Eight Key Steps for Effective Decision Making
Cognitive neuroscience and behavioral economics show how to make wise decisions.
Posted Aug 27, 2019
Effective decision making to avoid failures and maximize success is your key role as a leader: that’s why “decision-makers” is synonymous with leaders. Yet how can you ensure that your decision making results in the right calls as opposed to decisions disasters?
Let’s say you make a poor choice on a hire for a major position. General Electric’s Board of Directors hired John Flannery as CEO in 2017 to restructure the company, but he didn’t work out. Shares fell by over 35% in the next year and the Board forced him out in 2018; immediately afterward, GE’s shares rose by 14%.
Or perhaps you make a major decision-making error in strategy. Research shows that 46% percent of companies go bankrupt due to wrong-headed strategic moves by their leaders. For instance, Toys ‘R’ Us went bankrupt due to a number of lousy strategic decisions by the company’s leadership, such as taking on too much debt and failing to compete effectively in online retailing.
Another type of problematic decision making is ignoring a looming problem: deciding not to decide. Kodak helped invent the digital camera but dragged its feet on ramping up its investment into the digital camera market because its film business made more money. By the time it recognized the future was digital, more nimble competitors seized the market. Kodak proved unable to catch up, eventually filing for bankruptcy.
All of these examples from large companies have their equivalent in mid-size and small businesses. Bad leadership decision making helps explain why about half of all new businesses fail within 5 years.
Leaders commit serious decision-making mistakes largely due to the many dangerous judgment errors that result from how our brains are wired. Scholars in cognitive neuroscience and behavioral economics call such mental blindspots cognitive biases.
Fortunately, recent research in these fields has discovered strategies to realize when you’re falling into cognitive biases, as well as ways to defeat these dangerous judgment errors. These techniques are applicable in your work life, in your professional and personal relationships, and in other aspects of your life.
Doing so will not only help you make the best decisions, whether quick decisions on a day-to-day basis or in more important cases, but also prevent failure and amplify success in implementing these choices. Furthermore, they can empower you to minimize threats and maximize opportunities when you make and enact your long-term strategic plans.
Separately from these structured techniques, you’ll also need to gain mental skills and habits to notice and quickly overcome cognitive biases.
8 Steps to Effective Decision Making for Leaders
“Avoiding Disastrous Decisions” is a pragmatic and battle-tested strategy that helps you choose the best option among several that each have strengths and weaknesses. I developed this technique based on research on the multi-attribute utility theory.
Then, I used this model extensively during my consulting and coaching engagements for the last 20 years helping leaders in large and mid-size companies and nonprofits avoid business disasters. After perfecting it based on these engagements, I am sharing it with you. It will help you to make the right calls even if you don’t hire me.
Use the technique in cases where it’s worthwhile to spend serious time and energy on a decision, meaning where the decision is really significant. These might include:
- Making a substantial strategy shift
- Pursuing a merger or acquisition
- Making a key employee hire
- Choosing which new product to launch
- Deciding on a critical supplier
- Moving your headquarters
- Making a major career move
Evaluating whether and how your systems and processes need to be adjusted to match changing market needs
“Avoiding Disastrous Decisions” can be used by yourself or with a team. This web app, designed specifically for use with the technique, helps make the decision-making process and the math involved easy and simple. Moreover, the app ensures that the decision making is transparent to and inclusive of all stakeholders.
My strong suggestion is to use this method together with the “Making the Best Decisions” technique. That’s because the “Avoiding Disastrous Decisions” strategy focuses only on trade-offs between different options rather than all the other aspects of making the best decisions. I make sure that all of my consulting and coaching clients use these two techniques together, and I am giving you the same advice I give them.
Step 1: List Decision-Making Criteria
Write out all the relevant and important attributes for your decision, meaning the key criteria you will use to make your choice. Don’t get stuck in analysis paralysis by listing all possible criteria: try to limit yourself to 10, unless it’s a truly complex decision. For a key hire, you can use criteria such as “salary requirements,” “fit into organizational culture,” “ability to perform the job,” “contribution to diversity,” and so on.
If you’re going through this process as a team, brainstorm the categories and then vote on which should make it into the top 10. Then put them into the web app for easing your calculations and guiding you through the process.
Step 2: Weigh the Attributes
Give weights to each of your attributes, from 1-10 on their importance to you (1 lowest importance, 10 highest). Make sure to use this step to evaluate honestly which of these criteria is more important to you. For example, you can weight “salary requirements” at 4, meaning you have a good budget, and weigh “fit into organizational culture” at 9, meaning it’s a critical factor for success in your firm.
If you’re doing this as a team, come up with weights independently and anonymously. Then, average out your weights.
Step 3: Rank It!
Rank each option that you are considering choosing on all the attributes in a decision matrix table, from 1-10 on how good they are (1-poor, 10-great).
Similar to above, if you’re doing this as a team, come up with rankings independently and anonymously. Then, average out your rankings.
Step 4: Math It!
Using the table, multiply weights by rankings – the web app makes it easy.
Step 5: Check with Your Gut
Your gut can give you some useful information, as long as you make sure to use your head to evaluate the data provided by your gut. Your gut is particularly valuable on questions that have to do with your values, and major decisions often relate to values questions.
Does the answer you got feel aligned with your intuitions? Would you be surprised if you looked back and wished you made a different decision? Experiment with adjusting weights and rankings to address gut feelings, but be cautious about trying to get the numbers to fit some predetermined choice.
Step 6: Check with Your Head
Check for potential dangerous judgment errors, especially ones resulting from paying too much attention to the gut. Look out for the 30 most dangerous judgment errors for decision making in the workplace.
Pay particular attention to cognitive biases to which you might be prone personally. Play around with adjusting weights and rankings to address such errors.
Step 7: Red Flags
Decide what kind of red flags you would use to reconsider the decision if relevant new evidence emerges that would influence your rankings and/or weights. It’s best to decide in advance what you would consider to constitute important evidence. By doing so, you’ll reduce the chance of being swayed by short-term emotions as an individual or simmering tensions and disagreements as a team.
Step 8: Choose and Commit
The “Avoiding Disastrous Decisions” strategy should be used every time you need to make a critical decision, by yourself or as part of a team. Using this technique will allow you and your team to be confident about the quality of your decision making and maximize the chance that you’ll make the right call. If you’d like case studies with in-depth guidelines of how you can apply this strategy as an individual or a team, see the Manual on Avoiding Disastrous Decisions.
Effective leadership decision making on critical decisions involves: 1) Deciding the decision criteria; 2) Weighing the importance of criteria; 3) Grading your options using the criteria; 4) Checking with your head and gut; 5) Sticking to your choice.
Questions to Consider
- Do you have any questions about where and how to apply this technique?
How do you think using this technique might benefit your organization?
What steps can you take to most effectively bring it to your team and integrate it into your organization’s processes?
Originally published at Disaster Avoidance Experts on July 1, 2019.