Humans are Unreliable Decision Makers

Humans are Unreliable Decision Makers.

That quote comes from Noise an article in the October 2016 HBR.

The authors discuss the impact of inconsistency with decision making in the business world. Inconsistency comes from decision makers being influenced by numerous factors such as hunger, current mood or emotion, even the weather. The authors call this Noise.

People make judgments based on internal factors that are difficult to recognize or eliminate.

These inconsistencies have a financial impact that many CEOs never anticipated. Executives, in two organizations that were studied, estimated differences in decisions between their professionals to be low; around 5%-10% variance. In reality, when measured, the actual variances were 48% - 60%.

One factor investigated was on the job experience. It was assumed by managers that years of service and familiarity with the company would reduce the “noise.” The results showed that employees with more than 5 years of experience in a particular job had high inconsistency ratings that matched the overall company ratings.

Creating algorithms is seen as a good way to reduce personal bias and judgment. Most companies do have some type of procedure to follow, especially when financial decisions are made for or about customers. The level to which employees and managers adhere to these procedures or algorithms is based on trust and experience.

Starting to become aware of how decisions are made by different employees as well as the same employee when faced with different emotional biases is a good place to begin.

The role of the leader is to assess the situation, then decide what they want to do about it. Easy, isn’t it?

Now that I have teased you with a question about your own biases and judgments on procedures, you may want to explore more about how decisions are really made.