Decisions, decisions, decisions. They fill our activity every day. From what to wear and eat, to which words to use, to which project to tackle next, to how to spend money. As a manager in the feed and grain industry, your job is filled with problems and decisions too: Should the business expand into new products or into a different geographic area? Should you purchase new equipment or just repair the old stuff? Should you let that low-performing employee go or try to modify his/her performance? Problem-solving and decision-making is your primary role. These types of decisions are important to your business, and to your career. So, you want to be good at decision-making, and you probably already are.
Good business sense tells us that it is often productive to take a step back to examine and evaluate the way we do things. Does the process you use in decision-making matter? Are the approaches you are using effective and appropriate? Are there other methods and tools available that could help you sharpen your skills? Asking and answering these and other questions can provide credence to the methods you are using, or can suggest areas where opportunities for improvement may exist. We focus this month’s column on the psychology of how people make decisions, the elements of making good decisions, and potential tools and tips for helping managers make decisions.
Decision making is in your head
To understand how choices are made, research suggests you should recognize the impact economics, psychology and neuroscience have on how people make decisions. Academics are currently examining how people make decisions and the activities of the neural mechanisms in the brain as people make economic choices. Don’t worry, we are not planning to go into these details. We do find it interesting though, that some suggest that multiple higher-level and lower-level systems in the brain are involved in different types of decisions. The brain has some far-sighted or rational systems, some low-level systems involving emotions, and some systems concerned with rewards and consequences.
Cognitive psychology is generally the area of psychology that examines how people arrive at their decisions and choices. Research in this area suggests that past experiences, cognitive biases, age, socioeconomic status, other individual differences, and an escalation of commitment and “sunk” outcomes are some of the factors that affect your decision making. Since these might be factors that we are all more aware of (relative to the workings of the brain’s neural system), let’s look at some of these more closely.
Everyone is different, and clearly these differences — age, socioeconomic status, and intelligence — can influence your decision making. Older people may see their decision making performance decline as they age; however, they may be more confident in their decision making.
Our minds help us remember, and so past experiences often influence our decisions. People tend to repeat actions that brought about positive results and tend not to repeat actions that resulted negatively, but past performance may not always be indicative of future performance and so past experiences may not always lead to good future decisions. Certainly, past experiences may be relevant to consider in decisions, but we should remember that decisions should be evaluated and made based on several elements.
Cognitive biases are distortions in the mind that lead to a perceptual distortion, inaccurate judgment, or illogical interpretation. Some common examples of cognitive biases include:
- Hindsight bias — an inclination to view past events as being predictable (I knew it all along)
- Confirmation bias — the tendency to interpret information such that it confirms one’s own preconceptions
- Bandwagon effect — a tendency to do or believe something because many other people do
- Planning fallacy — a tendency to underestimate the time necessary to complete tasks
- Social comparison bias — a tendency in hiring decisions to prefer candidates who do not compete with one’s own strengths
- Stereotyping — expecting a member of some type of group to have certain characteristics without having any actual information about the individual.
These are only a few examples of the many cognitive decision making and behavioral biases that exist and which may negatively impact decision making.
The escalation of commitment and sunk outcomes (defined below) are other factors that can influence your decision making. The more committed a person feels toward a decision, the more likely they are to put more time and effort and even money into it. Sunk costs have already been incurred, cannot be recovered, and should be not considered in future decisions — only future or prospective costs should influence your decisions. However, in reality, many people allow those sunk costs to lead their decisions making.
Emotions and the fear of loss also impact decisions. Emotions can sometimes be very controlling and overwhelming. Quick decisions may be based more on emotion than reasoning. Ever send a snap email to someone that you later wished you had back? Do you think that was driven by in-depth analysis or emotions? People also do not like the thought of losing something that they have or the thought of losing the opportunity to get something that they want. People will often weight the fear of losing something more in a decision than the hope of gaining something else in that same decision. Now that you know what is going on in your head when you are making decisions, let’s examine some elements important in making good decisions.
Framework and tools
As a feed and grain industry manager, you are probably faced with three basic types of decisions: strategic decisions, typical decisions, and in-the-moment decisions. Carl Spetzler, director of the Strategic Decision and Risk Management program at Stanford University and CEO of the Strategic Decisions Group, defines strategic decisions as those which are very complex and challenging to think through, have large uncertainty, have shaping effects on the business and for which you have weeks or month to decide. Spetzler explains typical decisions as being those that frequently arise from team meetings. They may have a large impact but are usually tactical decisions that are made collaboratively. In-the-moment decisions are made impromptu, during the activity, and when generally needed; they are not planned ahead.
