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How CFOs can keep strategic decisions on track

The finance chief is often well placed to guard against common decision-making biases.

How CFOs can keep strategic decisions on track
When executives contemplate strategic decisions, they often succumb to the same cognitive biases we all have as human beings, such as overconfidence, the confirmation bias, or excessive risk avoidance.1 Such biases distort the way we collect and process information. Even in the rarefied context of the executive suite, judgment can be colored by self-interest leading to more or less conscious deceptions—for example, around the assumptions critical to the valuation of potential capital projects, M&A targets, divestitures, or joint ventures.

CFOs are often the most disinterested parties to such decisions. They seldom chair the relevant meetings, are often highly critical of decision-making dynamics and biases, and can cite examples of past successes and failures. With the technical support of the finance staff, they can also provide hard data to counter the inherent biases of other executives. Yet only a minority of CFOs are fully leveraging their position to change the dynamics of decision making—to promote institutional learning in the interest of better strategic decisions.

To figure out why that might be so—and to look for techniques CFOs can use when playing this critical role—McKinsey’s Bill Huyett and Tim Koller recently talked with Olivier Sibony, a director in McKinsey’s Paris office and a coauthor of numerous articles on the subject of cognitive biases in business decision making.

By Bill Huyett and Tim Koller

To continue :

Vendredi 18 Mars 2011

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