How Can Project Managers Mitigate Their Cognitive Biases? Cognitive Biases in Decision-Making

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. 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).

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

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 in the individual's knowledge, beliefs and abilities (Chatzipanos & Giotis, 2014; Project Management Institute, 2014). A part of optimism bias is wishful thinking. Wishful thinking is believing that something is real because of a wish or desire. Overconfidence is also closely connected to optimism bias. That is when the overoptimistic takes over the assessment of the situation and decision-making. Decisions are made fast and intuitively but not slow and consciously (Chatzipanos & Giotis, 2014).

Planning fallacy Planning fallacy is associated with optimism bias and overconfidence and describes an underestimate of cost and time (Bendul, 2019). When price and time

are underestimated the organisational benefits and effort are overestimated (Project Management Institute, 2014).

Anchoring Anchoring is when everything, important and not so important in the further process of a project or decision relies too early on acquired information. No critical thinking is applied to this first piece of information, and it is not re-evaluated at any point. That can lead to ignorance of new information, or that adjustment is made to current information, so the process fits previously stated information (Chatzipanos & Giotis, 2014; Project Management Institute, 2014)

Loss aversion (sunk cost effect) Loss aversion is when all effort, emotion, energy and resources are put into avoiding or averting loss in a decision or project that is already complicated or troubled. Loss aversion affects decision-making in all stages and context with human resources, procurement effort and the continuation of the project. This often continues even though data is presented that shows the business value of the project will not be attained (Chatzipanos & Giotis, 2014; Project Management Institute, 2014)

Confirmation bias (confidence bias) Confirmation bias is when information and data are favoured in existing beliefs and assumption. It is then used to increase the belief and capability in decision-making in light of confidence and over confirmation. This can lead to systematic errors in the decision-making process when more effort is made to seek information that confirms previous preferences and other important information is ignored. (Arnott, 2006; Chatzipanos & Giotis, 2014; Ehrlinger et al., 2016).

Misrepresentation In the process of decision-making, misrepresentation or presentation bias are some of the most important biases to be aware of. It covers the act of strategically and deliberately wrong display of data such as time and cost. It can also appear in the way data is processed and presented. It is often seen as a deliberate underestimation of an effort's cost and schedule. But also, as deliberately overestimation benefits. Both of this misrepresentation can put the project or decision under pressure and create false expectations that might affect the outcome. This bias is sometimes seen when a wrong decision is made, or a project is going the wrong way, and the belief is that it can be turned around later by an individual without knowledge of others (Arnott, 2006; Chatzipanos & Giotis, 2014; Project Management Institute, 2014).

2.4 How to mitigate your cognitive biases in decision-making

Studies have shown that cognitive biases can be mitigated in decision-making. In this context, the word debiasing is also known, but debiasing is when the effect of bias is reduced in light of judgement and decision-making. In the book Thinking fast and slow, published in 2011, Kahneman reflects on cognitive biases and the systems of thinking, system one and system two and how we can mitigate the effect of cognitive biases in the decision-making process (Kahneman et al., 2011).

In system one thinking, feelings, intentions, peroration for actions and decisions is quick, and natural, no or little effort is made, and no critical thinking is

acquired. System one controls action that does not need continuous focus on how to do them; we just do them. System two, on the other hand, controls mental activities that need effort; the thinking is deliberate and slow. For the most of the time system one takes over the decision-making process, and because it is fast and without or limited critical thinking it can be affected with cognitive biases (Kahneman et al., 2011).

To mitigate cognitive biases in decision-making, Kahneman et al. (2011) suggested the use of the following questions for decision-makers to ask themselves: 1. Is there any reason to suspect motivated errors or errors driven by the self- interest of the recommended team? 2. Have the people making the recommendations fallen in love with it? 3. Were there dissenting opinions within the recommended team?

By answering these questions, the decision-maker raises awareness which is one of the steps to mitigate cognitive biases. With knowledge and addressing that cognitive biases exist in the decision-making process, their impact will be minimised. Secondly, there is collaboration and communication. It is easier to see cognitive biases in others than your own biases (Chatzipanos & Giotis, 2014; Kahneman et al., 2011). Most decisions are not made individually; they are often influenced by several people. A decision-maker is maybe not so good at spotting their own biases but might be able to use awareness, communication and collaboration in an advantage to spot biases in how others think. The decision-maker can use the judgement that comes with system two thinking to influence system one thinking within others (Kahneman et al., 2011). Thirdly to inquiry about the perception of the existing cognitive biases. When it becomes a piece of knowledge in their midst that cognitive biases are part of the process of decision-making, it will be easier to spot and avoid (Chatzipanos & Giotis, 2014; Kahneman et al., 2011).

