How to make better decisions

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Good decision-making has always been an essential management skill, informing everything from a company's culture to its long-term strategy. In times of crisis, a firm's decisions send a message to the world about corporate values.

So how can mangers make better decisions? The keys to good decison-making are understanding your (and others´) biases, following a process and taking a holistic approach. Here's a round-up of IESE Insight articles which provide sound advice for decision-makers.

Beating your biases
An ever-growing body of research in decision analysis examines how heuristics -- i.e., mental shortcuts to make a complex situation easier to grasp -- can lead to falling back on ingrained biases that actually result in less effective decision-making.

In their book Wonderful Decisions, IESE professors Roberto Garcia-Castro and Miguel Angel Ariño first explore how dreadful decisions too often happen, by teasing out the most common biases, blind spots and heuristics that get in the way of optimal decision-making.

The authors' idea of wonderful decisions encompasses three parameters that also determine organizational quality: effectiveness, attractiveness and unity. The first of those parameters, they admit, is often prioritized to the exclusion of the other two. Yet attractiveness, which expresses the intrinsic or extrinsic satisfaction that members feel in belonging to an organization, and unity, members' identification with their organization, are just as important.

In a separate book, profs. Ariño and Pablo Maella look at some key biases up close, identifying 10 of the most common decision-making errors. These include inaction -- holding out for the perfect choice that may not exist -- along with failing to face reality. When COVID-19 spread around the world in early 2020, many governments struggled with these biases in particular, doubling down into denial even as the cases of infection multiplied. Another common decision-making bias is not following through once a choice has been made, undermining the decision itself.

How to make decisons in difficult times
The need to approach decisions clear-sightedly is even more important in VUCA times, defined as volatile, uncertain, complex and ambiguous. Clearly, we are going through such times at the moment.

IESE´s Fred Krawchuk, who came to management teaching after a military career that took him to the Balkans, Afghanistan and Iraq, specifically addresses the ways in which VUCA times are different. He suggests structuring a company, and deploying a specific team, to make sure that the company's core is in touch with its more peripheral or "edge" activities for better decision-making. When running into a serious obstacle, it often isn't enough to work harder or throw more resources at the problem; it requires a significant rethink of how things are done. Krawchuk also addresses the values and behaviors that need to be aligned on an individual and organizational level to face VUCA times.

Neuroscience and decisions
Of course, it isn't just managers who find decision-making difficult. A great deal of research into decision-making focuses on consumers and the cognitive factors that influence their choices. A famous study by Sheena Iyengar showed that customers who were presented with limited kinds of jam were more likely to buy one, while customers faced with an overload of choices were likely to leave the store with nothing.

IESE's Elena Reutskaja and co-authors delve further into the neuroscience of such decisions, using MRI scans to visibly demonstrate the "cost of choice" on the human brain. Customers, they conclude, want to "have adequate choice, experience freedom and control [and don't want to feel] overwhelmed by the whole process." It's a search for a "golden middle" between too little and too much, which this research suggests may be found between 8 and 15 items, depending on factors such as the consumer's age, expertise, culture, gender and product type. Brain scans bear this out.

Ethical and holistic decision-making
But what about ethical questions and making virtuous decisions? Natàlia Cugueró-Escofet and IESE prof. Josep M. Rosanas look at the role of two classical virtues -- justice and practical wisdom -- in sustainable management decisions. They conclude that, of the two, justice is more important for leaders in order to set objectives and prioritize, and, thus, make better decisions overall. In fact, justice comes first because this virtue makes it more likely that practical wisdom -- which works on attaining objectives in an appropriate way -- is then developed, piling virtue upon virtue.

With so much to take into account, how should decision-makers move forward? IESE prof. Rafael de Santiago suggests diagramming difficult decisions, in an article that shows how to use decision trees and expected value to improve decision-making processes, and also suggests ways to limit the influences of biases, from knowing your weaknesses, to maintaining a healthy balance of risk profiles, to avoiding making key decisions on the spot. Treat decisions as a process, rather than an event, he urges.

In crises, as in more stable circumstances, the fundamentals of good decision-making remain the same. Check your biases, do your homework, consider the impact on others, and keep aligned with your organization's mission to show you the way forward.