Overcoming Outcome Bias

What is more important, the process or its outcome? Information management processes, like those described by the MIKE2.0 Methodology, drive the daily operations of an organization’s business functions as well as support the tactical and strategic decision-making processes of its business leaders. However, an organization’s success or failure is usually measured by the outcomes produced by those processes.

As Duncan Watts explained in his book Everything Is Obvious: How Common Sense Fails Us, “rather than the evaluation of the outcome being determined by the quality of the process that led to it, it is the observed nature of the outcome that determines how we evaluate the process.” This is known as outcome bias.

While an organization is enjoying positive outcomes, such as exceeding its revenue goals for the current fiscal period, outcome bias basks processes in a rose-colored glow. Information management processes must be providing high-quality data to decision-making processes, which business leaders are using to make good decisions. However, when an organization is suffering from negative outcomes, such as a regulatory compliance failure, outcome bias blames it on broken information management processes and poor data quality that lead to bad decision-making.

“Judging the merit of a decision can never be done simply by looking at the outcome,” explained Jeffrey Ma in his book The House Advantage: Playing the Odds to Win Big In Business. “A poor result does not necessarily mean a poor decision. Likewise a good result does not necessarily mean a good decision.”

“We are prone to blame decision makers for good decisions that worked out badly and to give them too little credit for successful moves that appear obvious after the fact,” explained Daniel Kahneman in his book Thinking, Fast and Slow.

While risk mitigation is an oft-cited business justification for investing in information management, Kahneman also noted how outcome bias can “bring undeserved rewards to irresponsible risk seekers, such as a general or an entrepreneur who took a crazy gamble and won. Leaders who have been lucky are never punished for having taken too much risk. Instead, they are believed to have had the flair and foresight to anticipate success. A few lucky gambles can crown a reckless leader with a halo of prescience and boldness.”

Outcome bias triggers overreactions to both success and failure. Organizations that try to reverse engineer a single, successful outcome into a formal, repeatable process often fail, much to their surprise. Organizations also tend to abandon a new process immediately if its first outcome is a failure. “Over time,” Ma explained, “if one makes good, quality decisions, one will generally receive better outcomes, but it takes a large sample set to prove this.”

Your organization needs solid processes governing how information is created, managed, presented, and used in decision-making. Your organization also needs to guard against outcomes biasing your evaluation of those processes.

In order to overcome outcome bias, Watts recommended we “bear in mind that a good plan can fail while a bad plan can succeed—just by random chance—and therefore judge the plan on its own merits as well as the known outcome.”

 

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Category: Data Quality, Information Development
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