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Making the Right Decisions

COMMENTARY

Are You Making the Right Decisions Right? Cognitive Limitations and Biases in Decision-Making

By David Tain, MSc., P.Eng., PMP

Alberta, Canada

 



Nothing is more difficult, and yet more precious, than to be able to decide”. 
Napoleon Bonaparte

Making decisions under uncertainty is a daunting task, yet we must face it in our everyday lives. Whether buying an umbrella in a cloudy day or funding a mega-project, individuals must rely on assumptions to supplement incomplete information and make choices based on their values and experiences, setting a strategy to reach a desired scenario.

Information and time are the most crucial variables in decision-making, with direct incidence in costs and returns. In a corporate setting, choices are constrained by a dominant logic enacted by senior management that package decisions in the organizational culture. These decisions are normally tied to “windows of opportunity” circumscribed by preconceived views of future states of nature. In other words, the capability of an organization to generate alternatives and make decisions is dependent on variables that are intrinsic (behavioral) to individuals and are derived from knowledge, perceptions of future states and motivations. This results in suboptimal product of insufficient alternative generation and decision quality based on the narrow ‘tunnel vision” tilted by the dominant logic in the organization.

Rationality is bounded primarily by the limitations of the human mind and the amount of information available, considering a specific objective and the expected cost of making a particular choice [1]. These constraints influence the perceptions of the external environment as a function of the threats and opportunities surrounding the organization and shape the views on how future scenarios may unfold.

To navigate uncertainty and simplify decision-making processes, individuals tend to take mental shortcuts, commonly known as heuristics, as “rules of thumb” based on the “common sense” when attempting to solve a problem. However, heuristics derive from values and perceptions, hence trying to design a “standard way to decide” is a utopia: decision-making processes and frameworks differ across individuals and organizations. An important point to highlight is that individuals tend to confuse decision with outcomes [2]: decisions are just chain of choices. There’s no “good” or “bad” decision, only “good” or “bad” outcomes. Increasing the quality of the decisions that construct a strategy will therefore increase the likelihood of a desired outcome, and that’s where efforts should be invested.

How can we then increase the quality of our choices and create a good strategy? One of the fundamental elements of a robust strategy is the clear understanding of the elements that tilt assumptions towards a particular direction. A seminal work in behavioral science, made by the psychologists Amos Tversky and Daniel Kahneman [3], identified three heuristics that drive decision-making as well as the most common biases that naturally emerge to distort these “mental shortcuts”:

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To read entire paper, click here

 



About the Author


David Tain

Alberta, Canada

 


David Tain
, MSc., P.Eng., PMP is the Principal Consultant for Project Management and Strategy Execution at Septentrion LTD. (http://www.septentrioncanada.com)/ . David has worked extensively in the development of industrial facilities in North and South America, holding diverse leadership positions in for international oil operators, engineering and construction organizations. His professional and academic expertise focuses on projects execution, strategic organization, decision analysis, leadership, negotiation and the study of human behavior in project environments

David received a MSc. in Management (Oil and Gas) from the University of Liverpool and completed the Strategic Decision and Risk Management Program at Stanford University. He obtained his Civil Engineering degree in 2001 from Santa Maria University in Venezuela and has progressively advanced his academic knowledge in Project Management, Project Development and Organizational Strategy through multiple programs at several institutions across the globe, remarkably Villanova University in USA and the Institut Français du Pétrole (IFP) in Paris. David is a Professional Engineer (P.Eng.) in Alberta, Canada. He can be contacted at [email protected]

Strategic consultants like Septentrion design and implement customized solutions to guide decisions, with well-defined and structured frameworks to analyze scenarios and ensuring all assumptions are adequately evaluated. This allows extracting the maximum possible value in the organization while progressing towards the strategic goals, embracing adaptation when required and ensuring right decisions are taken right. More at http://www.septentrioncanada.com/