We all make a lot of decisions every day. Imagine if you could make those decisions much faster and consistently better?
Bain researches found that decision effectiveness is 95% correlated with financial performance.
Erik Larson, the founder, and CEO of Cloverpop, a cloud solution that applies behavioral economics and collaboration to help businesspeople make better decisions together, conducted a three-month study where he and his team observed 100 managers on how they make decisions.
The result was that managers who were using the best decision-making practices achieved their results 90% of the time - and 40% of them exceeded expectations.
While there is a real benefit of using these practices, yet many organizations are not doing it. A study of 500 managers and executives have shown that only 2% regularly apply best practices in decision making.
So, why there is such a big gap between those who follow the best practices and those who isn't?
There are several reasons for it:
The first is most managers until recently, had little access to the accurate information, so they had to stick to their gut feelings and intuition.
The second one is most business decisions are collaborative. It means that a group thinking accumulates our individual biases which results in dealing with a more complex problem that it was there before.
And the last one, technology has become an integral part of our lives to help us automate many business tasks. Although it creates an environment for a better decision-making process, it still leaves the job unfinished. Behavioral economics shows that providing more complex and ambiguous information does little to help managers and their teams make better decisions.
The team of Erik Larson found that the most successful decision-making framework boils down to a simple checklist:
Write down five business goals that affect the decision.
Write down three realistic alternatives for these goals.
Think of what important information you are missing. Write that down. Sometimes you risk ignoring what you don’t know because you are distracted by what you do know.
What impact your decision will have one year in the future? Write that down. Telling a brief story will help you identify scenarios that can provide a useful perspective.
Involve a team of at least two but no more than six people. Getting more perspectives reduces your bias and increases buy-in—but bigger groups have diminishing returns. According to research by Marcia Blenko, Michael Mankins, and Paul Rogers of Bain & Company, once you’ve reached seven people in your group, each extra member reduces decision effectiveness by 10%.
After the meeting, write down the consensus, and why it should be so. Writing increases commitment and helps you measure the results of the decision.
Schedule a follow-up session in one month. We tend to forget decisions after we make them. Always measure your goals and make corrections if necessary.
According to Erik's research, people who follow these seven steps save an average of 10 hours of discussion, decide ten days faster, and improve the outcomes of their decisions by 20%.
📎 For your convenience, check a mind map here.
Our psychology often leads us off the course when it comes to making rational decisions. Our biases hide better choices from us from time to time, so we shouldn't rely on gut feelings and intution all the time.
Thinking ahead about the impact your decision can make is an ultimate advantage in business and life.
Always look for alternatives. They help provide a useful perspective for your final decision.