Improving the Decision-making by Managers: Choice Architecture

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Decision-making and Valuation > Best Practices > Improving the Decision-making by Managers: Choice Architecture

Improving the Decision-making by Managers: Choice Architecture
Anneke Zwart, Student (University), Netherlands, Moderator
A different approach towards improving decision making is 'Choice Architecture'.
In every organization, employees tend to make decisions that will neither benefit their employer nor themselves. According to Beshears (2015), this happens not because those employees are stupid, but rather because of certain patterns in the human brain that lead us to:
- Underestimate the time needed for a certain task;
- Neglect critical information;
- Overestimate our own ability to perform certain jobs;
- Fail to take advantage of company benefits that are in our best interests.

The author argues that its very difficult to rewire such patterns in our brains. Rather than focusing on rewiring the wires, it could be possible to adjust the ENVIRONMENT in which decisions are made. By doing so, the likelihood of employees making better decisions is increased.

The following 5 steps are recommended:
1. UNDERSTANDING THE WAY DECISIONS ARE MADE: The author argues that - in order to being able to make the right decisions - it is important to understand the process of processing information that leads to making decisions. There are basically two ways of processing information:
1.1. Automatic, quick, instinctive decisions, based on emotions.
1.2. Slow, conscious and logical decisions.
Each of the different ways has its strengths and weaknesses. For example, the quick way of decision making uses intuition and rules of thumb which makes decisions to be made effortlessly. However, if intuition are wrong or emotions befog judgements and make the poor, the second way of decision making should come in. However in many cases intuitive or emotion-based decision-making are over-relied on and go unchecked by the second way of decision making. This is by no means an attempt to say that intuitive decision making should in all ways be suppressed so as to make right decisions. Rather a carefully consideration of whether certain decisions are made with an appropriate balance of processing information.
2. ASSESSING THE APPROPRIATENESS OF BEHAVIORAL ECONOMICS: Definition of the problem: the author argues that behavioral economics tools are not the sole way of solving problems. Therefore it is important to first determine whether the root cause of the issue is human behavior/whether people are behaving in ways that contradict their own interests, or whether the problem can be broken down into more manageable pieces. If so, then behavioral economics should be a tool that can tackle the issue.
3. IDENTIFYING UNDERLYING CAUSES: the author argues that there are basically two underlying causes of bad decision making: lack of motivation and cognitive biases. These underlying causes are often a result of over-reliance on intuitive and emotion-based decision making being unchecked by logical and deliberate decision making.
4. DESIGNING SOLUTIONS: The design of solutions can start once the underlying causes of poor decision making have been detected. A particular way that is useful is introduced by Thaler and Sustein (2008): choice architecture. The idea is that decision making can be improved by deliberately structuring how information and choices are presented to them / structuring the choice environment in such a way that it nudges people towards sound decisions. In such a way, employees retain their freedom to make decision that serve their interests while simultaneously nudging people towards better decisions. Such alterations to the choice environments make big improvements possible at low or no costs.
5. TESTING SOLUTIONS: The last step involves the testing of the proposed and desired solutions, so as to assess whether the chosen path will actually achieve its goals. According to the authors, testing solutions helps managers to both prevent mistakes and to give them insights that can enhance their decision-making.

Sources:
Beshears, J. (2015). Leaders as Decision Architects. HBR May 2015
Thaler, R. and Sustein, C. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness
 

 
Improved Decision Making by Managers
K.Narayana Moorthy, HR Consultant, India, Member
Following factors might also help to improve decision making by managers:
- List all possible solutions/options;
- Gather data/information (set a time frame);
- Look for the risks;
- Decide on values/importance;
- Make contingency plans;
- Take decisions only when you're relaxed/rested.
McKinsey's 7S model also could be used:
-Start with Shared values to find out the consistency with adopted structure-strategy-systems (if there's no consistency go for change);
- Look at the Hard Elements to find how well they offer support for other elements (if no support go for change);
- Then looking at the Soft Elements to find out how well they offer support to the desired hard elements (if not go for change);
Finally make adjustments/alignments of all elements to get an improved decision.
 

 
Of Companies That are Oblivious
Emmanuel Mwirichia, Manager, Kenya, Member
I work at a company where none of these processes are taken into account. You end up having management decisions made without considering any parameters whatsoever and these lead to outcomes that are less than ideal (people get fired for things that are not their fault) and frustration of the bosses.
Learn from where you work and adapt methods that ensure success in personal capacities if you are not a decision maker at work.
 

 
Participatory Method of Managerial Decision-making
Masserigne, Senegal, Member
The best way I have experienced in order to be sure to take the best decision is "brainstorming". You should have enough time and keep all choices open, if not you'll be limited (and might miss wonderful options). Everyone participates; there are no impossible solutions. Usually you get the best decision you could have. It's important to choose your panel carefully. Participants should be experts on the subject.
I guess a tool that can sort of organize this process in a "Mind Mapping" way, virtualizing the brainstorming session would be very helpful.
 