We can think of the way in which people make decisions generally, as two different methods, an intuitive method and a deductive method. As suggested by the name, the intuitive method consists of us making decisions based on our feelings and emotions — our feelings and emotions often lead us to make the decision that we “want” to make. The deductive method is a more logic-based and systematic process — using this method often leads us to make the decision that we “should” make. It is often easy for us to know what we “want” to do, the challenge may be in the battle between “want” and “should” so having a method to follow to identify those “should” decisions is valuable. We will now look at elements or steps in a deductive decision making process.
First, define the problem — and make sure you define the right problem. If you do not identify the correct problem to solve, you will not solve that problem. In defining the problem, also be clear about what the objective is that you want to accomplish.
Once you clearly define the problem and recognize the objective you want to accomplish with the decision, it is useful to create a list of alternative solutions to problem. The alternatives should solve the problem while also meeting your objective.
Next, gather the important and the right information about the alternatives. This involves determining what uncertainty exists with each alternative and involves determining what you do and do not know. It also involves laying out the consequences for each alternative. Each alternative decision will have benefits and costs. Making a good decision involves doing a good job of identifying these costs and benefits and understanding them so that you make an informed decision. Your decision will involve reasoning through these alternatives and their associated benefits and costs.
Several tools exist to help you evaluate the alternatives and lead you to your decision. A simple grid analysis can be used to lay out the alternatives and their benefits and consequences. A more complex grid can include weights for the factors that you identify in the table. Several other decision tools, such as decision trees; pareto analysis, an application of the “80/20” rule — used for a selection of a limited number of tasks that produce significant overall effect using the pareto principle that a large majority of problems (80%) are produced by a few key causes (20%); paired comparison analysis; and many others exist and can be utilized for various types of decisions.
Once you have made a decision, an important element to the success of that decision is the commitment to follow through and make the decision happen and accomplish the objective. If commitment is lacking, even a well-reasoned, good decision can have poor results. Many decisions likely impact a variety of people in your business. Improving decision making and building a strong commitment involves including the right people in the appropriate discussions during your decision making process.
Evaluating the results of your decision is also an important element of your decision making. You must do this in order to learn from and about your decision making. Sharpening your skills involves taking the time to assess them first. Some simple questions to ask in your evaluation process are: Was the outcome as expected? If not, then why not? If the outcome was as expected, then ask why you were able to predict that outcome — what did you do well during the decision making process?
Challenges in Decision-Making
Biases: It is extremely challenging for humans to be entirely objective in every decision. Human bias may arise from pure self-interest, self-attachments to business units or people, past experiences, and prejudgment in which you decide something early and stay with that judgment and decision regardless. Try to avoid these biases by first recognizing when they potentially exist. Include others in the decision or in your thought process to help offset your biases and to provide honest feedback on your thoughts.
Procrastination: We all do it at some point, we put off making some decisions. Some decisions do take time and a thorough analysis. But, delaying the process can create additional problems, make the decision more difficult, or cause good opportunities to be missed. Procrastination or delays in decision making often arise either due to fear of making a wrong decision, or due to always putting out other smaller fires, or due to dread of bringing to the forefront other major issues that will also need dealt with. If you think about it, you can recognize why you are procrastinating on a decision. Be honest with yourself, address the reason for delay, and then move forward with the primary issue.
Short-sightedness: Every day can bring a new list of immediate problems requiring near-immediate attention. These short-term activities can consume your time, not allowing you to focus attention on larger, long-term issues. Short-sightedness may also arise if you do not think far enough ahead in the decisions you are making and you do not consider any long-term consequences associated with these short-term problems. Making an effort to consider the potential consequences of a decision or including another person in the decision, especially someone who is good at longer-term thinking, can help you deal with these challenges.
Take home message
Making good decisions is important to you as a feed and grain manager. Some in-the-moment decisions might be dealt with using lower-level brain systems and involving emotions. Other more tactical or strategic decisions are better served through use of higher-level brain systems and more far-sighted, rational or deductive decision methods. How would you score yourself on your decision-making? We all can normally find at least a few opportunities for enhancement of our skills. In our experience, many sub-par decisions result because one or more of the elements in the deductive decision process were not given enough attention. Take some time and evaluate some of your past decisions, the process and elements you used, and the outcomes. Use the results of your analysis to help you sharpen your decision making.
If you want to explore more about decision making including some of the decision analysis tools that exist, then two good resources for additional information and for decision making tools are: Sources of Power: How People Make Decisions by Gary Klein and www.mindtools.com. While not an endorsement of their services, the mindtools website provides and explains over forty tools that can be used to help you make decisions. Good luck and be decisive!
