A study from McKinsey found that more than half of the time companies spend making decisions is inefficient. In an average Fortune 500 company, McKinsey estimated that decision paralysis costs $250 million in unnecessary human costs per year.
How much does it cost in your business?
Understanding the decision-making process
Since the 18th century and Bernoulli’s expected utility theory, there has been a formula for making decisions simply:
A person who hesitates between two options must multiply the potential utility of each of them by their respective probability of occurrence, then choose the option with the greatest expected utility.
Unfortunately, things are not that simple in business today and many factors must be taken into account to calculate the potential usefulness and the probability of occurrence.
And things get complicated if you don’t have access to the data you need (because you don’t have good data management practices) to evaluate things or if you are under pressure.
Art Markman, professor of psychology at the University of Austin, explains that:
Stress decreases our working memory capacity, so we have fewer cognitive resources to figure out all the different options, even for things that are relatively unimportant. Even minor decisions take some cognitive effort, and we have a limited amount of that in a day before we’re somehow done.
We therefore find ourselves in a situation that may seem confusing:
- We must avoid spending too much energy on small decisions, otherwise we no longer have enough energy for strategic decisions
- Small decisions should not be allowed to accumulate because their volume will generate additional stress which will be counterproductive.
And this situation gets worse when decision-making responsibilities are not clearly defined.
- Who has the power to say yes?
- Who has the power to veto?
- Who has the duty to make the decision in the end?
How OptOp can help
I can help you accelerate decision-making within your organization
- By developing the skills of your employees on an individual level (yes, there are techniques to make good decisions faster) and coaching them in an effective and rational decision-making process
- By helping you to set up effective governance and decision-making processes within your organization to be able to make the right decisions quickly in complex or matrix environments.