 
Decision Making with Data
Raj Mohan, Management Consultant, India, Member
Decision making can be done with ease if you have sufficient data/information on the impact of the decisions on the affected people (both current and future). Consequences are important along with the outcome.
But many a times we prefer emotional decisions. Sometimes the grapevine may also help you know the impact the decision might have.
 

 
Start by Identifying the Decision Point
Sale, Manager, United Kingdom, Member
Effective decision making is time related. The more time one has to analyse and understand the problem and then to collate information, the more effective the decision will be.
So, when is the Decision Point?
I have found that wicked problems often require a team approach to informing the decision. However, the decision is mine and my responsibility. Snap decisions usually result in less accurate decisions.
Sometimes quick decisions are unavoidable, but it must be understood that the compensation for quick decisions is usually accuracy.
Identifying the Decision Point and resisting the temptation to deliver an early decision is key to success. Also, listening to advisors ensures a more accurate decision.
 

 
Importance of Decision Criterion
Vijay Bhatia, Consultant, India, Member
In my opinion, effective decision making is criterion related. Whether one quickly thinks of an alternative or needs time to arrive at various alternatives/preferred alternative, the alternative SHOULD BE checked against a decision criterion.
Complex decisions and people-related decisions must be able to answer not only 'how' and 'when' but also 'why'. The decision criterion would dictate whether you will be able to live with your decision or not. It's reassuring to have a decision criterion to test your alternative.
 

 
Decision Making... the Cause of Management Problems
Subbaram Ranganathan Aiyar, Professor, Lesotho, Member
I am of the opinion that a major decision affects the sustenance of an organization and hence needs analysis of various issues on hand... Since a decision made today can be relevant for the future. But most managers hinge on the current issue and have little knowledge to project the impact of such decisions.
I was conducting a training recently in Botswana on this issue and found it to be interesting that most managers who attended the training had little knowledge of group dynamics in decision making and hence were dilly dallying with ideas and were judgmental in their reactions to cases...
In this direction, the 'choice architecture' can be a point to ponder...
 

 
The Importance of Developing Decision Criteria
K.Narayana Moorthy, HR Consultant, India, Member
Decision criteria should relate metrics directly to the accomplishment of the goals and objectives of the organization. Decision makers first establish the goals and objectives and their relative importance in the final decision process. Decision criteria and metrics are then established to support the established goals and objectives.
There are 2 key points to remember:
1. Keep in mind the purpose of criteria development is to expose tacit assumptions about the goals and objectives.
2. The act of making criteria explicit will help team members to know how to make decisions at any point in the process where they need to make a trade-off. People will be aware of the logic and beliefs underlying the strategy and will be able to articulate them.
 

 
How to Ensure ETHICAL Decision-making by Managers
libin xiao, Student (MBA), China, Member
According to Grove et. Al (2007), a balanced thinking style of both linear and nonlinear is advocated to improve managerial ethical decisions.
I believe the right decision should be ethical firstly. Many business scandals were the result of unethical decision making by the senior management. Modern society has added to the complexity of decision making. A balanced thinking style will enhance ethical decision making.
 

 
The Importance of CONFIDENCE in the Decision Criteria
K.Narayana Moorthy, HR Consultant, India, Member
During my last leg of service, a close associate asked me:
'Sir, what is the secret of your success?'
I said: 'Good Decision Criteria'.
'But how do you make good decisions?'
'Confidence.'
'But how do you gain confidence?'
'From experience'.
'Which experience?'
I said: 'Bad decisions.'

Confidence is not something that can be learned like a set of rules; Confidence is a state of mind: positive thinking, patience, practice, training, knowledge and talking to other people are all useful. Confidence comes from feelings of well-being of body & mind and belief in ones' own ability, skills and experience. Positive thoughts are a very powerful way of improving confidence. A proven way to build confidence is thought awareness.
 

 
Decision-making is the Core Job of a Manager
Varun, India, Member
The core job of a manager is to make quick, calculative and wise decisions. The results may be unknown and the manager needs to keep an eagle's eye on the execution and performance of the decision taken. The decision may be good or bad, but the manager needs to be ready with PLAN B/C/D/etc. if things don't go as planned and also take ownership of the aftermath.
The manager should also frequently look back at the success rate of the decisions made. While making decisions we should focus on the core issues of the business need. Once one of my peer asked me to assist her with a situation which was difficult... I told her to follow the Chanakya's rule*: 'Saam, Daam, Dand, Bhed' and while I haven't followed up on my suggestion, I am sure she would be able to sail through the situation.
* Editor: Chanakya's Rule involves 4 diplomatic principles to convince someone:
Saam - knowledge, reasoning, pacifying
Daam - money, monetary rewards
Dand - punishment, sanctions
Bhed - dividing, creating division.
 

