Bite-Sized Scenario Training™

Decision Making Mistakes

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Bite-Sized Scenario Training™:

Decision-Making
Mistakes, and How to Avoid Them

This e-book is published by:

Mind Tools Ltd.

Copyright © Mind Tools Ltd, 2008-2011. All rights reserved.

Version 1.2

This e-book is protected by international copyright law. You may use it only if you are a
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members.helpdesk@mindtools.com.

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Bite-Sized Scenario Training™:

Decision-Making Mistakes, and How to Avoid

Them
Bad decisions can lead to very bad outcomes.

Because it’s usually impossible to be 100% sure that a decision is right, it’s important to
recognize your own fallibility in decision-making, and to take steps to avoid as many
mistakes as you can.

The more aware you can become of decision-making mistakes, the more you can avoid
them. We all have biases and personal experiences that shape our assumptions, and
color our interpretation of the information we gather. By becoming more aware of the
decision-making traps these personal viewpoints can lead to, we can become better
decision-makers.

In this Bite-Sized Training™ session we’ll introduce you to some of the decision-
making trouble spots you may encounter. The more aware you are of these traps, the
less likely you will be to fall into them. You’ll also have an opportunity to look at decision-
making scenarios and determine why and how the people in them failed to make the
right decision. As you work though the lesson you’ll learn:

 How to decide who to involve in your decision-making process.

 Common decision-making pitfalls.
 Specific strategies to avoid these pitfalls, and challenge the validity of your
decision-making.

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Making Decisions the Wrong Way

When you are faced with making a decision, do you tend to lock yourself away and
decide on your own, or do you instinctively want to involve others?

If you have a strong preference for one method or the other, you’re at risk of making one
of the most common decision-making mistakes – relying on a one-size-fits-all approach.

Some situations call for a take-charge approach, where you make a decision and stick
by it. Others need a more consultative approach, where a group consensus is reached.
Your style of decision making needs to adapt to the circumstances, which means
assessing the situation first and then deciding “how” to decide.

A fantastic tool for deciding how to decide is the Vroom-Yetton-Jago Decision Model. It
describes five different decision-making approaches, and uses a series of yes/no
questions to help you determine which process best fits your situation.

The seven questions ask you to consider the following:

1. Is the quality of the decision important?

2. Is team commitment important to the decision?
3. Do you have all the information you need to make the decision?
4. Is the problem well defined and structured?
5. If you make the decision yourself, would the team support it?
6. Does the team share organizational goals?
7. Is conflict amongst the team over the decision likely?

Your answers to these questions form a decision tree, as shown in Figure 1 on the next
page.

Tip 1:
A first sight, this looks complex. Actually, it’s quite easy to use. Persevere!

Tip 2:
In the discussion, we use the terms “autocratic” and “collaborative”. Don’t assume that
“autocratic” is bad, or “collaborative” is good. Sometimes it’s right to be autocratic!

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The decision styles prescribed are:

Autocratic – you make the decision

 A1: You rely on your own knowledge, experience, and information to make the
decision, and then let the team know about it.
 A2: You ask for specific information from team members, and then use it to make
the decision on your own.

Consultative – you gather information from the team and then make a decision.
 C1: As you gather information from individuals, you ask for opinions, and let team
members know why you need it. Once you have enough information, you make
the decision on your own.
 C2: You gather information in a group setting, asking for suggestions and
perspectives. Using what you learn, you make the decision.

Collaborative – you work with the team/group to make the decision by consensus.
 G2: You facilitate the decision-making process, and help the team find a solution
that everyone can agree on.

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As your style becomes more collaborative, you involve more people, the process
becomes more complicated and it takes more time.

If you are trying to decide on a new marketing strategy, you will probably want to secure
buy-in from your team to ensure high commitment levels. If you are determining which
market segment requires a new marketing approach, you might only need to collaborate
with your team to get their opinions. This ensures you have access to as full and
accurate a set of information as possible, and it promotes effective communication.

However, when it comes to setting a budget for the strategy, it’s probably fine for you to
make that decision on your own without much involvement from others.

Always collaborating might not raise the ire of your team to the same degree as always
being autocratic, but it’s just as ineffective. Being aware of the different styles of
decision-making is an important factor in making good decisions.

Use the questions posed in the Vroom-Yetton-Jago model to figure out when high
participation is important, and when it is inefficient. This will help you avoid getting into a
habit of using one style and sticking with it. And while it may mean stepping outside your
natural decision-making style, the overall quality and efficiency of your decisions will
improve.

To learn more about the Vroom-Yetton-Jago Decision Model see our in-depth article
here.

