How Can Project Managers Mitigate Their Cognitive Biases? Cognitive Biases in Decision-Making
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MPM – Master of Project Management How can project managers mitigate their cognitive biases? Cognitive biases in decision-making May, 2020 Student: Ingunn Þorvarðardóttir 080984-2949 Supervisor: Mike Hogan 9 ECTS for the degree of MPM (Master of Project Management) HOW CAN PROJECT MANAGERS MITIGATE THEIR COGNITIVE BIASES? -COGNITIVE BIASES IN DECISION-MAKING Ingunn Þorvarðardóttir Paper presented as part of requirements for the degree of Master of Project Management (MPM) Reykjavik University - May 2020 ABSTRACT The decision-making process is an essential part of project managers profession. Project managers are in the process every day, making their own decisions or consulting decision made by other parties of the project. Every decision made is affected by judgemental errors like cognitive biases. This paper is a literature review where research findings on cognitive biases in decision-making are studied, and what are the key factors for project managers to get to know their biases and mitigate them in their decision-making. The findings of this paper are that awareness, good communication and collaboration are the key factors in mitigating cognitive biases in decision-making. The literature review indicates a gap in researches within project management and the awareness of cognitive biases, with an opportunity to further researches in the field of cognitive biases and project management. 1. INTRODUCTION The decision-making process is one of the foundations in project management. Both internal and external factors can affect the process with variable outcomes. One of the factors that can affect the project manager judgment and thinking are cognitive biases. The motivation and interest in this subject come from its importance. The importance that project managers have self-awareness and are able to face and accept that biases and thinking errors can occur irrespective of experience and knowledge. The decision-making process is complex, and with various factors to look at before a decision is made, and cognitive biases should be one of them. This paper endeavours to address the decision-making process and the most common cognitive biases in decision-making. That, along with how project managers can effectively mitigate their own cognitive biases. Furthermore, this paper aims to answer the following research question: "How can a project manager raise awareness and mitigate cognitive biases in decision-making?" 2 2. LITERATURE REVIEW This section briefly describes the decision-making process, cognitive biases, and ways to mitigate the effect cognitive biases can have on the decision-making process. 2.1 Decision-making Herbert Simon is a known researcher in decision-making within companies. His studies showed that decision-making is at the core of all manageable processes, and companies that adapt to modern decision-making methods would get a competitive advantage in a world where the business environment is in rapid progress. Ingason and Jónasson (2016) described Simons three stages in decision-making as following and seen in figure 1: 1. Intelligence gathering 2. Design 3. Choice Figure 1- Simon's three stages of decision-making. Adapted from Wikipedia. https://en.wikipedia.org/wiki/Herbert_A._Simon. Retrieved on May 5th, 2020. Simon's research about decision-making revealed the following. Firstly, decisions should be investigated empirically instead of assuming that decisions will follow any formal models like logical or statistical models. Secondly, in decision-making, three factors should be taken into account: a. Of what type is the task? b. What are the characteristics of the environment and the apparent characteristics of the cognitive system that controls the decision- making? Thirdly, the human behaviour in decision-making should be compared to models made from the empirical data and their predictions, and this should only be done in conjunction with the collection of the empirical data (Campitelli & Gobet, 2010). 3 In every project, many decisions are made. Decisions can be made by the project manager, the steering committee, the project owner or other parties of interest. Most of the time, the decision is influenced by a recommendation from the project manager. The quality of the decision made depends on many factors such as the assumption underlying the decision, the estimate of the decision-maker knowledge and experience, the understanding of the project goal, and to perceive the decision's impact on other parts of the project. The quality of the decision made depends on these and other factors (Mikkelsen & Riis, 2017). In Individual Competence Baseline for Project, Programme & Portfolio Management, 4th Version (ICB4) by the International Project Management Association (2015), making a decision is defined as "being able to select a course of action based on several possible alternative paths" (IPMA, 2015, p. 78). It also says that decisions are made by choosing consciously and selecting alternatives that best fit the subject. The decision should be made based on information and data analyse in collaboration with others and their opinion. In some cases, a decision is made with inadequate information, even based on the project manager's intuition with unknown consequences. Based on that, decisions often need to be reviewed or even changed due to new information. For some project managers, it might seem natural to analyse information in a short period of time, be able to make a decision and stand by the decision. However, the ability to make decision isn't necessarily innate; the process of decision-making is a skill that can be developed like any other skill. Decision-making is built on the ability to coordinate different points of view, analyse information that is on hand, evaluate the information, pick and choose and finally choose the decision that is the most suitable (Ingason & Jónasson, 2016). 2.2 Cognitive biases and decision-making In the early 1970s, Kahneman and Tversky introduced the term cognitive bias and defined it as the human inability to reason in a rational way (Bendul, 2019). Cognitive biases are mental behaviours that can affect the quality of our decision- making. Therefore it is often called judgement biases (Arnott, 2006). It can also influence how individuals form their beliefs and behave in diverse environments (Chatzipanos & Giotis, 2014). In the literature, more than 100 cognitive, decision- making and memory-related biases have been documented, and further research continues to identify and delineate new biases (Ehrlinger et al., 2016). In PMI's guide, Navigating Complexity: A Practice Guide (2014), three groups of causes of complexity in projects and/or programs are addressed. These group of causes are: - Human Behaviour (individual behaviour, group behaviour [organisational/social/political], communication and control, and organisational design and development) - System Behaviour (connectedness, dependency, and system dynamics) - Ambiguity (uncertainty and emergence) Because of human nature, an individual's behaviour is a part of every project complexity, but human behaviours are neither always rational nor deliberate. One 4 element of this act of irrationality is cognitive biases (Project Management Institute, 2014). This is in harmony with Kahneman's research that decision-making in a complex and uncertain environment goes wrong because of mental behaviours like cognitive biases (Kahneman, 2002). Cognitive biases are a type of error in thinking that occurs when the brain tries to simplify the information process. That can result in seeing things that are nonsensical not there, or in just being wrong by refusing to see the facts. As said before, when cognitive biases affect individual thinking, complexity can arise. (Chatzipanos & Giotis, 2014) Researches on decision-making and cognitive bias have shown a different result of what cognitive biases are the most common in that process. It varies on the type of decision and subject. Some are mentioned more often than others, but all affect the decision process and the lifecycle of the project in one way or another (Arnott, 2006; Bendul, 2019; Chatzipanos & Giotis, 2014; Project Management Institute, 2014; Taylor, 2013). Cognitive biases can likely overlap in definition, and their effect is more extensive. Factors that arise from psychological pathology, religious belief or social pressure are typically excluded from consideration in researches regarding cognitive bias (Arnott, 2006). 2.3 Getting to know your cognitive biases (Types of cognitive biases) In general, cognitive bias can be divided into two categories. Information biases affect information processing, make the decision-maker take fast and noncritical decisions without paying attention to information that truly matters. That also includes the use of heuristics, but heuristics are mental shortcuts in decision-making. It allows the decision-maker to make a decision quickly with minimal mental effort and even pass all judgement. Secondly, there are ego biases. Ego biases are cognitive biases that act on emotional motivation and social influences like the need for acceptance and peer pressure (Taylor, 2013). The following are some of the cognitive biases that affect the decision-making process: Optimism bias Optimism bias is the tendency of being overly optimistic, to believe to be less likely to fail or get adverse outcomes, to be more of a success than others and not estimate at all or underestimate outcomes that are not in the project favour. It also presents as overconfidence