 
Making and Taking Decisions
Vijay Bhatia, Consultant, India, Member
Building a positive mindset does not guarantee that you will be a successful decision maker. No matter what your mindset is, if you are inclined to ignore data, information and/or facts for whatever reasons, you are bound to end up with bad decisions.
On the other hand, even a careful consideration of all information may not bring about the desired consequences, but it is better to be wrong rather than to take bad decisions.
In a nut shell, making decisions should be preferred over taking decisions.
 

 
3 Simples Ideas to Improve Managers' Decisions
Zoniaina, Coach, Madagascar, Member
How to make a decision?
- Put first thing first
- Know and then do
- Do and then learn
Do you think that these ideas are easy? Try and then you'll know!
 

 
Context of Decision Making Process
Boris Verbitsky, Entrepreneur, Israel, Premium Member
There are dozens of decision making strategies and tactics. But if we divide the decision making process into two patterns: QUICK and SLOW, then, on my opinion, we have to look deeper into context.

Every situation of choice, where it is necessary to make a decision, forces it's own constraints on the process.
Whether it's a combat commander in the field of battle that has to decide under time pressure where to attack and when to retreat, or it is HR manager that has enough time to choose the right candidate for some job.
QUICK DECISIONS, as far as I see it, are typically made while they impose relatively low strategic significance, and while a person who makes a decision:
1. Under affect of some emotions (and I mostly tend to agree with Mr Beshears)
2. Under pressure of circumstances which require quick decision
3. He already has the needed experience to make the decision
4. Combination of some or all of the above.

On the other hand there also exists a relaxed way of a SLOW DECISION MAKING PROCESS which usually is related to a strategic level of decisions. Here deep thought and lots of information are required to make the correct decision, if any.

The choices can be diverse according to the Eisenhower Time Management Matrix by their importance and urgency, while there should be tendency to divert the important and urgent choices to the important but not urgent quadrant to gather more info on the subject and to make it a slow, more conscious and more logical decision. But in case it's impossible to make that diversion there should be a consideration in favour of the best choice available, considering the main course of organisation strategy (decision criteria).
 

 
Initial Band-aids in Decision Making
Barney Wade Howard, Manager, United States, Member
Good Article. I know I often have to use both forms of decision making that you outlined. Sometimes there is only time to put a band-aid on something until it can be thoroughly visited and taken care of. That initial band-aid usually gets the instinctive and knee-jerk of sorts at first.
If dealing with common situations, one can easily use a tactic from a past experience to slow the flow until a more reasonable decision, (if necessary), can be determined.
I truly prefer the latter approach. When dealing with livelihoods and trying to be a good steward of time for the company I am employed with, I don't like to leave things to chance or the common end all be all of statements, "because that is the way it has always been done".
Every situation is different no matter how similar it seems, for the players in the scenario add to the challenge.
 

 
Issues of a Choice Architecture
Gandhi Heryanto, Management Consultant, Indonesia, Premium Member
Making mistakes is a part of being human, and completely eliminating mistakes is impossible.
The way a choice is presented influences what a decision maker chooses. Thus leaders can act as "architects" to change the environment in which decisions are made to steer people toward choices leading to the best possible outcomes. Choice architecture reflects the fact that there are many ways to present a choice to the decision maker, and that what is chosen often depends upon how choice is presented.
However there are some issues in using choice architecture, i.e. individual differences and errors in evaluation of choice outcomes:
- The individual differences will influence decisions and how they interact with situations.
- Whereas the function that experienced agents and advisers often serve is to encourage a decision maker to consider not only the feature of an option that are salient at the time of choice, but also those that will be more important when the outcomes are experienced.
 

 
Choice Architecture Must Include Decision Making and Follow Through
Briolett, Manager, Canada, Member
It's important not to over-look the follow through of all employees in the decision making process. As managers we gain experience making business decisions and hopefully get better at it over time; however, it's the rest of the staff that also make day-to-day decisions that have a big impact on a company as well.
If non-management people donít understand the decisions their managers make, the likelihood of failure increases. Especially if management is viewed in a negative light. Success is dependent on the whole not just the individual parts - a company is only as strong as its weakest link.
 

 
Including Follow Through In Choice Architecture
Vijay Bhatia, Consultant, India, Member
Yes! Itís important that decisions made by the managers are understood and enhanced by all concerned. The negativity of the views and lack of proper appreciation by others largely stem from the inability of the managers to involve others in the decision making process and lack of subsequent communication. It works both ways. Therefore open and effective communication is as important as the process of decision making.
An effective communicator, whether a manager or otherwise, would be able to go through the process of decision making and subsequent implementation far more professionally and smoothly as compared to others.
 

     
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