How Even Making Decisions Has Changed And What To Do About It
Decision-making is something else that has gone haywire this year. What has changed and why it is important for our present and future.
Decision-making is something else that has gone haywire this year. Why?
Human beings are programmed to deal with uncertainty in decisions on the basis that present = certainty and future = uncertainty. This year there has been a shift in our experience and perception of uncertainty, and this had an impact on how we approach decisions.
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The ‘normal’ way has always been to have (relative) certainty about the present, while long term decisions are much more difficult; think about retirement plans and ‘what will I be doing in 15 years time?’
Now, let’s see what this shift is all about, why it is a problem and what we can do about it. It impacts everybody: each of us in personal decisions and leaders in all types of businesses.
How has our decision-making changed?
Let’s have a two examples from the pre-pandemic world: one business and one personal. In this example, my business is a restaurant: I have bookings, I know my staff shifts, detailed delivery dates and quantities; I also know what my Balance Sheet and P&L are going to look like. From the present and into the next months (or year) I have certainty. What about next year and in five year’s time? That’s more uncertain. This applies to most businesses.
On the personal side, I am always certain about my next holiday. The one in 3 years time? I don’t know, although given my bucket list it has never been a problem to find a destination!
Since Covid-19, the opposite is happening and it is messing up our decision-making: we have less certainty about the present and (relatively) more certainty about the future — as we hope to get back to a more normal life.
Traditionally, executives have managed the problem of uncertainty in future decisions through forecasters, scenario planners and data crunchers. But there is an intrinsic problem with this approach: they rely on historical data.
Now, we are in a situation in which we are using old tools for new problems, or as Einstein said “We can’t solve problems by using the same kind of thinking we used when we created them”.
Why is it a problem and what does it mean for us?
Right now we don’t have the data we need to make confident decisions. It is a Black Swan situation, and many people and businesses don’t know how to deal with it.
What we see today is that the context has changed and it has messed up the present/certainty and future/uncertainty basis of how human beings are used to make decisions.
In the restaurant business example: I don’t know if and when I can reopen over the next month, but if I survive (and this is the big uncertainty in the present) then I am fairly certain that I will be open in one year’s time. I am more certain about having bookings, staff and suppliers. Some of them may have changed, but people will want to get out of the house and meet family and friends again. It is basic human need to be social and surrounded by people.
The same applies for my travel plans: it is virtually impossible to fly at the moment, but we have greater certainty about future travels. We noticed this already: when the lockdown relaxed and people went on holiday during the summer.
And here are the 3 ways in which decision-making has changed:
1. The practical side
Many companies don’t have a process and framework for decisions in ‘normal’ circumstances, let alone for complex and more uncertain situations. I am researching corporate decision-making and the initial findings are that there is still an ad-hoc, unplanned and ungoverned attitude to decisions. This applies to both strategic / board-level decisions and tactical / project-level ones. Since the most important indicator of confident decision-making is the process we adopt, this is problem. The implication is that it is more likely we get it wrong and achieve worst outcomes.
2. The behavioural side
Human beings make decisions and have a need for certainty. However, certainty has literally been swept away, no wonder many of us feel lost and anxious. And this affects both personal and business decisions.
For many people this has been a year of loss. I include any loss: a loved one, a lifestyle, an income, a home. The concept of Loss Aversion is one of the foundations of Behavioural Science: we rather avoid losses than obtain the equivalent gain of something we never had. The sheer volume of losses can affect people capability to make decisions. Business decision-makers have experienced a growing number of losses: in revenues, having to close factories, shops and restaurants, as well as their responsibilities towards employees.
We are also influenced by commitment bias. We are committed to a certain way of doing something. There is a strong force to fight the change and the new. In decision-making we have seen this in how governments all over the world managed the situation. They adopted the same ways of thinking and deciding.
3. The data
I mentioned data before. It is crucial because decisions are based on data. The framework I use is firmly rooted on ensuring that information is accurate and relevant. The problem we face today is that we don’t have enough data meeting this criteria. The tools that companies use for forecasting are based on historical data, which is not very useful. Not that we have any historical data available for a world pandemic.
What can we do about it?
These are my take aways: suggestions for each of the 3 aspects of decisions I have just described. The aim is to bring some certainty in the present. Of course, every person, situation and company is unique.
1. The practical side
Start bringing some structure in your decision-making. I know this may sound cumbersome, or even stifling, however it will simplify your life. Imagine coming to a decision meeting with the added certainty that everybody is clear on responsibilities, which information to contribute and how to structure the discussion.
The same applies to personal decisions. Many people are experiencing hardship, difficult work situations and relationship issues. Using some structure for decisions, breaking them down in chunks and start with smaller decisions, it really helps to deal with them in a calmer manner.
2. The behavioural side
My advice to myself is to accept it has been a tough year. I extend it to everybody else, especially if you experienced a loss. It doesn’t mean you have to stop what you are doing, but become aware of the challenging context.
About commitment bias: challenge your biases by answering these 3 questions, the goal is to look for alternative options and let go of anything that holds you back:
What are the reasons that make me do (or not do something)? Map them
How strong do I feel about each of these reasons? Use colours or numbers to rate them
What do I want to do about them? and what is the opposite option?
3. The data
This year’s shake up will have benefits for businesses in the long term. I have always had doubts about using historical data to take decisions. The learning from this pandemic is the need to be more innovative, learn from the past of course, but embrace new thinking.
The opportunity is to be ruthless with your data and challenge it so that you base decisions only on what is accurate and relevant. How can you do it?
Ask lots of questions and have an open dialogue with your SMEs: where does the data come from? What other data can we gather?
Involve the most diverse group you can get
The concluding suggestion is to play out options with curiosity, from all sort of perspectives. Most importantly, have fun with it. This is not traditional scenario planning, because it is free flow and encourages creativity and you will find the nugget and brilliant idea. This is part of the process of decision-making, it will give you sound options to choose from.
The paradigm of present/certainty and future/uncertainty has changed and with it the basis of how human beings make decisions.
In this article, I encourage you to let go of you preconceptions, assumptions and mental models.
The solution to more confident decision-making is to focus on the process for your decisions: we don’t have control on the outcomes.
It has always been useful and now it has become essential to bring greater certainty in the present.
About me
I research, write and advise on decision-making and describe my Why as ‘Inspiring people to make confident decisions’.
I have developed this passion for decision-making when studying for a Masters in Behavioural Science at the LSE. I wrote my thesis on behavioural dynamics in group decisions and was hooked. I am on a mission to learn more about the topic and help others to optimise decision-making. My business background meant that working with executives and companies was the best place to start. My website has more insights on decision-making.