DECISION MAKING

A Checklist for Making Faster,

Better Decisions
by Erik Larson
MARCH 07, 2016

Managers make about three billion decisions each year, and almost all of them can be made
better. The stakes for doing so are real: decisions are the most powerful tool managers have
for getting things done. Setting goals (another tool) is aspirational, but making decisions
actually drives action. Our research has shown that people usually do what they decide to
do. The good news is that there are ways to consistently make better decisions by using
practices and technologies based on behavioral economics.

In a three-month study of 100 managers, we found that managers who made decisions
using best practices achieved their expected results 90% of the time, and 40% of them
exceeded expectations. (For comparison, goal-setting best practices helped managers
achieve expected results only 30% of the time.) Other studies have shown that eective
decision-making practices increase the number of good business decisions sixfold and cut
failure rates nearly in half.

But although theres great potential for using best practices to improve decision making,
many organizations are not doing it. In a study of 500 managers and executives, we found
that only 2% regularly apply best practices when making decisions, and few companies
have systems in place to measure and improve decision making over time.

To close the gap between potential and practice, its important to know why its there at all.

One reason is history. Decision making in business has long been more art than science. In
part, that is because most managers had relatively little access to accurate information until
recently. Few decision tools are widely used; the pros-and-cons list, popularized by
Benjamin Franklin,is probably the most common and its nearly 250 years old. And then
there is the unfortunate circumstance that economics in the twentieth century was based
on the theory that people make rational choices when given good information, a theory
proved to be somewhere between spotty and completely wrong thanks to a revolution in
behavioral economics, led by Nobel Prize winner Daniel Kahneman.

That leads to the next reason: psychology. The reality is that we are predictably irrational.
Behavioral economists have uncovered a range of mental shortcuts and cognitive biases
that distort our perceptions and hide better choices from us. Most business decisions are
collaborative, which mean groupthink and consensus work to compound our individual
biases. Further, most business decisions are made under the stress of high uncertainty, so
we often rely on gut feelings and intuition to reduce our mental discomfort. Decisions are
hard work; there is a strong emotional impetus to just make them and move on.

A nal reason is technology. Enterprise software has automated many managerial tasks
over the past 40 years. That shift has formed a foundation for better decision making, but it
leaves the job unnished. Behavioral economics shows that providing more complex and
ambiguous information does little to help managers and their teams with the main
challenges they must overcome to make better decisions. As a result, businesses cant see
dramatic improvements in decision making by simply implementing more big data
analytics software from the likes of SAP, Oracle, IBM, and Salesforce.

So what can be done?

During product development of Cloverpop, our cloud solution for applying behavioral
economics to decision making, we performed hundreds of experiments with tens of
thousands of decision makers. We found that the most successful decision-making
approach boils down to a simple checklist. But its important to note that understanding
the items in the list is not enough; this checklist must be used to be eective, since our
biases dont go away just because we know they are there. So each time you face a decision,
use these steps as a tool to counteract your biases:

1. Write down ve preexisting company goals or priorities that will be impacted by the
decision. Focusing on what is important will help you avoid the rationalization trap of
making up reasons for your choices after the fact.
2. Write down at least three, but ideally four or more, realistic alternatives. It might take a
little eort and creativity, but no other practice improves decisions more than
expanding your choices.
3. Write down the most important information you are missing. We risk ignoring what we
dont know because we are distracted by what we do know, especially in todays
information-rich businesses.
4. Write down the impact your decision will have one year in the future. Telling a brief
story of the expected outcome of the decision will help you identify similar scenarios
that can provide useful perspective.
5. Involve a team of at least two but no more than six stakeholders. Getting more
perspectives reduces your bias and increases buy-in but bigger groupshave
diminishing returns.
6. Write down what was decided, as well as why and how much the team supports the

decision. Writing these thingsdownincreases commitment and establishes a basis to

measure the results of the decision.
7. Schedule a decision follow-up in one to two months. We often forget to check in when
decisions are going poorly, missing the opportunity to make corrections and learn from
whats happened.

Our research has found that managers who regularly follow the seven steps above save an
average of 10 hours of discussion, decide 10 days faster, and improve the outcomes of their
decisions by 20%.

We need a new, scalable approach to managing decision performance. It must replace the
historical theory of rational choice. It must acknowledge that our psychology often leads us
astray. And it must use simple, friendly tools like this one,designed to have an outsize
impact on how managers and teams make decisions.

Erik Larson (@erikdlarson) is founder and CEO of Cloverpop, a cloud solution that
applies behavioral economics and collaboration to help businesspeople make better
decisions together. He is a graduate of MIT and Harvard Business School, a decorated U.S.
Air Force ofcer, and an experienced technology executive based in San Francisco.

This article is about DECISION MAKING

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1 COMMENTS

Anjan Bhattacharjee

a month ago

This is a commercial post in support of the business of "Cloverpop" by its owner as the author. The List of
seven was claimed as a checklist in the headline and subsequently claimed as "Tools". Tools and checklists
are different animals in decision making process. Checklists are Reminders and Tools are for application in
problem solving. The rational behind so many "Steps" are not clear [1] Why ve preexisting goals not three
or six? Afrmative evidence post decision making is universal psychology and difcult to get rid in persons.
No amount of writing may inuence this.[2] Why Three or four max? Rational? [3] Writing down 'most
important info' missing, does not guarantee its availability in time . Then postpone decision making? [4]
Impact expected down the year is always estimated on Scenario having missing variables occurring in the
future inuencing results. .. .
20

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