Learning made from the book on How to make correct Decisions in business:

It is good to document the learning made from reading books on management topics. This practice ensures that you get clarity on how much you have understood the concept and you can share this valuable knowledge with the world.?I happen to read a book on the above subject and hence I documented my learnings on the same and would like to share the knowledge gained through this document. I have also documented my views on the above subject.

What is Decision making: It is one of the key jobs of any senior management. It is an integral part of modern management. Hence it is important to understand what is the process of decision making and how to make correct decisions.?Any wrong decision taken due to lack of information or inappropriate selection of alternatives can lead to major loss to the organization.?Decisions are taken based on gut feelings lead to wrong decisions sometimes. However, decisions taken based on adequate data can prove to be scientific and will have calculated risk. Decision making is a process and not an event as it unfolds over a period of time which could be weeks, days or months.

Power of Big data: Together, cloud, mobility, advanced analytics and new data visualization techniques will help unlock the power of data and help top management to take more rational and pro-active decisions on a real-time basis.?Big data can help to answer the following questions:

What is happening? – Real-time visibility of the most critical indicator for your organization.

Why is it happening? – The ability to dig deeper into current issues to understand what led to the results

What should we be doing? – The ability to set plans, allocate resources, monitor them and adapt

What is likely to happen in the future? – Being able to monitor and analyze current and past performance to proactively address evolving trends and predict outcomes

It’s about absorbing the storm of data and transforming it into real-time, cause and effect, predictive information/knowledge/wisdom to support real-time decision making. What is important about this evolutionary model, is it’s not just about extracting information from your data. Big Data is also about building in the experience, and know-how, of your staff into your analytics model to create true knowledge and wisdom based upon their experience.

Process of decision making:

a)???First step in decision making is to define the problem accurately and to understand the cause of the problem. A deep understanding of the cause of the problem helps to define the solution in a better manner.

b)???Next step is to accumulate information for providing a solution to the problem.

c)???Subsequently alternatives need to be generated and then after careful evaluation of different alternatives the best alternative needs to be selected.?It is important while selecting the best alternative to take feedback of entire team as each member have a different point of view or concern in favour of or against a particular alternative and hence pro and cons of each alternative can be known before its selection.

d)????The team which is going to implement the alternative should be involved in the decision-making process so that decision taken can be implemented smoothly.

e)???Culture of the company plays a very important role in the process of decision making. If the top management is indecisive in nature or it does not care to take suggestions of the junior team then there are high chances that the decisions taken may prove to be wrong or are not implemented properly. Breaking a culture of indecision requires a leader who can engender intellectual honesty and trust in the connections between people. By using each encounter with his or her employees as an opportunity to model open, honest and decisive dialogue the leader sets the tone for the entire organization. The organization’s social operating mechanisms- that is the executive meetings can play a very important role to seek the feedback of team members and also to engage them in decision making to ensure its smoother implementation.

f)????Accountability and deadline: It is important any decision taken has accountability of people who shall be responsible for taking such a decision and ensuring that it is implemented within a clear deadline.

g)???Follow-up and Feedback: It is important for top management to take feedback on the decision made or taken earlier and incorporate this as part of the decision-making process so that it can learn as to whether the quality of decision taken was correct and effective or changes are required in the way decisions are made. Follow-up should be also be part of decision-making process in order to ensure that decisions are executed in a timely manner.

Impact of Formal vis-à-vis informal meetings on decisions: Formal meetings encourage defensiveness and it prevents people from giving honest feedback. However informal meetings encourage creativity, open and honest feedback and ensure that people who are going to implement it are clear about their responsibilities.?

Top-Down Decision Making versus Bottom-Up Decision Making: All strategic matters, policy matters, core values, etc needs to have a top-down decision-making process wherein the top management takes the final decisions. Operational matters can be decided by middle-level management based on guidelines and policies set by top management.

How much does Hierarchy Matter? Organizations must ensure that certain autonomy is given to the employees in the middle layers as well as those slightly senior so that decision making need not be centralized. This helps the organizations to democratize the decision-making process wherein the autonomy enjoyed by the middle managers and the rank and file employees ensure their wholehearted participation in the implementation of the decisions.

