Getting it right
It is possible to improve decision making and reduce disputes. Dr Darryl O’Brien outlines a few ways of avoiding mistakes, including the need for proper business processes.
The building industry is a high-pressure environment in which disputes are common.
Builders and sub-contractors are often called upon to make decisions on the spot. In academic terms, these decision-making limitations are called bounded rationality.
That is, the correctness of any decision is constrained by your experience in dealing with similar issues, the time set aside for making the decision and the quality of the information available.
However, given the widespread nature of building-related disputes, it is probable that poor decision making may be a result of more than simple bounded rationality. Indeed, it could be that a combination of organisational structure and unconscious bias is also contributing to poor decision making, and thus disputes.
This article will examine two influences on decision making:
- how the flow of information between people can lead to poor decisions; and,
- the types of unconscious bias that we are all susceptible to, and how understanding them can lead to better outcomes.
Organisation knowledge flows
In all businesses the information flows upward and downward, but for several reasons it is the upward flow of information that poses most challenges.
First, the interests of workers (or sub-contractors) and the business owners may not be aligned, with workers seeking to maximise their self-interest. For example, workers may have a tendency to downplay or ignore bad news and over-represent good news to improve their standing with the boss.
In this environment good news is usually relayed quickly, and bad news is passed on more slowly, if at all. This can be a problem because the owner’s relative lack of knowledge creates an environment that allows incorrect or partial information flows that are too positive.
This temptation to ‘gild the lily’ can be further encouraged by the use of numerous sub-contractors who may be used only for one or two jobs.
If sub-contractors are used for just one job there is little incentive for them to provide the best service, as future work is not on the cards. Further, if there are workmanship problems, the sub-contractors have moved on to work elsewhere and the problem becomes the builder’s responsibility.
It is important to understand these barriers, as your front-line staff and sub-contractors generally have access to timely, accurate and useful information. Their knowledge is vital.
Organisation structures may create an environment in which the accuracy of data is questionable. However, of equal relevance is the fact that internal information management processes are subject to a range of unconscious biases that can affect sound decision making.
It is estimated that adults typically make up to 35,000 decisions each day.
When trying to process such large amounts of information we need to simplify the data to make it manageable. If we don’t do this, we may become overwhelmed and unable to make a decision.
Researchers have identified two main types of decision-making strategies – algorithms and schema.
Algorithms are a process whereby a specific procedure is used for finding a solution. A simple example of an algorithm is a cooking recipe or checklist, and these can be quite effective for simple problems.
Algorithms will ensure that a solution is found, but as the complexity of the problem increases, so does the time needed for solving the problem. Hence we need other, less time-consuming strategies such as schemas.
Schemas are created when we draw information from related networks of facts in our memories to make sense of new information. It is the comparison of previous experiences with new ones that gives meaning to events.
The deeper the networks and the more information recovered from our long-term memories the more accurately the current situation can be mapped to past experiences and a decision made.
Schemas are constructed to provide logical interpretations of events and include typical understandings of people and events that conform and reinforce similar prior experiences. The filtered experiences thus become the frame of reference by which new experiences are analysed and compared.
It is important to note that the schema process is unconscious – you are not aware that your mind is running through schemas every time a decision is made.
However, schemas are limited by our mind’s processing limits. This is made evident in an unconscious resistance to revising existing beliefs to process new, contrary information. Rather, the tendency is to filter new information so that it conforms to existing belief structures, and to ignore information that is in conflict.
This process is known as confirmation bias and is a contributor to poor decision making.
With confirmation bias, several unconscious actions may take place:
- seeking only the information that supports the favoured position;
- being too critical of evidence that conflicts with the favoured position;
- where evidence is ambiguous the interpretation supports the favoured position; and
- information is filtered through similar situations that led to positive outcomes, creating and reinforcing these as the optimal course of action.
This behavior leads to a false sense of optimism. Negative or contrary information that does not align with the beliefs are dismissed or rationalised away as not being important or relevant.
The way forward
A combination of business structure and unconscious decision making can create an environment in which poor decisions are made, but what can be done?
Business processes must be created to prevent information distortion. Owners should invest time speaking with sub-contractors and front-line staff, who must be encouraged to present all relevant information in an accurate and timely manner.
Owners must recognise confirmation bias, and understand that it operates at an unconscious level. It is crucial to keep an open mind and not jump to conclusions. Advice should be sought from friends and colleagues, but avoid ‘groupthink’ and consider scenarios designed to test your ideas and opinions – not support them.
With so many decisions to be made each day, it’s inevitable that some will be wrong. However, an understanding of decision-making processes will help to limit mistakes.