Analytical decision making involves using data, logic, and structured frameworks to evaluate options and select the best course of action. Experts recommend defining clear objectives first, gathering relevant data from reliable sources, identifying biases that cloud judgment, and comparing alternatives against measurable criteria.
Analytical decision making involves using data, logic, and structured frameworks to evaluate options and select the best course of action. Experts recommend defining clear objectives first, gathering relevant data from reliable sources, identifying biases that cloud judgment, and comparing alternatives against measurable criteria. This systematic approach reduces emotional influence and increases decision quality. The following tips show how professionals implement these principles successfully.
Life is full of good and bad decisions. Many people can recall a few examples from their own youth. As people mature, they learn that bad decisions usually come from a lack of knowledge, impulsivity, or not taking the time to think things through.
People are not perfectly rational, but there are ways to make up for that. Understanding the barriers to rational decision-making helps as much in personal life as it does in business.
The previous article reviewed the factors involved in analytical decision-making, ways to evaluate each department, and resources for making wise choices. This article reviews the factors that lead people to make bad choices and how to avoid them. It also covers ways to improve your ability to make better decisions.
Why do organizations make bad decisions?
People like to think of themselves as rational and unaffected by emotion or flaws in their logic. The more strongly people believe this, the more likely they are to fall victim to their own nature.
The human brain likes to run efficiently, like a computer, so people rely on habits and patterns to make quick decisions. As a result, much of decision-making happens below conscious awareness. Some examples of choices that you likely make without thinking are:
- Which route do you take to work
- What time do you eat your meals
- Which apps do you use daily
- How you go about your day-to-day routine
These are all habitual decisions. Is each choice the best option available? Probably not, but it is often easier to keep doing something that causes no problems than to search for a better solution.
People run on shortcuts that save mental energy, the “processing power” the brain wants to keep for the bigger decisions in life. Yet letting so many choices run below awareness leaves people exposed to the consequences.
Sometimes, even when people are aware of the consequences, the force of habit pushes them to keep making bad decisions. If people know something is not the right choice, why do they still do it? The answer is not a wider moral failing. It lies in the following patterns that many people use when processing information.
The sunk cost fallacy
Consider this example. You’re three months into a project, and the contractor you hired just isn’t performing. However, it’s too late to find someone else for the job.
It’s better just to continue with what you have now and hope that it gets finished. Does this sound familiar? This is the sunk cost fallacy, where you justify continuing a bad decision because of the time, effort, or money already invested in it.
The fact of the matter is that the contractor probably won’t change if you’re already three months in. It doesn’t matter whether or not you stay with the same person. You won’t recuperate the money and time that you’ve already spent.
If you look at the future as a clean slate, would you choose the same person again? Logically, it will be best to drop the existing plan and find someone who can work better with your specifications. However, most of the time, people can convince themselves that there’s still a chance they’ll get their desired outcome despite all the evidence against it.
This fallacy has to do with the perception of loss versus gain. Often, people will value an option that they perceive will help them avoid loss over one that will return a larger gain with a slightly higher risk. Organizations think in chronological forms, like reading a story. This thought pattern assumes that the story ends with the “failure” of the plan instead of a lesson learned and applied.
The action bias
Especially in Western cultures, people have a bias towards “doing.” Sometimes, the best thing to do is nothing. Consider a plan that is working well with no issues. If all of your metrics point to success, why do you still feel the need to act?
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This bias traces back to survival instincts, since those who acted when faced with a threat survived longer than those who stayed passive. As personal experience builds, people remember situations in which inaction caused harm. That memory pushes them to act even when action is unnecessary.
Taking action makes people feel in control. Doing something makes them believe they are changing the outcome. In a sense they are, but that outcome may be divorced from what they planned. Confident people often fall victim to this bias more than their hesitant counterparts.
If people believe their action gives them control over an outcome, they are less likely to wait, even when a plan is going well. Their more reserved counterparts are not immune, but they tend to be more careful and watch current results before acting.
Choosing inaction when all is going well is a skill that you can practice over time. Think of rest as an action in itself. Rather than going into a task ready to make a change, analyze your data and see how things are going first.
Then, you can decide whether the task should be left as it is or whether an intervention is needed. Over time, this will come more naturally to you and serves as a lesson in patience and observation. As the adage goes, “If it ain’t broke, don’t fix it.”
The anchoring bias
Humans use comparisons to understand the world around them. This shows up when people use the first information they receive to judge later information. Think about discounts at a clothing store. When the original price is crossed out and replaced with a lower one, the higher price becomes your reference point.