It is critical to decide as to how much authority is required to be given to the local representative of the company vis-à-vis the global decision-making authority. Similarly, the bottleneck could be one function vis-à-vis other functions. For example, how much product development and how it needs to be done should be decided by the production team or by the marketing team or combination of both. Another bottleneck could be inside vis-à-vis outside partners such as Joint venture partners or outsourcing partners, etc.?It is important to clearly define the roles and responsibilities in this regard. Companies can use the approach of RAPID to define the roles and responsibilities of who should recommend a particular path, who needs to give input to recommending path, who needs to agree, who has the ultimate responsibility to make the decision and who is accountable for follow-though. Following are the components of RAPID:

A)??Recommend: Making a proposal of alternative on a key decision, gathering the input and providing data and analysis to make a sensible choice in a timely fashion. Normally managers or HODs do this task.

?B)??Agree: Negotiate a modified proposal with the recommender if they have concerns about the original proposal. Exercising veto power over recommender if require. Normally general manager performs this task.

?C)??Perform: Executing a decision once it’s made and seeming that decision is implemented promptly and effectively. Normally managers who recommend they themselves took responsibility to execute or junior team members in his team may be given this responsibility.

?D)??Input:?Providing relevant facts to the recommender that shed light on the proposal’s feasibility and practical implications. The junior team does this task.

?E)??Decide: Serving as the single point of accountability, bringing the decision to closure by resolving any impasse in the decision-making process. Committing the organization to implement the decision. Normally board of directors or CEO enjoy this authority and accountability.

?Defining values: It is important for top decision-makers at the global level to define core values of the company which will act as guidelines or policy framework for local decision-makers of the company in order to ensure that decisions taken locally are in alignment with the values pursued by the company at the global level.

Decision Making in an Uncertain World: Managers in contemporary organizations are confronted with uncertainty and ambiguity in their everyday lives. Not only do they have to contend with rapidly changing trends and fluid situations, but the data they get from the ground or from market research also becomes redundant in no time. This has given rise to confusion and chaos in the way organizations approach the future. This situation can be remedied by the use of scenario-based decision-making where the managers draw up possible scenarios that the company might have to contend with within the short term, medium-term, and longer-term. By drawing up scenarios that consist of simulations of the best-case situation and the worst-case situation, the managers would be better able to take the right decision when the situation manifests itself.

Conflict Resolution and Decision Making: Many decisions taken at any level have to take into account the conflicting needs of the individuals who are affected by the decisions and hence conflict resolution is a part of the decision-making process. How well the conflicts are resolved depends on the skill and leadership traits of the decision-maker. After all, any decision that is taken is to balance competing interests and is essentially an allocation of shared resources among the different groups. The point here is that in any organization there are scarce resources that need to be allocated among competing groups and hence the decision-maker has to ensure that all the needs and concerns of the different groups are taken into consideration when making the decision. Since most decisions involve some emotional component as well, the decision-makers have to be especially sensitive to the needs of the people who are affected by the decisions.

Decision making in times of Crisis: In times of crisis it is important that management may not follow the hierarchy of decision making and approval process so that decisions can be taken faster which is the need of the hour. It is also important that out of box thinking is done and everyone is encouraged to give innovative suggestion to resolve the crisis on top priority.

Biasness in Decision making: One of the major reasons for wrong decision making is creating bias in selecting a particular alternative which leads to wrong decision making. Hence it is important to understand various bias in decision making and ensure that decision-maker makes decisions which are free from bias.?Following are the various types of bias:

1)???Anchoring: When considering a decision, the mind gives disproportionate weight to the first information it receives. Initial impressions estimates or data anchor subsequent thoughts and judgments. In business one of the major anchors are past trends or past events. A salesperson who is presenting projected sales for new year often considers his last year’s sales as basis for justifying his current year sales. In situations characterized by rapid changes in the marketplace, historical anchors can lead to poor forecasts and in turn misguided choices. In order to avoid this kind of business always view a problem from different perspectives. Be open-minded to seek the opinion of others to widen your frame of reference and to push your mind in fresh directions. When you seek the opinion of others do not tell them about your point of view and reason for the same as that can create anchoring in favour of your own point of view.

?2)???The Status Quo Trap: Decision-makers display a strong bias towards alternatives that perpetuate the status quo. The source of the status quo trap lies deep within our psyches in our desire to protect our egos from damage. Breaking from status quo means taking action, and when we take action, we take responsibility, thus opening ourselves to criticism and to regret. Surprisingly we look to reasons for not doing anything.?The first step to remove this bias is to become aware of the same. Once you become aware of this bias you need to remind yourself of objectives and examine how they would be served by the status quo. You may find that elements of the current situation act as barriers to your goals. Never think of the status quo as your only alternative.

