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Of good managers and bad decisions

WE HAVE always suspected it; now research has confirmed it. Smart managers with knowledge, experience and excellent skill-sets can still make bad decisions. Even when the trap is as perceptible as the nose on your face, they choose to walk right in; they commit blunders and make rash decisions that cause disaster. As humans, we get lead astray by excessive greed, ambition and other such vices. We tend to misunderstand, misinterpret and mismanage important problems. We have prejudices, biases and basic bad habits that affect the way we think and act. We are not perfect after all and our thought processes have their own set of bugs that come in the way of rational judgment and the right decision-making. Here are some of the common mistakes managers commit when making decisions:

Rushing to judgment

Misplaced urgency can create a major problem. About 80% of bad decisions have been made on a quick impulse or `gut feeling' of smart, thinking managers. Your instinct might have helped you in the past but that could be pure co-incidence. Get the facts right, before making crucial decisions. Be patient. Don't hurry when there is no need. We are conditioned to make quick decisions, so we sometimes fail to make a proper analysis. Learn to look beyond immediate results and focus on long-term vision and strategy.

Overconfidence

Being overconfident or unduly optimistic can yield disastrous results, when it comes to making decisions. Overestimation or too much dependence on a single option or action plan can be catastrophic, if the plan or option ends in a failure. So, spread your risks and infuse more flexibility and caution into your strategy and decision- making.

Flawed analysis

Dependence on averages is another major factor that hinders good decision-making. Consider the case of a product manager who has just been asked to forecast demand for a next-generation microwave/ washing machine. The manager will probably come up with a figure based on the average turnover of the last five years and add a margin for future growth. But, total dependence on the law of averages can result in flawed judgment. Various other factors such as consumer preferences, emerging trends, competition, margin of risk, etc., need to be taken into consideration. Mere juggling of figures is unlikely to throw light on the real trend.

Personal prejudices and biases

Personal biases tend to rub off on even rational decisions. People often tend to overestimate the extent to which others share their views, beliefs and experiences. What results is a false consensus. Decision makers tend to think they have the agreement of everyone, when in fact they do not.

The herd instinct

The desire to conform to conventional behavioural patterns is a basic human trait. According to Charles Roxburgh of the McKinsey Quarterly, at times of mass enthusiasm for a particular trend, pressure to follow the herd rather than rely on one's own information and analysis is almost irresistible. We tend to wake up only when the bubble has burst. Rather than aping their counterparts, companies must learn to focus on innovative strategies and long-term vision when making crucial decisions.

To err is human. To forgive is divine. But, to forget is impossible, at least as far as bad decisions are concerned. A manager who makes a bad decision is seldom forgiven, and never forgotten, for all the wrong reasons. Only the wiliest of decision makers will be able constantly dodge every pitfall that comes in the way of making the right decision. But, if we must err, let us err on the side of caution!

BINDU SRIDHAR

faqs@cnkonline.com

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