The discount then influences your choice, because saving money feels good. This is how the anchoring bias affects decisions. The item may still cost more than you wanted to spend, but the sense of a lower price drives the purchase.
In business, this can skew your judgment in situations where you’re presented with new information that contradicts older data. Your staff may be more likely to go with the first idea that someone voices and contribute less input. This can take the form of a psychological effect called priming, where the first piece of information you receive serves as a reference point for later reasoning.
Think back to the game where you have somebody repeat close rhymes to the word fork and then ask which utensil they use to butter toast. If you do the game right, they will automatically respond with the word “fork” even though the answer sounds ridiculous in context. This is one clear example of how the anchoring bias leads us to make illogical choices.
The anchoring bias is one of the more difficult biases to overcome. While you can’t entirely avoid it, you can mitigate its effects by taking your time with decisions and thinking about reasons why your choice would be inappropriate for the situation. This way, you can clearly visualize the pros and cons of each decision.
Choice overload
Have you ever stood in a supermarket looking at shelves of cereal that all seem the same? A larger selection makes a choice harder. Choice overload slows decision-making even when time is short. People want to be sure they have the right solution, but filtering through so much information does not come naturally.
In business, this shows up when choosing software for a team. Unless the options are clearly differentiated, the best choice is hard to see.
Organizations have more choices than ever and few mental resources to make them. This can lead to a draining, stretched-out, and unfulfilling decision-making process. Those who have choice paralysis also tend to be less satisfied with their final decision.
The expectations tend to be higher when companies have more choices, so organizations become harder to please. This bias affects people that strive for perfection more than those who are content with good enough, though there’s merit to both mindsets.
Collecting information can help you overcome this bias. When you go into the situation knowing what you’re looking for, you can easily weed out the options that don’t fit your needs. For example, if you’re picking software, know your budget, the number of users, the features you need, and the use cases before selecting your option. Then, you can easily filter out the noise and choose the best option for your company.
How to improve your decision-making abilities
Despite all the challenges, there are ways that you can get better at making smart business decisions. Don’t expect them to be perfect, but be decisive and do your best. Even making the wrong decision is a learning experience that will point you in the right direction the next time. Some ways that you can make better decisions are:
- Becoming aware of your cognitive biases
- Writing out your ideas
- And learning how to overcome your hesitation
Let’s take a deeper look at each of these points and examine some practical ways to apply them.
Become aware of your biases
Though organizations reviewed several cognitive biases above, there are many more that affect the way you think. Examine your thought processes when you go through your decision-making process and think about why you make certain choices. This will show you how your experiences affect your decisions in the future and help you learn from past mistakes. Read especially into other biases that many people use without noticing and educate your team on them.
Don’t focus on changing things just yet. For now, just become aware of what you’re doing. Once you fully understand that, you can go ahead and make the change.
Write out your ideas
Have you ever noticed that your ideas become more coherent when you put them in words? You may have seen this happen when explaining something to a coworker. The reason behind this is that when you turn your ideas into words, you’re forced to organize the details in a way that others can understand.
This makes the finer parts clear and solidifies your plan. When making important decisions, you can filter out extra noise from others’ input by writing out your ideas instead. The extra step adds an opportunity for you to clearly evaluate your ideas before putting them into action.
Overcome your hesitation
Inaction is also an action. Except in cases where your plan is already going well, this is one of the most detrimental choices you can make for your company. Keep moving forward, no matter how that may be. If you’re striving for perfection, keep aiming for it but realize that it’s a goal, not a necessity.
Much like how choice paralysis keeps people from making decisions, striving for impossible ideals stunts your efforts before they have a chance to thrive. Aim for the option that has the best balance between risks and benefits. Then, make your choice. No matter what you do, the results provide invaluable information to direct your future choices as a business.
Closing thoughts
Human beings are not perfectly rational. However, people can learn to understand those limitations and work around them. That means looking critically at current plans and breaking the habits that block higher goals. It is not easy, but it is essential to your operations and their success.
The more expertise and educated opinions you can include, the more bad decisions you can avoid. Consider bringing a fractional c-suite professional onto your team to help, such as a fractional CMO or a fractional COO. These individuals can help you understand the implications of your choices, your biases in thinking, and how to plan for better outcomes in your internal and external operations. Read more here to see how a fractional CMO or fractional COO can help your team.
Sometimes, the familiarity makes it difficult to see the flaws in the planning. This is where many companies would want to bring in a fresh pair of eyes. One way companies do this is through a business process review. Take a look at what process management involves and who can help in this blog article.