?3) Confirming Evidence: This bias leads us to seek out information that supports our existing instinct or point of view while avoiding information that contradicts it. The confirming evidence bias not only affects where we do collect evidence but also how we interpret the evidence we do receive leading us to give too much weight to supporting information and too little to conflicting information. In order to remove this bias, get someone you respect to play a devil’s advocate to argue against the decision you are contemplating. Better yet build the counterarguments yourself. What’s the strongest reason to do something else? Consider the position with an open mind. It is important to be honest with yourself about your motives.

?4)???Zero-Sum Game: Decision making need not necessarily be a zero-sum game where one-party benefits at the expense of the other. For instance, it is common in many organizations for decision-makers to favour one group over the other which results in a situation where one group wins and the other group loses. This is the?zero-sum game hypothesis which indicates that decisions are taken to benefit one group over the other. There is an alternative to this situation and that happens when decision making is done in such a manner that produces synergies instead of losses to one group. The synergies that we are talking about are the result when decision making is carried out in such a way that the eventual decision takes into account the needs of all groups and produces a result that approximates the sum substance of each of the players’ interests.

?5)???Advocacy: When the team recommending the alternative fall in love with the alternative, is not ready or open to hearing anything against that alternative then it creates a bias of advocacy. Advocates present information on selective basis, buttressing their arguments while withholding relevant conflicting data.

There are many other forms of bias. In order to ensure that decisions are made bias free the top management needs to not only review the recommendation proposed by team but also review the process followed in order to arrive at the conclusion that the current proposal is the best option. When the top management works on reducing the bias created in decision making then they raised their returns on investment by seven percentage points.?A disciplined decision-making process not Individual genius is the key to good strategy.?The decision-makers should ask the following questions in order to ensure that the recommendation given is bias-free:

a)???Is there any reason to suspect motivated errors or errors driven by the self interest of the recommending team?

b)???Have the people making the recommendation fallen in love?

c)???Were there dissenting opinions within the recommendation team?

d)???Could the diagnosis of the situation be overly influenced by salient analogies?

e)???Have credible alternatives been considered?

f)????If you have to make this decision again in a year what information would you want and can you get more of it now?

g)???Do you know where the numbers came from?

h)???Review the assumptions made critically to validate the alternative selected.

i)?????Can you see a halo effect?

j)?????Are the people making the recommendation overly attached to past decisions?

k)???Where right people involved in the decision-making process.

l)?????Is the base case overly optimistic?

m)??Whether conflict occurred during decision making and whether that conflict was cognitive -relating to substance of work which is heathy or it was affective-stemming from interpersonal friction. The first is crucial to effective decision making.

n)???Was the decision-making process concluded too early or too late? Early means that worried about being dissenter’s decision participants may readily accept the first plausible option rather than thoughtfully analyzing options. Unstated objections surface later preventing cooperative action during the crucial implementation stage.??

o)???How ethical are your decisions??

?Organizations making decisions need to take care of three important aspects: To adapt to the right mindset, in?order to make decisions do not create bureaucratic procedures or turn decision quality control in another element of compliance, secondly rotate the people in charge rather than reply on one executive to?be quality policemen and lastly they inject a diversity of views and a mix?of skills into the process.

?Near Miss: From the past several years, it has been studied and determined that across the industries multiple near misses preceded every disaster and business crisis studied and most of the misses were ignored or misread.?Hence it is important to recognize and learn from near misses. It is matter of simply paying attention. Following are the strategies that can help the organization to recognize near-miss:

?1)???Heed high pressure: The greater the pressure to meet performance goals such as tight schedules, cost or production targets the more likely managers are to discount near-miss signals or misread them.

2)???Learn from deviations: Many times, managers know that they are a deviation from the normal norm but compromise is made knowingly as they consider it acceptable risk.

3)???Uncover Root causes: When manager identify deviations, their reflex is often to correct the symptom rather than its cause.

4)???Demand accountability:?Even when people are aware of near misses, they tend to downgrade their importance.?

5)???Consider the worst-case scenarios: Unless expressly advised to do so people tend not to think about possible negative consequences of near misses.

6)???Evaluate projects at every stage: When things go wrong managers do postmortem analysis to determine the cause and prevent it from reoccurring. However, this is too late. Hence it is important that manager reviews the actions at each stage of project so that near misses can be identify in advance and required action can be taken to prevent disruption to happen.

7)???Reward owning up: We need to incentivise people or give them reward for reporting near misses. This practice shall encourage avoiding disruption.

?