What are the reasons behind the main management mistakes? by Marce Fernández

Bring to your mind a mistake you have been aware of. Now think of the main reasons that caused that error. I know, it is not easy to distinguish the reasons behind mistakes -there are so many elements at play!

Professors and authors such as Herbert Simon, W. Edwards Deming, Daniel Kahneman and Gary Klein identified some factors that condition the quality of managerial decisions, factors such as time pressure, lack of experience, inadequate information, the profile of the decision-maker, poorly defined objectives, inadequate procedures, lack of team coordination or the limited capacity of the human mind. I tried to go further and investigated the real influence of each of these circumstances on management errors.

For my research, I asked managers to recall a relevant mistake they had witnessed in their careers. I then gave them a list of factors and they had to choose the extent to which each factor had been a cause of that mistake. I also asked them to assess the influence of 24 factors on management errors as a whole. The conclusions were really enlightening.

The main factors in making a good or bad decision according to the managers were these (in this order):

1. The correct definition of the objective
2. An accurate evaluation of the risks faced by the decision
3. The knowledge of the decision maker
4. The experience of the decision maker
5. Being able to understand the context and trends affecting the decision
6. The distinction between short-term and long-term effects

As I have already said, in another question I asked for the reasons that could have caused each of the errors given by the managers as real examples in the survey, and the results were a little different. As in the previous question, here I highlight the factors with the highest scores:

1. An underestimation of the risks involved
2. The profile of the manager who made the decision
3. Inadequate consideration of some context elements
4. Prioritizing short-term over long-term effects
5. An adequate analysis process was not followed
6. The influence of cognitive biases

In The Wrong Manager, I dug in for a detailed analysis of each factor and circumstance. In this article, I shall try to at least give an idea of the highlights. First of all, the correct definition of the objective seems to be the main element of a good decision, although in practice it does not lead to too many decision errors. When faced with any major problem or situation, a manager must not take the objective for granted; he must work on it, be sure it is consistent with the entire organization’s strategy and also with the context, share it with their colleagues and be sure that it is completely clear before the analysis are carried out.

Risk emerges as another critical factor. The relationship between risk assessment and decision-making is fascinating. Much will depend on the attitude towards risk. A manager can be risk averse, risk neutral and risk taker. It will also depend on the level of knowledge the manager has about the risks to be taken. They can be clueless about the risks, tend to ignore them no matter how much knowledge they have, or have thoroughly studied the possible risks. According to these options, I designed a matrix that will help us understand the different possible effects of risks on decisions:

As we could have imagined, the manager´s profile stands as another key element influencing decision-making. Among the features included in the survey (knowledge, experience, leadership style, personality, state of mind, education), knowledge and experience rank near the top.

Everyone knows managers who tend to make their decisions impulsively; some others who decide after brief reflection and others who take the time to analyse. Some are more prone to collective decisions and others prefer to decide individually. Based on these two criteria (time for reflection and collective propensity), I proposed the matrix below that defines the relationship between the profile of the decision-maker and the type of decision they will tend to make.

The profile as a decision-maker must be one of the variables that HR departments should consider when recruiting, promoting or planning personnel. The Wrong Manager deals with this topic which we cannot elaborate too much on due to the length of the article.

Ignoring the context and trends that affect decisions is another factor that can lead to management error. By context, we mean the political, economic, social, technological, environmental and legal aspects that may influence the outcome of a decision. We also mean the counterparts, those third parties who may react to our move. Too often, managers forget how customers, competitors, value chain partners, colleagues or the public administration might respond to a decision that is relevant to their interests.

Favouring short-term, or even immediate, results over a long-term perspective is another prominent factor in decision-making. It is tempting and understandable: some managers may feel pressured to quickly show the results of their actions, and some may even think about annual bonuses rather than the long-term effects of a decision. But good managers always make their decisions by assessing the permanent effect on the company’s key variables and its position in the market and the community. Thinking long-term means prioritising a neutral analysis that takes into account major market trends, the organisation’s competitive position, its mission and vision, and all the complex elements involved in a major decision over its potential short-term effect.

Finally, process and cognitive biases would be the last two critical factors that cause decision errors according to managers. In The Wrong Manager, I have taken care of those topics. I do not propose a specific process because each manager is a unique individual and there is no ideal process for all the different profiles. Instead, I advise them to engineer a knowledge-based method, which I will cover in a coming article. Likewise, cognitive biases affect managers according to the personality of each one. This subject is so broad that I will also address it in a separate text.