Every minute numerous decisions are made while managers work under trying circumstances which have a huge bearing on the success of their organizations. Moreover, the ability to make better and more effective decisions is hampered by many factors such as their busy schedules, the ever-changing business environs and limited attention span. Behavioral economists by their research have shown that human beings have cognitive biases that distort their perception. Due to Cognitive bias, the human brain processes all information through the filter of personal experience and likes and dislikes instead of making objective decisions. This distortion keeps them unaware about the best choices available to them. Managers usually make decisions based on gut feelings and consensus. As a result, a majority of the decisions so made are not optimum.
Behavioral economics offers a solution for putting in place practices that lead to better and faster decisions since right and optimal decision making is imperative to the success of any business.
Although technology has helped businesses a great deal in providing huge information, mere information which is complex and not relevant at times does not help managers to make better decisions. Reliance on technology such as big data analytics, therefore, is not enough for better decision making.
The approach that needs to be followed for good decision making, therefore, is the one that tackles cognitive biases. A lot of experiments have shown that a step by step checklist is the most effective way to achieve this. The checklist must be used as a tool to counteract the cognitive biases each time a decision needs to be made.
The steps in the checklist are:
- Before making a decision, one must list down the main business goals that will be affected by it. It is always better to see the impact before making a decision rather than defending or rationalizing it later.
- There should be always a few more options available. Realistic alternatives to the decision one is planning to make.
- Awareness of all the information that one has at hand as well as the information that is not available but is critical to make a decision.
- An expected or likely outcome of a decision needs to be spelt out, whether good or bad.
- It is always better to take opinions from other stakeholders. More minds make better decisions and reduce biases. But the involvement of too many people is not desired as it slows the decision-making process.
- It is absolutely essential to write down the decision made, the reason for it and the people involved in making that decision. This shows that the decision has the support of the team that made it.
- Follow up on decisions made.
Managers must follow this practice for making decisions on a daily basis as it saves time that would have been spent on meetings. Keeping track of decisions made by following these tools is a worthwhile exercise. It will be a record of the effectiveness of decisions made and would be used as available data in future decision making.
