All of us make dozens, perhaps hundreds of decisions, every day. Should I get skim milk or whole milk in my latte? Should I wear the red shirt of the blue one? What is for dinner – hamburgers or tacos? Or something entirely different? In addition to these daily, personal choices, we also participate in making important business decisions regarding products, services, and programs.
Yet, what is the basis for our decisions and can we improve our capability to make better choices? Making better organizational decisions can lead to increased productivity, higher revenues, and competitive advantages. Decisions are influenced by our emotions (even when we think they are not), biases, and the way alternatives are presented. We’ll take a look at these three elements of decision-making here.
Emotional Decisions
Emotion and social dimensions play a large role in making decisions and can even cause us to make a poor decision. A recent article in the Houston Chronicle (2/15/17) indicated that as many as 8% of women refuse chemotherapy treatment for breast cancer because of the side effect of hair loss. This decision is made on an emotional basis to avoid the social stigma – “She has no hair; therefore, she has cancer.”
Better decisions are those in which we can move beyond emotions to data and logic. A traditional quiz to measure your own dimension of emotional vs. logical decision-making involves simple arithmetic. A bat and a ball cost $1.10. The bat costs $1.00 more than the ball. How much is the ball?
If you answered $0.10, you probably used an intuitive decision-making process. Yet, if you engage a logical evaluation framework, you will find (by simple math) that the ball costs $0.05.
Project, product, and engineering managers need to drive their teams toward more logical decisions over purely emotional ones. Having a “gut feel” that a new product feature should be added is far less objective that is a market test validating the customer value proposition. Using data and information to make investment decisions will lead to better outcomes for projects.
Decision Bias
We are all familiar with the status quo. We keep on doing things because we’ve always done it that way. Without any pressure to change things, we’ll just stick with the same old way. This is known as a “stability bias”. Paired with “sunk cost bias,” decision-makers can be on a dangerous path toward poor evaluation of whether a project deserves future investment.
The sunk cost fallacy is especially relevant for project leaders. Knowing that a past investment has been made, we optimistically assume we can recover those costs if we just work harder. After all, an effective project manager or senior engineering manager should be able to speed up the team’s work, right? Wrong. A past action does not predict the accuracy of a future action. And, in some cases, it is better to cut your losses rather than continue to throw good money after bad.
Again, moving to a careful, data-driven, logical decision framework can help to eliminate effects of bias. Successful
product development teams compare anticipated revenues against go-forward costs to make a development decision. Project managers cannot magically make up a 2-month schedule delay on a 12-month project. Moving beyond intuitive decision-making rooted in emotions and bias improves project outcomes. An honest evaluation of whether the project is still profitable if delivered in 14 months instead of 12 will lead to increased motivation and a better result.
Using PPM to Decrease Bias
One way to decrease bias in decision-making is to consider all the available alternatives at once. In this way, each choice is compared against the other options in a fair and unbiased manner. Decision scorecards are especially valuable in focusing a team on key variables and away from emotional judgements.
Product portfolio management (PPM) utilizes decision scorecards to evaluate which new product development (NPD) projects should advance and which should be put on hold. The advantage of this decision-making framework over individual project assessments is that it forces strategic alignment and dialogue among key stakeholders and decision-makers. Every firm has a set of strategic objectives that are supported by NPD efforts. If, for example, a strategic goal is to increase category sales by 15%, the decision scorecard in PPM will include a factor for increased category sales. If the firm is trying to expand its geographical reach, the scorecard will include geographical reach as an evaluation item. Finally, if a company is very risk averse, a PPM scorecard will include an item for probability of success.
Moreover, because a cross-functional team is responsible for conducting PPM, an honest conversation is had about strategy and implementation. Strategic objectives do need revising occasionally and the PPM evaluation can indicate if the firm is on track (or not) to meet those strategic goals. The conversation determining which projects to advance is actually far more valuable than even the results of the PPM analysis. This open dialogue ensures strategic alignment among top executives and project staff.
Improving Project Decisions
All of us participate in business decisions regarding which products and projects to advance within our organizations. We can improve our capability in making these decisions by removing emotional elements, like bias and lack of motivation, and moving toward logical evaluation of alternatives. Decision scorecards are one way to visualize decision data to improve the outcome of a choice.
In particular, PPM scorecards are effective in NPD. PPM drives strategic alignment of projects as well as decision-makers. Additionally, PPM opens up a rick dialogue within product development teams to energize the effective implementation of the innovation strategy. If you’d like to learn more about customer relationships and marketing for new product development, please join use one in a self-study or other NPDP Workshop. Feel free to contact me at [email protected] or 281-280-8717. At Simple-PDH.com where we want to help you gain and maintain your professional certifications. You can study, learn, and earn – it’s simple!
Reading Recommendation
Study. Learn. Earn. Simple.
© Simple-PDH.com
A division of Global NP Solutions, LLC
Leave a Comment
You must be logged in to post a comment.