Making Decisions Using Faulty Inputs

Matching the right level of collaboration with the situation is important, however it’s also
essential to make sure that you are using the right information in the right way. Even the
best decision-making process will yield a poor decision if inputs are invalid or faulty.

Again, you need to recognize that no decision can be 100% guaranteed. However,
taking a few extra steps to check the quality of your decisions will significantly improve
the likelihood of making the “right” decision.

There are a number of common flaws in decision-making that you should be aware of.

Invalid Assumptions
These are faults in logic that can lead to poor decisions, because they go unchallenged.
You wouldn’t decide to hire three more team members because you assume sales will
rocket with the release of your newest product. You would test those assumptions using
market data that has been carefully gathered and analyzed.

So, too, you need to test the assumptions that underlie any decision you make. A good
product will not always sell itself, and more automation/fewer workers will not always
increase profits.

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Typically, when we make decisions, we use our experiences and understanding of the
world to interpret and filter the information received. What starts out as fact – our
customers buy more jewelry when it’s on sale – is interpreted to mean that our prices are
too high. This leads to the assumption that our customers want lower prices and so the
decision is made to cut the retail prices by 10%. Had the situation been examined further
it might show that customers bought more on sale simply because the peak buying
periods coincided with holidays and special occasion promotions. As such, by lowering
its prices, all the company has really done is lower its profit margin.

Some common assumptions people fall victim to include:

 Using biased information.

 Believing that something will or won’t happen based on anecdotal experience or
gut feel.
 Thinking a piece of information is more or less significant than it is.
 Thinking that correlation is the same as causation.
 Giving more weight than is reasonable to emotional evidence.
 Thinking others will prefer what we prefer.
 Thinking that more evidence is better than less, without considering the quality of
the information.

Jumping to conclusions is another decision-making mistake that’s related to making

faulty assumptions. This is something that most of us can admit to doing on more than
one occasion!

It often happens because, when faced with a decision, we often tend to make a quick
decision in our heads. After that, we interpret further information in a way that validates
our initial response.

Failing to Cut Your Losses

When you commit to an idea or solution, you have a vested interest in its success. When
it becomes clear the idea isn’t working, it’s not easy to admit that you have made a
mistake, and then move on.

What we tend to do instead is throw even more time and resources at the idea, in the
hope that you’ll “make it right”. This approach is often as successful as trying to gamble
your way out of debt.

Suffering from Tunnel Vision

Adopting a narrow perspective is dangerous. It limits the number of factors you consider,
and can lead you to make many faulty assumptions.

One example of tunnel vision is always using the same decision-making style. It can
happen unsuspectingly when you take a framework that you have used successfully in
one situation, and then apply it to all situations like it in the future.

Impulsiveness/Over-Confidence
When you are over-confident you may make a decision too quickly, without considering
enough of the unknowns. This can happen when you don’t challenge assumptions, and
when you rely on guesstimates instead of taking the time to gather reliable information.
Relying on “gut instinct” is another common trap that people fall into. Impulsive decisions

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often arise because the decision-maker failed to challenge inputs, and takes information
at face value.

Focusing exclusively on the merits of a decision can also lead to hasty decisions. When
you have a long list of plusses, it’s easy to ignore the negatives completely.

The subject of flawed decision-making and more detailed descriptions of these

decision-making traps is covered in our article on Blindspot Analysis which you can
read here.

Challenging Faulty Decisions and Inputs

To improve your decision-making you need to increase your awareness of decision-
making traps, and you also need a tool to challenge them. The Ladder of Inference
provides a great set of questions to use to ensure that you are thinking clearly, and have
considered enough perspectives.

 Why have I chosen this course of action?

 Were there other actions I should have considered more thoroughly?
 What belief led to this action?
 Was the belief valid and supported by evidence?
 What conclusions did I draw?
 Were these conclusions sound?
 What assumptions have I made?
 How valid are these assumptions?
 What data have I collected and used?
 Was the data collected properly?
 What are the facts I used in my decision?
 Are there other facts I should be considering?

To learn more about the Ladder of Inference you can read our article here.

When you work through these types of questions you can also bounce ideas off other
people, and get their perspective. When time allows, gathering a variety of insights is a
great check on the limiting assumptions and perspectives that you are using. Having
someone able to play “devil’s advocate” is often a great source of counter-arguments
and challenges to the assumptions you are making.

Whenever you are making decisions, it’s also a good idea to be honest with yourself
about your motives. Do you, or does someone involved, have an agenda hidden
somewhere? Uncovering these underlying motivations can improve the integrity of the
decisions that you are involved with.

When it comes to avoiding decision mistakes, there is really no method that is 100%
foolproof. There are many techniques you can use to improve your decisions, and they
all start with an examination of the situation you are dealing with. When you understand

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what your best outcome is, you can then decide on a decision-making process that
works.

