Does Your Organization Have Cognitive Biases that Influence Management Decisions?

The answer to the question in the titles is, “Yes, of course.” Now how many of you are scratching your heads and saying, “Bruce has gone off the deep end, I don’t even know what a cognitive bias is!” All human-centered organizations (I am assuming you don’t work with robots) have cognitive biases based on culture and the experience of key decision makers. The goal of decision-making best practice is not to remove cognitive biases, but to institute decision processes that minimize their potential negative impact.  While I am not a cognitive scientist, our CEO and founder is, and I find as a manager I can gain a lot of insights into how to do my job better from this discipline.  So today my post is intended to make you focus a little more on the way people (humans) think and act.

So, what are cognitive biases?
According to a recent report by Dan Lovallo and Olivier Sibony in McKinsey Quarterly, “The Case for Behavioral Strategy,” cognitive biases are, “systematic tendencies to deviate from rational calculations” as described in research on behavioral economics. For several good examples, written in an easy to understand and entertaining fashion, you can check out Dan Ariely’s book, “Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions.”

A June 2011 article in “Harvard Business Review” triggered my thinking on this subject by offering help in ferreting out cognitive biases that impact decision making. (The Big Idea: Before You Make That Big Decision; by Daniel Kahneman, Dan Lovallo, and Olivier Sibony). An added goody is a survey to help you identify your own biases. I followed some of their recommendations for further reading on the subject and offer these bits of information and resources for your consideration.

The types of cognitive biases suggested in “The Case for Behavioral Strategy” were:

  • Action biases that reflect excessive optimism, overconfidence or failure to integrate potential responses to your organization’s chosen course of action by competitors.
  • Interest biases – self-serving recommendations or attachment to previous products or plans.
  • Pattern recognition biases – this includes confirmation bias, when individuals over-weight evidence favorable to their recommendation and disregard or under-value evidence that contradicts their opinions. This bias also includes relying on evidence from prior situations that are not parallel with the current situation and being persuaded by a good storyteller or the desires of a particularly powerful person in the organization.
  • Stability biases such as aversion to loss or fear of change.
  • Social biases like for consensus or following the leader.

Dealing with Biases
You may not be able to recognize your own biases, however Daniel Kahneman suggests that there are clues you can follow or questions to ask in order to search out and counteract biases in others. In their conclusions, the authors recommend building a process for major decisions that is less distorted by cognitive biases. I recommend the entire article for your review, so I offer but a few enticing ask-yourself-questions from the Executive Summary and article:

  • Has the team fallen in love and lost objectivity about its proposal?
  • Were there dissenting opinions within the team and were they fully explored?
  • Are credible alternatives included along with the final recommendation — not just the easy to dismiss paper tigers or wounded horses?
  • “If you had to make this decision again in a year’s time, what information would you want, and can you get more of it now?”
  • Did the team conduct a premortem, that is “Imagine that the worst has happened and develop a story about the causes.” (Performing a Project Premortem, by Gary Klein)
  • Use Reference Class Forecasting — (for me this was a new term, so I share this summary as an aside: a relevant reference class uses past similar projects to assess likely outcomes of the proposed decision. You perform a statistical analysis on the outcomes of those projects in terms of time, budget and conformance with expectations and then infer the likely outcome of the proposed project. Bent Flyvbjerg talks about reference class forecasting, with examples, in “Eliminating Bias in Early Project Development through Reference Class Forecasting and Good Governance.”)

My advice to you is to be aware that you and others have biases that influence perceptions, recommendations and decisions. Protect your organization by involving a diverse group in collecting information and considering options. Collect data and use it. Encourage dissenting opinions before a final decision is made.

A couple more resources:
“Project Management Journal”: From Nobel Prize to Project Management; Bent Flyvbjerg; 2006
“Strategic decisions: When can you trust your gut?”  Gary Klein

3 Responses to “Does Your Organization Have Cognitive Biases that Influence Management Decisions?”

  1. Facing resistance, Agile project managers, and cognitive biases- Recommended Reading for June 2011 | PandaDesk Blog Says:

    […] cognitive biases present when management makes decisions? Of course. In a recent article by Bruce McGraw of Fear No Project, he explores the various cognitive biases – our tendency from deviating from rationality […]

  2. Cognitive Science Insights into Decision Making « Fear No Project – A Project Management Blog Says:

    […] Remember cognitive biases and their impact on processing information (see Does Your Organization Have Cognitive Biases that Influence Management Decisions?) […]

  3. Go with your gut — cautiously « Fear No Project – A Project Management Blog Says:

    […] after your self-assessment, you conclude that your motives are pure and untainted by cognitive biases, then organize your thoughts and recommendations as talking points that demonstrate your […]

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