In part one of this series, we covered what data bias is and some tactics to mitigate its impact on decision-making in finance. We will now explore some tactics to de-bias your Finance team.
“That’s the way we’ve always done it.” “We’ve already tested something like that.” “There’s no budget for this risky stuff.”
If you’re hearing these phrases, you could be seeing cognitive biases at play within your team.
The curse of knowledge refers to the unconscious biases of how we apply prior knowledge, particularly in decision-making. The more success you have in applying prior knowledge in a particular way, the harder it is to assess alternatives. As most decision-making is impacted by unconscious bias, the curse of knowledge can severely limit innovative thinking where decisions are made.
Bias and Your Finance Function
Where strategic decisions are concerned, we often fall into the same bias traps:
- Loss aversion: Losses are felt more acutely than gains of the same amount, making us more risk-averse.
- Sunk-cost fallacy: When assessing future courses of action, we take into account historical costs.
- Escalation of commitment: We invest additional resources in underperforming or failing initiatives because of the money and time already invested.
When under time pressure, which is often for most finance teams, negative emotions, individual motivations, and other stressors can amplify the effects of bias in decision-making.
Tracking the right metrics and verifying your data ensures that you have information that your team can trust.
De-Bias Your Team
Use premortems
Using premortems can help you get ahead of possible problems or challenges that your team might not have thought of. Imagine potential future failures when assessing projects or options, and then map out the causes. This technique encourages teams to think more broadly. A solid CPM solution with driver-based financial models will help you with what-if and scenario-based analysis.
Holding individuals accountable for their judgments increases the likelihood that they will reduce bias from decision-making. Rotate responsibilities within your team so that team members get a fresh perspective. Furthermore, the knowledge that decisions will be scrutinized by rotating staff encourages people to make more disciplined choices and have justification for decisions they make.
Increase accountability
Holding individuals accountable for their judgments increases the likelihood that they will reduce bias from decision-making. Rotate responsibilities within your team so that team members get a fresh perspective. Furthermore, the knowledge that decisions will be scrutinized by rotating staff encourages people to make more disciplined choices and have justification for decisions they make.
Democratize your data
Breaking down silos and granting people access to interpret data reduces bias and helps foster a culture of data-driven decision-making within your team.
Challenge assumptions
Testing assumptions gives you a better understanding of the factors contributing to the failure or success of similar decisions. When presented with conflicting information, working with a team (and software) that know your data provide you with helpful insights and feedback.
It is so important to ask the right questions, and have the right software to help you find the answers, rather than ‘fix’ the data to align with preconceived ideas.
Verify your data
Tracking the right metrics and verifying your data ensures that you have information that your team can trust. This trust empowers teams to consider different data points when decision-making, especially under conditions of uncertainty and incomplete information.
Ready to find out more about all Jet Global brings to the table for Business Central? Reach out to your Customer Engagement Specialist, give us a call at 800-834-7700, or email sales@innovia.com.
Additional Sources
- https://towardsdatascience.com/using-analytics-for-better-decision-making-ce4f92c4a025
- https://cfomagazine.com.au/how-cfos-are-leveraging-the-power-of-data-to-guide-businesses-to-post-pandemic-recovery-and-growth/
- https://www.cio.com/article/2389409/data-analytics-will-fail-if-executives-ignore-the-numbers.html
- https://www.mentalfloss.com/article/68705/20-cognitive-biases-affect-your-decisions
- https://www.datapine.com/blog/data-driven-decision-making-in-businesses
This blog has been syndicated from our partner Jet Global. It originally appeared at:https://insightsoftware.com/blog/how-to-reduce-your-financial-data-bias/