Decide who should be involved and what information you need, and then gather that
information systematically. The more committed you are to using facts and truths in your
decision as opposed to assumptions, gut feel, and heuristics, the higher the quality of
your decisions.

Scenarios
In our scenarios, we look at three situations where people made poor decisions. As you
read each one, make note of your observations and answer the questions at the end.

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Scenario 1: Launching a New Business

Dan has decided it is time to strike out on his own and open a financial consulting
business. He’s been working for 12 years with one of the most prominent firms in town
offering this service, and he has built some wonderful business contacts over the years.
He gets wonderful reviews from partners and clients alike. In fact much of his clientele
come from referrals who say they switched to the firm simply to have him as their
analyst and planner.

Through conversations with his clients, Dan is told time and again that he is the main
reason they started or continue to do business with the company. Riding this wave of
confidence Dan creates a business plan and succeeds in securing bank financing for
the start-up costs associated with his business.

He starts by leasing an office in the downtown core. It’s more expensive than he
wanted, however he wants to remain convenient to his clients, who are used to coming
downtown to see him. He buys high-end furnishings and has a designer come in to
create an old-world elegance in his office. He knows how much his clients appreciated
the luxury of dark rich leathers and the warmth that only an abundance of solid
mahogany trim can bring a room. He also hires a receptionist/office manager so that
clients visiting his office are always greeted and served refreshments.

He’s excited when he finally “hangs out his shingle” and opens for business.
Unfortunately it’s unexpectedly slow to start. None of his previous clients have made
the move to join him. He’s following a few leads but he doesn’t have much money left
for any advertising other than word of mouth, and working his contacts. His strategy
with potential clients has been to get them to the office for an initial meeting. Surely
after seeing his set-up they will have all the confidence they need to work with him

So far that hasn’t yielded much, and he has an employee to pay. Over the next few
months he gains a few clients, but he’s not paying himself yet and he barely makes
enough some months to cover costs.

He’s still quite perplexed why his clients didn’t make the leap his new company and he
can’t figure out what is going wrong with his marketing.

What do you think went wrong with Dan’s decision-making?

Your Answers

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What key assumptions was he relying on?

What factors should Dan have considered to test his assumptions?

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Scenario 2: Employee Turnover

Laurence is the owner of a fast food restaurant franchise and employees are coming
and going like it’s a revolving door. Head office sets the wages, so he is stuck trying to
figure out other ways to keep the employees after he’s invested in their training.
Laurence heard about a great book on employee incentive plans, and figures that is
what will help him keep employees. He reads the book cover to cover and makes a
note of the programs he is going to try:

 Supervisors will “catch people doing things right” and not focus so much on
what is wrong.
 The shift schedule will be agreed upon by employees every two weeks. This
way, employees will have input into the days and times they are expected to
work, and can work this around their plans.
 Employee of the month will be replaced by “Supervisor of the month”.
Employees will decide who gets the distinction every month and this should
provide incentive for creating a great work atmosphere all the time.

Laurence arranges for meetings to unveil his plan. He is completely surprised when the
plan has little effect on turnover – in fact it increased a bit in the three months after.

What is wrong with the decision-making process used here?

Your Answer

What do think Laurence should have done differently?

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Scenario 3: Pricing New Products

It’s Monday morning and Eleanor and her team have been tasked with setting the price
for a new product line their company will be distributing. There is a regional marketing
meeting being held on Thursday and all the top executives will be there. The team
wants to make a good impression so they decide to unveil their pricing strategy at the
meeting and book time on the agenda to do so.

Now it’s an all-out challenge to gather the information they need and prepare their
report. Because the company is very excited about finally acquiring the distributorship
of this line of products, the team wants to get everything right. They run into their first
snag on day one when they are unable to get firm costs for all of the products. Four
new products were added to the lineup, and they haven’t received the breakdown of
costs by order volume for these yet. What they do have are the cost breakdowns of the
other products, though. They figure that by smoothing the average costs across the
different volumes for these products, it will give them solid cost figures to work with for
the new products.

They focus on making sure profits are maximized for the various sales levels forecast,
and are very pleased with their results. Under their pricing strategy this product line has
the potential to be the number one revenue generator in the company.

They present their report at the sales meeting as planned. The following Monday
morning, Eleanor arrives to an urgent message in her in-box. The executives are not
pleased with the pricing strategy, and are asking that it be redone. What’s worse is that
they have appointed a different team to work on it. So much for a good impression!

What went wrong?

Your Answer

What flaws in the decision-making process do you see?

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Why do you think this happened?

Suggested Solutions
Once you have worked through the scenarios above, click here and go to Step 2 to
download our suggested solutions.

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