Most leaders today are aware how ‘cognitive biases’ (e.g. ignoring some new evidence because it contradicts an existing belief you hold) can distort organisational decision-making. The difficulty is that biases are mostly unconscious things and so it can be very difficult to suppress them or prevent their influence. However, as many organisational decisions are made on the basis of first receiving a proposal or recommendation prepared by a task group or a team of executives, a valuable approach is for senior leaders to focus on checking out how much those individuals have come up with their proposal in a bias-free way.
Most decision-makers focus on the content of proposals they receive, but it’s even more important to check the background process that has been followed by the recommenders – to determine where biases may have steered them off-track. This is, of course, particularly vital for major decisions – for example, entering a new market, a large capital outlay, or a radical pricing change.
Below is a simple checklist I drafted to help a CEO or Board in their ‘bias assessment’ of a recommending team’s proposal. It’s stimulated by various reading I’ve done over the years on the subject (including key authors on the subject like Daniel Kahneman) as well as working with clients. But beyond this simple list of questions, it’s also important at the same time for senior leaders to consider how bias-free they are themselves as a decision-making group: I refer briefly to this additional ‘bias check’ later.
Here’s the list of ten suggested, indicative questions to ask of the recommending team:
i) Are there any ‘self-interest’ biases of the team members (e.g: chance of higher salary or better career prospects) unduly influencing the proposal?
ii) Has the team got too emotional or perhaps ‘fallen in love’ with their proposal? When people are keen on an idea they naturally tend to downplay the risks and costs and exaggerate the benefits. That’s why working through a checklist like this is important.
iii) Were there any dissenting opinions within the team, or has ‘groupthink’ set in ? Be worried if there looks to be 100% unanimity! Check that different opinions were adequately explored. Talk with those individual team members who hold minority views and check if the proposal includes some measures to reflect their concerns.
iv) Are at least one or two credible alternatives included with the recommendations ? Ensure too that those alternatives don’t just have a perfunctory mention, but each has a genuine, serious review.
v) How much is there a sound, substantiated basis (anchor) for the numbers presented in the proposal? ‘Anchoring’ bias can easily occur – for example, making an arbitary estimate for a value used in calculations (e.g. inflation) and simple extrapolating from past trends to determine a future value (e.g. income growth). Key questions to ask include: which numbers are facts and which are estimates, were these estimates arrived at by adjusting from another number, and who put the first number on the table? If ncecessary, require the team behind the proposal to re-work its estimates after some re-anchoring.
vi) Is the team assuming that a person, or organisation, or approach that has been successful elsewhere will be just as successful here (‘halo effect’ bias)? Check how much the comparison is really relevant and also seek other examples or cases where the outcome may have been less positive.
vii) Are the recommendations perhaps overly attached to past decisions ? This can be particularly in terms of not ignoring past expenditures that really won’t affect future costs or revenues (the ‘sunk-cost’ fallacy). A totally fresh, neutral view is what is really needed.
viii) Is the proposal overly optimistic ? Three common issues are: overconfidence in making forecasts; taking false comfort in trying to plan and spell out lots of internal or tactical detail; and failing to adopt a strong-enough ‘external’ viewpoint in terms of considering likely or possible responses in the markeplace e.g. competitors.
ix) Has the team made the worst case scenario bad enough ? Most companies ask strategy teams to propose a range of scenarios, or at least a ‘best’ and ‘worst’ case, but the worst case is rarely bad enough! A useful technique in such situations is to do a ‘pre-mortem‘ assessment: team members project themselves into the future, imagine the worst has already happened, and make up a story about how it happened. After that, the team then reassesses their proposal and puts in some modified measures to help mitigate the risks or issues they have thought of in their future scenario.
x) Is the recommending team being overly cautious ? Often teams’ plans aren’t as creative or ambitious as they could be or as much as CEOs would hope for! A major reason is that people naturally tend to have a stronger desire to avoid mistakes or losses than a desire to enjoy gains. Another (organisational) reason is that very few companies have a ‘risk management’ policy which defines and encourages an acceptable level of risk for new ideas or proposals to bear.
The above types of question – which obviously need to be phrased more finely and diplomatically when actually used – provide CEOs and Boards with the basis of a ‘quality control ‘ system for major decision-making in their organisation, especially where they need to rely substantially on others’ evaluations to guide them. The questions should be used to stimulate a frank, open and searching discussion with the recommending team.
Being systematic like this may be disliked or resented by some middle-ranking executives and it may intially jar with the culture of some organisations, but Boards should promote it as an important way to help prevent unrecognised biases skewing major decisions by the organisation.
To help build acceptance amongst executives, seek to establish the above list of indicative questions as a standard decision-making tool/checklist – rather than a personal whim or preference of the CEO or Chair – which must be used across the organisation for all major decisions. At the same time, keep the checklist fairly short and simple, rather than being seen as a complex or bureaucratic compliance tool.
Furthermore, to reinforce use of the checklist, aim as far as possible for the decision-making group itself to be made up, ideally, of a mix of individuals who have a reasonable degree of diversity of skills, backgrounds and ways of thinking (what’s often referred to as ‘cognitive diversity’ or ‘diversity of thought’). If members of the group are too similar in their views – easily possible, of course, in a senior team with members who have worked alongside each other for the same organisation for a long-time – then questioning and judgement risk being skewed or blinkered or insufficiently objective. So, to bring out and make the most of the range of thinking in the group, it’s important that the leader of the group has good facilitation skills (and, of course, does not let his/her own views dominate discussions).
If the group is your normal Board or usual executive/senior team, do consider also bringing in one or two ‘fresh faces’ e.g. functional specialist, an executive from another division/part of the organisation, a relevant/trusted external expert/adviser, or one or two trusted clients or suppliers/partners. Additionally, if useful, bring in an outside, skilled facilitator to help with the decision-making process, especially if the review needs several discussion sessions.
Overall, the main challenge in seeking to control the quality of major decision-making is actually building awareness and appreciation of the fact that even highly experienced, very competent, and well-intentioned managers/leaders are fallible! A disciplined and systematic process – not individual flair or genius of one of two recommending executives – is the key to wise and effective decision-making by organisations.
I wish you well in working to achieve more ‘bias-free’ decision-making in your organisation. As ever, if I can help, do get in touch.
Written by Mike P. Owen
Copyright of The Owen Morris Partnership