makes decisions quickly and is critical to survival.

System Two thinking is deliberate. It’s not something that comes naturally but rather requires exertion on our part. System Two oversees self-control.

The two systems work together very efficiently with minimum effort and optimal performance. System One may generate a complex thought pattern but needs System Two to put those thoughts into an orderly series of steps. For example, System One may say, “Let’s go on vacation,” but we can’t go until System Two makes the plans.

Outside Influences

According to Myatt, “The first key in understanding how to make great decisions is learning how to synthesize the overwhelming amount of incoming information leaders must deal with on a daily basis…become discerning surrounding the filtering of various inputs.” There is a hierarchy of knowledge that must be understood.

  1. Gut instincts are experiential and/or emotional and may have no underpinning of hard analytical support.
  2. Data comprise disparate facts, statistics and random inputs. Making decisions on raw data can lead to flawed decisions based on incomplete data sets.
  3. Information is a more evolved or complete form of data where context and meaning have been added to the data.
  4. Knowledge is information that has been refined by analysis and has been assimilated, tested and/or validated.

Decisions made at the gut or data level, aka System One thinking, can be made quickly but offer a higher level of risk. Decisions at the information and knowledge level, or System Two thinking, offer a higher degree of
risk management.

How To Deal With Influences

When making your decision, it is important to remember that we all have hidden biases that can impact the input we receive. In the Harvard Business Review article “Outsmart Your Own Biases,” the authors present ways to “fight these pernicious sources of bias.” The first thing we must do to overcome these biases is to learn how to spot them. The authors offer techniques to help “debias” our decisions by broadening our perspective on three fronts: thinking about the future; setting objectives; and planning options.

To overcome a bias about thinking about the future, it’s important to be willing to allow for risk and uncertainty. The authors believe that “nearly everyone thinks too narrowly about possible outcomes.” They believe it is important for us to “nudge” ourselves to allow for risk and uncertainly. They suggest the following:

  • Always identify at least three possible outcomes.
  • Think twice about the problem. Allow time for reconsideration. Research shows that, when people think more than once about a problem, they often come up with a different perspective which adds important information.
  • Use premortems or prospective hindsight. This technique has you imagine a future failure and then explain the cause. This allows you to identify potential problems that our ordinary foresight won’t bring to mind.
  • Take an outside view. To do this, think about what has happened in similar situations, then think about the advice you would give someone if they were doing this instead of you.

To overcome the biases that come when setting objectives, you must begin by having an expansive mindset. Here are some techniques to help with this.

  • Seek advice. After you have outlined your objectives on your own, get advice from others. But don’t limit them by sharing what you think first. Let them start with a clean slate.
  • Cycle through your objectives.
  • Look at your objectives one by one. This will help you generate more alternatives. Looking at all your objectives as a whole can be overwhelming and may paralyze your thinking and decision making.

Finally, to overcome biases when planning options, remember that a decision is no better than the best options you are considering.
Ideally you should have three to five options to consider but, at the least, have two. Use joint evaluation. Always look at options side by side. A proven way to do this is to consider what you would be missing if you were to make a certain choice. Try the vanishing options test. Assume that you can’t have any of the options you are considering and ask yourself what else you could do. This question will trigger other alternatives to explore.

You can outsmart your biases by understanding where they come from, for example excessive reliance on intuition and defective reasoning—in other words, System One thinking. “As a rule of thumb, it’s good to anticipate three possible futures, establish three key objectives and generate three viable options for each decision scenario,” the HBR authors say.

A Decision Framework

You can minimize the chances of making a bad decision by using Myatt’s decision framework.

  1. Perform a situational analysis. What is motivating the decision, whom will it impact, what information do you have to support your decision?
  2. Subject your decision to public scrutiny. If your decision were printed on the front page of a newspaper, how would you feel?
  3. Conduct a cost/benefit analysis. Do the potential benefits justify the expected costs?
  4. Assess the risk/reward ratio. What are the rewards, and when contrasted with the risk, what are the odds in your favor?
  5. Assess whether it is the right thing to do. Would you be able to stand behind your decision in the face of controversy?
  6. Make the decision. Always have a bias toward action.
  7. Have a backup plan!

Malcolm Gladwell sums it up perfectly. “Truly successful decision-making relies on a balance between deliberate and instinctive thinking.”

Elizabeth McDaid SVP, Leadership & Management Resources, The Council Read More

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