Are Modern Executives Equipped to Make High-Risk Decisions?

It’s no secret that executives make decisions on a daily basis. Some of these decisions are straightforward. Others are more complex with many inputs, variables, and potential outcomes. The more complex the decision the greater the risk. The shocking news is that leaders are not confident in the decisions they make. It’s surprising, but understandable, that “85% of business leaders have suffered from decision distress – regretting, feeling guilty about, or questioning a decision they made in the past year.” 

We get it. Our founder, Sherif Farghal said it best; “decision-making is hard.” We know that is not a groundbreaking statement, but simply hearing it affirms what executives around the world are thinking. 

We empathize with the 14% of C-suite executives who state they spend 70% of their time making decisions. We also take note that workers are spending 37% of their work time making decisions. That’s not a small chunk of time; getting it wrong can be costly. McKinsey notes that this could translate into more than 530,000 days of lost working time and roughly $250 million of wasted labor costs per year. (source: McKinsey) On the other hand, decisions that lead to growth or align with your strategic values can reap long-lasting rewards.

Time & Data Contribute to the Decision Crisis

Leaders often make poor decisions because of a lack of reliable data and insufficient time. It’s also why they never make a decision. In fact, 72% [of leaders] state that the sheer volume of data and their lack of trust in data has stopped them from making any decision. On the other hand, 97% say that they desire to lean into the data. (source: Oracle). 

When the lack of data and pressure to make a decision without ample time conflate, the result is decision-makers leveraging what psychologist, author, and Nobel Prize Winner, Daniel Kahneman calls System 1 thinking. In his book, Thinking Fast and Slow, Kahneman notes that humans tend to operate from two “systems” of thinking. System 1 relies on the information that we’ve gathered from past experiences which allows us to make decisions much faster.

System 1 thinking isn’t inherently wrong. There are times when thinking fast is invaluable. Two examples of the value of System 1 thinking are quickly avoiding a person crossing the street while you’re driving or shooting the game-winning shot at the buzzer during an intense game. The more time one takes to make these types of decisions, the more detrimental the outcome can be.

Another example of System 1 thinking in action happens when someone is driving and the car in front of them suddenly hits the brakes. In this case, the impacted driver’s response is to brake instinctively. This driver doesn’t have time to pull out a paper and pencil to calculate their velocity and determine the optimal braking time. This quick, automatic reaction is a prime example of System 1 thinking at work.

In business, System 1 is fitting for what McKinsey & Company calls “Delegated Decisions” which are “frequent and low-risk decisions [that] are effectively handled by an individual or working team, with limited input from others. This includes responding to quick emails, determining whether or not to give a customer a refund, or choosing a meeting room for a routine meeting. Spending hours and involving several people in these decisions is generally an inefficient use of time. 

On the other hand, System 1 thinking shouldn’t be used for weighty decisions such as choosing how to allocate millions of dollars, strategic planning, or determining the next innovative product.  McKinsey & Company classifies these types of decisions as “big-bet decisions” and “cross-cutting decisions”. “Big-bet decisions” are “infrequent and high-risk decisions [that] have the potential to shape the future of the company.” “Cross-cutting decisions” are defined as “frequent and high-risk decisions, [where] a series of small, interconnected decisions are made by different groups as part of a collaborative, end-to-end decision process.” In both of these instances, the decision is high-risk and multiple people are involved or impacted. 

High-risk Decisions Require a Different Approach

Big-bet and cross-cutting decisions require a different approach. These types of decisions require leaders to lean on more than their past experiences and gut feelings – even if these led to positive outcomes in the past.

As leaders, we bring with us several decision biases along the decision-making journey. Whether we are aware of it or not, we allow how much we like a person to influence whether or not we’ll take their input. This bias is known as “personal influence.  Additionally, political bias happens when we allow a person’s level within the organization to impact our decisions. This is seen when a VP, manager, and individual contributor are in a room and more weight is given to the VP’s input regardless of whether or not the VP possesses the most accurate or up-to-date information.

Another common bias that executives bring to the decision-making process is the “status quo” bias. While it’s no secret that status quo means doing the same thing over and over again, it’s not as obvious as one would think. In business, it’s easy for the status quo bias to show up during the budgeting process. It’s easy to allocate $1 million to one department simply because that department was allocated $1 million the previous year. The status quo bias also transpires when leaders decide to continue a product line simply because the product line did well the previous year. While there doesn’t seem to be much harm at face value, both of these examples pose risk as neither includes other internal or external considerations that may have happened during or that are on the horizon. 

After looking at the examples above, it’s easy to see how biases can have a negative effect on the business decisions we make. While we only listed three biases above, there are at least twelve decision biases that leaders may bring to the proverbial boardroom. This makes it important that we are not only aware of these biases, but it’s also important that we implement solutions to overcome them.

System 2 Thinking: Getting Beyond Biases & Gut Feeling

Getting to better decisions requires System 2 thinking. If we were to borrow from a design thinking mindset, making high-risk decisions means understanding the problem, knowing the current state, and clearly defining the central question. It also means asking the right questions and leaning into the data. It means having a willingness for your hypothesis to be wrong or for a more junior team member to possess more accurate data than the senior executive.

System 2 thinking is slow – and necessary. It can also be intimidating and humbling which may be why “70% of business leaders would prefer a robot to make their decisions.” The pressure that comes with making high-risk decisions is real. 

An encouraging shift in the decision-making process is that leaders are changing how they approach decisions.  Oracle reported that in 2023, “94% [of business leaders] have changed the way they make decisions over the last three years”. Oracle went on to say that  “97% want help from data”. 

Our 30 years of consulting experience have taught us that organizations that adopt a structured, repeatable decision-making process equip and empower leaders to approach big-bet and cross-cutting decisions more confidently. This includes a process that’s designed to reduce bias, quantify criteria, and lean on internal or external experts. While no outcome is guaranteed, simply having the right tools and resources to support modern leaders is a step in the right direction.