In an article named "Quality control and due diligence in project management: Getting decisions right by taking the outside view' written by Bent Flyvbjerg in 2013, the theory of outside view is explored. The outside view is a method that was initially developed to mitigate optimism bias. Still, it can help to mitigate any type of cognitive biases, such as planning fallacy on planned actions. It is known to work best in projects that are non-routine projects and in projects and decisions that the project manager has never done before. It uses experience from similar projects that are already completed, where the average outcome of previous projects is looked into, along with the outcome. By looking only at the empirical results in similar projects, cognitive biases like optimism biases and planning fallacy are bypassed. Project managers are often inclined to adopt the inside view and look at the project from its complexity, details and try to predict possible outcomes (Flyvbjerg, 2013).

According to Kahneman, it is not in the planner's nature to take the outside view and gather statistics about similar projects. But the planner can be, for example, the project manager. That leads to that cognitive biases can be persistent in decision-making, and mitigation will not become a part of the process. So, the mitigation becomes a part of the process; it can be introduced with quality control methods like outside view for decision-making and projects (Flyvbjerg, 2013).

The limitations to the outside view are when the demand for accuracy is not present, and barriers are high. These limitations can be found in a situation where the leading cause of inaccuracy is optimism bias or if the situation that is compared to has inaccuracy because of strategic misrepresentation (Flyvbjerg, 2013).

The limitation to build a decision-making quality system is not the time spent or the cost. It is the challenge to raise awareness on the fact that decision-makers, often managers, are fallible despite their knowledge, competence and experience. The disciplined decision process that addresses cognitive biases is the key to their awareness and mitigation (Kahneman et al., 2011).

3. RESEARCH METHOD

This paper is a literature review where research findings on cognitive biases in decision-making are looked into, and recommendations on how project managers can get to know their biases and to mitigate them in their decision-making. The purpose of this paper is for the readers to have more knowledge about their cognitive biases in decision-making and has adapted some useful advice on how to reflect on their own biases in decision-making.

Several study methods could have been used to obtain findings on the matter. A case study or in-depth interviews with project managers in the field could have given the subject some depth and useful insight and information about how decision-making can fail or be affected by cognitive biases in projects.

Due to the unforeseen circumstances that have been for the last months, as a result of COVID-19, a literature review was the selected research method for this paper. The main reason for this selection was the lack of time to schedule the interviews and be able to work the research finding. Also, a part of this selection is that the matter has been researched in many different areas like psychology, business, economic, leadership and more. There is a lot of literature and data out there, but the challenges are to put it in context with the subject of project management in an interesting way.

The method that was used to search for research and literature was an online search using Google Scholar, Science Direct, ProQuest and Project management institute (PMI) website. The following keywords were mostly used: decision-making, cognitive bias, project management/managing. The primary search was limited with research in English and not older than ten years old, or since 2010. The snowball effect was then used to look into a reference of studies that were found using previously stated keywords. That lead to some older research, but those were mostly findings by Tversky and Kahneman and Herbert Simon. Reliability of research and articles was evaluated by how often it had been cited among others. Books from the reading lists in the study of Master of Project Management (MPM) were also used.

4. RESEARCH RESULTS AND DISCUSSION

The results from the literature review were mainly general about decision-making and cognitive biases. Cognitive biases in decision-making have been studied considerably in the fields of economics, business and medical- and health science. There were not many studies on this subject in the field of project management. That is a limitation to this paper in the author's opinion.

Despite the lack of research that is directly in the field of project management, the findings that were addressed in this paper can be adapted to the

subjects of project management. The decision-making process is a great contributor to the challenges within project management, and the cognitive biases address the psychological field, which is also a part of being a manager. But a project manager should be able to address their flaws as well as their strengths, with self-knowledge and consciousness.

The decision-making process has been studied for years, and the science is constant but yet important. The studies that Herbert Simon did are still relevant even though it is over 40 years old. There is no argument about the decision-making process and its importance in projects. It is therefore also crucial that the project manager, who is involved in some way or another, in most of the decision-making, is well informed. And all of the data and accessible information that is needed for every decision that is made is clear and presented correctly. The project manager needs to have a clear and focused view on the process and the what needs are going to be met with every decision made.

It is also good to remember that the decision-making process is not an innate behaviour like Ingason and Jónasson state in their book. It is a learning process that acquires effort to achieve the ability to be able to make consistency and quality decisions.

