3 Things that Lead to Terrible Business Decisions

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Tuesday, December 16, 2014

Avoiding bad decisions might be even more important than making good decisions. But you can’t become paralyzed by an inability to move forward. What are some common fallacies in decision-making you should be looking out for?

Not Starting with the End in Mind

As Ben Franklin once said, “By failing to prepare, you are preparing to fail.” Every step along the way may seem sensible, but if the end of the march doesn’t get you to the finish line, your tactical plan is flawed. Be sure that you know where you want to end up before deciding whether any steps are advised. And then ask yourself if each decision is giving you measurable progress towards the goal.

Relying on the Past to Predict the Future

Back in 2009, The Economist posted a fascinating article on the relevance of past experience when forecasting future events. In the piece that discusses whether financial models missed the coming recession, they state, “Historical data maybe imperfect, but it remains the only unbiased way to measure risk and make assumptions about the future.”

That’s true. We often have to rely on the past to create a vision of the future. At the same time, the article discusses mostly the realm of economics, where forecasters have a wealth of data. Where the average person slips up is a failure to envision “new” factors that could influence future performance.

Nassim Nicholas Taleb wrote about this in his book The Black Swan. The phrase “Black Swan” comes from ancient times. The phrase used to mean something that was impossible–a black colored swan. Once it was discovered that black swans existed, the term came to mean something previously thought impossible, but later proven true.

In the business world, leaders are sometimes quick to dismiss the “what if” question posed during planning. Just because something disruptive hasn’t happened in the past, don’t be quick to dismiss it. Even if you continue down the same path, at least you’ll have put some thought into recovery strategies. And, if the potential disruption is grave enough, you may choose to change your mind altogether.

Fall Victim to Peer Pressure

It’s human nature to want to “fit in.” There’s a comfort that comes from getting everyone on board for a decision. However, sometimes it’s the unpopular decision that’s the right one.

3Going back to the first point–if you have a clear purpose, your instincts should guide you to keep to the path. However, a lack of clarity can allow fear or anxiety to cause you to make bad decisions. And, even though you need to listen to your peers and evaluate potential disruptions to your plans, don’t let your peers steer you off course.

At the end of the day, when you’re faced with a complex decision, the easy way out is to keep delaying. That’s not the right choice either. Many times, making no decision is worse than making the wrong one. By analyzing your decision-making and ensuring you’re not compromising your abilities by falling prey to the most common errors, you’ll have the confidence you need to keep moving forward. 

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photo credit: kaje_yomama via photopin cc

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