Part 1: Introduction and behavioural
Do you ever look back on decisions taken and think, “Why did we do that?”; “Why did we choose that project?”; “Why did we believe that benefits case?”; “Why did make that decision?”.
Research has shown that many of the choices we make and decisions we take are impacted by social, cognitive, memory error biases. Your portfolio board is not immune from this. There’s no shame in it – we, as humans, all suffer (and are guilty of) bias to one extent or another. The purpose of this series of blog posts is to highlight this fact. By providing a little bit of education (which itself is a technique for avoiding bias) regarding biases, and showing you some techniques to help ‘de-bias’ yourself and your organisation’s decision making, by the end of this series you should have the tools and skills to make impartial and rational decisions.
A hard habit to kick
Let’s start with a definition of what a bias, in this context, refers to:
“[A thinking that] …systematically deviates from the prescriptions of objective standards such as facts, rational behaviour, statistics, or logic.”
(Tversky & Kahnerman, 1974)
While biases may lead to poor decision making, a worse consequence is leading us to think that those poor decisions we made were actually good. Interestingly, we also think that others are more biassed than we are (Morewedge, 2015). There are many biases, cognitive, social, and memory error; too many to list off in one blog post, in fact. For a more comprehensive look, check out this list.
It would be natural to think that a deep expertise in a particular field would give us some protection against bias. In reality, however, it turns out that this isn’t always the case. For instance, a large amount of research has been conducted within the medical profession and with airline pilots: both groups were found to be subject to bias.
To prevent biases impacting your own decisions, there are 3 categories of techniques that have been found to hold an impact on the portfolio management decision-making process, namely:
- Structural and Process
In this blog post, we’ll look at the ‘behavioural’ category. The other two we’ll cover in the upcoming parts of the series. To get things started, let’s look at a hypothetical scenario:
I am an executive on a portfolio management board who is considering the business case of a potential project. The person that created the document works for me, and I’ve talked with her at length about the potential project. frankly, I’ve always liked the idea and think we should go with it…really we should have done it a while ago.
This is a situation which could house a number of biases, the most likely of which could be a confirmation bias and maybe an in-group bias (see this link for their definitions). So how do I overcome them?
There are a number of techniques available that can have a positive impact, but for now, we’ll just cover the personal behavioural ones:
Think about the question from other people’s perspectives.
- Pick a number of people either inside or outside your organisation.
- One at a time, think about their perspective and ask yourself: “What’s important to them?”; “How would they react in this situation?”; “What motivates this person?”; “What are their underlying intentions?”.
- Ideally write somenotes and use these to aid your decision.
- if you can’t think of real, relevant people, try using de Bono’s 6 thinking hats
Doing this will help you envisage not only how someone else will perceive your decision but also give you fresh insights into the decision itself.
Try not to make big decisions on the spur of the moment. Instead, look at the evidence on both sides and reflect on it. Often reflective thinking is a skill we lack, or convince ourselves we haven’t enough time for… From the perspective of avoiding bias, however, we would argue that you don’t have time not to.
In the portfolio management world, what are the things to reflect on?
- Are there links between this project and other projects? Or departments? Or ideas? Or anything else?
- How important is each argument used in relation to the project and the organisation?
- Are there any inconsistencies between how you perceive the arguments for this project and how you perceive arguments for others?
- Do you really believe the benefits case? In reality, how will the benefits be realised?
- Does it meet the criteria for the organisation as being: Rational – it provides evidenced benefits and is the right thing to do; Unified – It brings all teams and parties together that need to be involved for the best outcome; Goal Seeking – it aligns with your corporate strategy and, measurably, takes you towards achieving it. An easy way to remember the criteria is with its acronym – RUGS
This one comes with the caveat of don’t procrastinate.
Educating ourselves regarding biases. There’s quite a lot of evidence to show that a significant improvement can be made with simply by educating ourselves about biases. Reading this is a good start but, as Morewedge has shown, gamification is a better approach than, say, just learning from a video or text.
When we make decisions in situations that we are familiar with and are able to make those decisions based on heuristics, rules of thumb or other intuitive leaps, we are influenced by various biases. Making an attempt to de-bias our decisions can only improve our general and portfolio specific decision making. Try the approaches listed above or give us a call to discuss how we can help you with your portfolio management and decision-making processes.
In part 2 of this series, we’ll explore at the process and structural changes you can make to help de-bias the process. In reality, there’s some overlap between the behaviours you might use and some of the processes you might choose to implement to guide them.