The concept of cognitive biases was first introduced in the seventies by Kahneman and Tversky, and numerous studies have been done on their effect on the human mind in the decision-making process. Cognitive biases in project management are less known. From the studies mentioned in this paper, it is the author's finding that planning fallacy, anchoring and optimism bias are the cognitive biases that are best known in project management.

That might lead to the question; what is there to be done so project managers can be more aware and capable of mitigating the effect of cognitive biases in the decision-making process? It is known that judgemental errors and misperceptions can have severe consequences on projects outcome, especially the decisions that have to do with time and cost. In a decision made regarding time and cost all of the three previously mentioned cognitive biases can affect the project managers mind; planning fallacy, anchoring and optimism bias.

These are the three main steps to mitigate cognitive biases: 1. Awareness 2. Collaboration and communication 3. Inquiry of perception due to biases

Flyvberg explores in his article a method by Kahneman to mitigate cognitive biases. That is a simple way to overlook project managers' own biases and only focus on the outcome of similar projects, the empirical data in a retrospective view. That is in harmony with the decision-making process that should be based on empirical data.

The key and the most critical factor in mitigating cognitive bias in decision- making is the awareness of its' existence. As soon as project managers know there can be errors in thinking affecting their or the team's decision, big or small, it will be easier to initiate a checklist or process that helps with the elimination of cognitive biases. To be able to use this awareness of cognitive biases to its fullest, self- consciousness is needed. Like with various issues that can arise in project

management and life, in general, the first step is to look inside. To be self- consciousness is an essential element that needs to nourish and grow. And it is probably something that is never learned to the fullest.

Awareness and self-consciousness lead to better collaboration and communication, and then the project manager is automatically in step two; collaboration and communication to mitigate cognitive biases. To talk about and be able to spot your team's biases is very valuable and tests the project manager's ability in communication. Team members or other co-workers can find it intimidating that their judgment is questioned under challenging processes like decision-making can be. That amplifies the importance of awareness of cognitive biases within project managers.

In ICB4, which is a competence baseline for a project manager, cognitive biases or other judgmental errors are not mentioned in the decision section and very little overall. In the ICB4, it is not suggested to be something that a project manager needs to be aware of in the decision-making process. Or to look inside and see if the decision that is being made is somehow or somewhat influenced by thinking error by the decision-maker. The ICB4 addresses that a lack of information and even contradictory information can be the only information that the project manager has to make a decision. Situations described in ICB4 are ideal for cognitive biases to affect the project manager judgement. It is the author's opinion that cognitive biases need to be addressed more regarding competence in decision-making. With awareness from IMPA, the acknowledged of cognitive biases can increase within project managers.

It is the author's opinion that there is an opportunity for further research in the field of cognitive biases and project management. An idea of research would be to look into the awareness of cognitive biases within project managers. Do they know cognitive biases exist? And how it affects the decision-making process? It would also be interesting to know if project managers are aware what of cognitive biases do; and if they try to mitigate their influence on the decision-making process. It would be interesting to put it in context with project governance and what effect cognitive biases have on extensive projects like that.

5. CONCLUSIONS

Decisions that are made and are affected by cognitive biases are more likely to fail, in some way or another. Decisions, where cognitive biases have been eliminated and are only based on analysed data and appropriate information, are, on the other hand, more likely to be successful. A project manager has a toolbox full of resources to mitigate cognitive biases in decision-making. But how does a project manager know what tools to use if she doesn't know what there is to work on?

Cognitive biases are not well-known by project managers but should have more of a significance in their role as a decision-maker. It has to be addressed that everyone has cognitive biases and that it is everyone's responsibility to acquire knowledge and the encouragement to work on the mitigation of cognitive biases.

To be able to mitigate cognitive biases in the decision-making process, awareness is the fundamental factor. With awareness, the ability to communicate and collaborate is more effective. By addressing the fact that cognitive biases affect

us all in decision-making, project managers can discuss more openly and concerning the subject. It is easier to see cognitive biases in others, so with open conversation, the mitigation can start.

The following are competencies that project managers obtain through studies of becoming a project manager; effective communication, active-listening, courage, and leadership. All of this can be a help to mitigate cognitive biases by using it to bring awareness of cognitive biases in decision-making.

6. ACKNOWLEDGEMENT

The author gratefully acknowledges the work of research that has already been done on cognitive biases in decision-making and that the findings and conclusions are available to read and review. Warm thanks to Mike Hogan for guidance, support and feedback during the process of this paper. Finally, to my husband and children that have shown me all of their support and patience over the last two years.

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