Risk, bias and planning

Risk, bias and planning

A couple of years ago, I wrote a precis of the McKinsey Quarterly article, “Distortions and deceptions in strategic decisions”. They started with a review of the way human bias can adversely impact strategic investment decisions illustrating it with a story about a mega-merger which failed. They conclude the article with,

Companies can’t afford to ignore the human factor in the making of strategic decisions. They can greatly improve their chances of making good ones by becoming more aware of the way cognitive biases can mislead them, by reviewing their decision-making processes, and by establishing a culture of constructive debate.

The first half of the article examines the propensity to optimism vs. perceptions of loss aversion and argue that portfolio management is a better way to evaluate the risk as lossess can be compensated by other success. I believe though that British management and particularly public sector management is very risk adverse; there is a higher fear of getting things wrong than getting things right although how we end up with Universal Credit, the Boris “vanity lard bus”, his water cannons and his other “erections”, I don’t know.

What made me remember the article was it’s listing of what they call tools to isolate any human bias to me most importantly

Another technique is to request that managers show more of their cards: some companies, for instance, demand that investment recommendations include alternatives, or “next-best” ideas.

I wonder how many of these lessons need to be applied to local authority planning decisions.  Check below/overleaf for more …

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McKinsey on strategy, services and product

On my sun/oracle blog I wrote a note/précis of an issue of the McKinsey Quarterly. The keynote article, “Distortions & deceptions in strategic decisions” looks at the flawed human values often inserted into major business decisions. They quote a major acquisition decision taken by a dominant player and suggest that the major advocate of the merger wanted it for personal political gain. They look at ways in which these human factors can be brought into the open and evaluated in the decision making process. Despite identifying over-optimism as a frequent occurrence once a proposal has been made, the decision not to proceed is often taken in private and so collaborative decision making cannot neutralise these human shortcomings. One suggestion is to ask the proposer, what their next best proposal is. …

Consulting! Profession or Trade?

Over the Xmas break, I had fun by reading Elizabeth Edersheim’s “McKinsey’s Marvin Bower”, a biography of the de-facto founder of “McKinsey & Co.”. He not only co-founded McKinsey & Co., but also arguably founded “Management Consultancy” as a profession. The book argues that McKinsey’s success is based on putting Clients first. …