Which matters more when making decisions: analysis or process?

Given my analytics background, for most of my career I’ve tried to convince people they should make decisions based on data, rather than their gut. The more informed you are by data, the more confident you can be in your decision making. If the facts contradict your biases, you’ll go with the facts. At least that’s how it should work in theory.

In practice too often people ‘massage’ the data to support their working theories. They ignore conflicting evidence or categorize it as anomalous. Biases seem to win out over facts.

Maybe that’s OK. A McKinsey article suggests that analysis may not matter as much as we think when it comes to business decisions.
Dan Lovallo, a professor at the University of Sydney, and Olivier Sibony, at the time a director at McKinsey, studied 1048 major business decisions made over the course five years. Surprisingly to me, the majority of the decisions were based on detailed analysis, not just intuition. And yet, that didn’t seem to matter; only 28% of the executives surveyed thought their organization normally made good decisions. From the article:

Our research indicates that, contrary to what one might assume, good analysis in the hands of managers who have good judgment won’t naturally yield good decisions.

Instead, a rigorous decision-making process made a bigger difference than analysis in the quality of decisions — by a factor of six. Openly discussing contrarian viewpoints, actively searching for conflicting evidence, and formally identifying weaknesses in theories dramatically improve results. Of course, the quality of the analysis does matter but strong process will expose poor analysis and force it to be improved.

Unfortunately most organizations have weak decision-making processes. They are consensus driven and one-sided. In another McKinsey article, Sibony contrasts how decisions are made in business with how they are made in court:

Imagine walking into a courtroom where the trial consists of a prosecutor presenting PowerPoint slides. In 20 pretty compelling charts, he demonstrates why the defendant is guilty. The judge then challenges some of the facts of the presentation, but the prosecutor has a good answer to every objection. So the judge decides, and the accused man is sentenced.

[…] This is an oversimplification, but this process is essentially the one most companies follow to make a decision. They have a team arguing only one side of the case. The team has a choice of what points it wants to make and what way it wants to make them. And it falls to the final decision maker to be both the challenger and the ultimate judge. Building a good decision-making process is largely ensuring that these flaws don’t happen.

Performing data analysis is usually better than making a gut decision. But unless you also invest in a decision-making process, the quality of your decisions is unlikely to improve.

So, make a good decision by investing in process. You don’t need any analysis to know it will be beneficial.

This blog was originally posted on Manage by Walking Around on October 16, 2016.

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