The True Measure of a Good Decision. Consider this question: What is the best decision you ever made for your business? Was it to add staff? Expand your product offerings? Hire a consultant? Perhaps it was starting your business in the first place.
Now consider this: How do you know it was a great decision?
Although you were happy with the result, maybe you could have had an even better result with a different decision. Or maybe you just got lucky.
Most people judge the quality of a decision by its outcome. Did it turn out spectacularly or rotten? Did it fulfill its promise? Did it move us towards our goals as much as we expected or hoped it would? In other words – are we happy with how it turned out?
Psychologists call this “outcome bias” and it’s a shortcut we all frequently take – judging the quality of a single decision on the result. It is not only inaccurate but can be enormously costly as well.
Business executives often make this error. For example, owners and managers of sports teams often judge a coach by the result of one decision that produced a bad result on the field at a crucial time. Even if the probability for success was high, it’s the outcome that speaks the loudest. A decision with a 70% probability for success will still fare poorly 30% of the time.
Conversely, leaders are rewarded when a decision turns out well, even though the basis of the decision was shaky. This encourages poor decision making which can have negative, even catastrophic results in the future. One example is NASA’s handling of foam insulation breaking off during launches of the space shuttle Columbia in the 1980s. Even though it was an issue, since it did not cause any major issues on several flights, the decision was made not to address it. Then disaster struck when the same issue on a later flight caused the shuttle to disintegrate upon re-entry, killing the entire crew.
The true measure of a good decision
Judging the quality of a decision by how it turns out is easy. That’s why most people do it. It’s a quick way to connect the dots and form a conclusion. The primitive subconscious mind loves “quick and easy” so the impulse to do that is strong.
Another driver of outcome bias is the pressure on leadership to respond to a poor outcome. The team/business owner feels the need to do something – anything – in response to the bad outcome. Firing the decision maker has good optics – it appears to be a decisive and swift fix to the problem. However, that solution may be unfair and actually produce worse results in the future.
Every decision we make is a gamble. It is impossible to know precisely how a decision will turn out because 1) we are not in control of all contributing factors, and 2) we don’t have access to all of the pertinent information.
In sports as well as business, uncontrollable factors and randomness play a bigger factor than we want to believe. A bad bounce or an unforeseeable market downturn could be the real culprit.
We must be conscious of avoiding the temptation to base decision judgment on a single outcome. A sample size of one is not enough data to make an accurate assessment. So the maverick takes a different approach.
A better strategy is to employ a sound decision process that utilizes as much relevant information as possible and has the highest probability of success given what is known. Then we act decisively and hope for a good outcome, knowing it may not turn out as we planned. Over time, a better decision process will produce better results in total, just not necessarily every time.
Then after the outcome is known, perform a decision quality review.
- What information did we use to inform the decision?
- What pertinent information was available that we did or did not use?
- What factors contributed to the outcome? Were they knowable or controllable?
- Was there a better process that we could have followed to make the decision?
- Did we utilise all of the available resources?
- Was the decision hurried or was sufficient time allowed for the process?
Good decision making and review processes will lead to a higher percentage of better outcomes in the long run, even though there is never a guarantee of a great result.
As former U.S. Treasury Secretary Robert Rubin said in his 1999 University of Pennsylvania commencement address, “Simply put, the way decisions are evaluated affects the way decisions are made. I believe the public would be better served, and their elected officials and others in Washington would be able to do a more effective job, if judgments were based on the quality of decision making instead of focusing solely on outcomes.”