Carl Oliver

By Carl Oliver

Every decision has some risk of being recognized in hindsight as a bad decision. Good business ethics aim to prevent bad decisions. So business ethics training usually teaches people to use the rational decision-making process.

Rational decision-making is a corporate ideal. Intuitively it looks like the route to the wisest decision.

Even if experienced managers have no formal training on the rational decision process, they probably know its steps. Reduced to basics, they are to get all the facts, identify the issue, choose norms and make the decision.

Observation of people making decisions in the real world shows they often do not use the rational decision-making process. Often it is Step 1 that is the big problem: Get all the facts.

On its face, getting all the facts is a strength. How could anyone expect to make the best decision without knowing all the facts? Digging deeper, getting all the facts can be a weakness. Doing so can take much time, effort and perhaps money. People get impatient. And who really knows when all facts have been gathered?

Evidence shows that even decisions made using the rational process can be bad. In an industry classroom, managers studied rational decision-making for three days. Then those managers used it in a group exercise to choose a new company vehicle for the CEO. After getting all available facts, every group bought the CEO a 4-door dump truck. Every group also felt that was a bad decision and wanted to revisit it. During the exercise, they had focused on normal business considerations of cost, schedule and quality. What was missing was situational awareness.

My students often look at Ford’s problem with the Pinto as an example of rational decision-making gone bad. When the Pinto was struck from behind, its gas tank was vulnerable to damage. Sometimes the car caught fire and occupants were injured or killed.

Students say, if it is true that a fix costing $11 per car would prevent those fires, why not spend the money? Save lives.

What really happened appears to be that well-intentioned managers calculated the total cost of a fix as $137 million. U.S. government figures indicated the dollar value of injuries and deaths prevented would be less than $50 million. So, it could look rational to not fix the problem.

What was possibly missing was situational awareness.

Research shows people make real-world decisions in various ways other than the rational decision-making process. Precedent is one: We’ll do what we did last time this situation came up. Satisficing is another: Doing this will be “good enough.” Elimination by aspects is third: I don’t want to buy a red car or yellow one.

Every decision, made rationally or in other ways, needs to be tested for situational awareness. The tool for doing so is the self-test. It asks four questions:

• First, about the decision, is the outcome the right thing to do?

• Second, does the decision follow the law? Company policies? Company values?

• Third, if my decision became known by others, would I feel good? This often is called the newspaper front-page test or the TV news test.

• Fourth, does the decision go the extra mile? Can we add something that would make the decision even better?

When using the self-test, any “no” answer to the first three questions raises a red flag marking a situational awareness problem. Stop and find a better decision. Laws, policies or values may need to be changed or explicitly waived. Find a decision you would feel proud to talk about. Every decision, even the most rational, needs to pass the self-test.

• Carl Oliver teaches business ethics at California Lutheran University.