8 Traps to Avoid When Making Procurement Decisions

8 Traps to Avoid When Making Procurement Decisions
By Stephen C Carter

Bad decisions can often be traced back to the way decisions were made. The alternative were not clearly defined; the right information was not collected; the costs and benefits were not accurately weighed.

But sometimes the fault lies not in the decision making process but in the mind of the decision maker. In fact, the way our brains work can sabotage the choices we make.

An article by American academics (“Hammond, Ralph & Raiffa: The Hidden Traps in Decision Making,” Harvard Business Review, January 2006) identifies eight psychological traps that are particularly likely to affect the way in which we make decisions. Here they are:-

1. The anchoring trap leads us to give undue weight to the first information we receive.

2. The status quo trap biases us towards maintaining the current situation even in the face of evidence of better solutions.

3. The sunk cost trap leads us to perpetuate the mistakes of the past.

4. The confirming evidence trap leads us to seek out information that supports our existing views.

5. The framing trap occurs when we misstate the problem.

6. The over-confidence trap makes us overestimate the accuracy of our forecasts.

7. The prudence trap leads us to be overly cautious when we make estimates about the future.

8. The recallability trap leads us to give undue weight to recent, dramatic events.

The best way to avoid all the traps is to be aware. The authors of the article describe ways in which you can take simple steps to protect yourself from these traps. They include:

• Always view a problem from different perspectives – use alternative starting points and approaches rather than stick with the first train of thought that occurs to you.

• Be open-minded – seek information and opinions from a wide variety of sources.

• Never think of the status quo as your only alternative.

• Identify other options and carefully evaluate all the pluses and minuses. Ask yourself if you would choose the status quo if it wasn’t the status quo.

• Get someone you respect to act as devil’s advocate; to argue against the decision you are contemplating.

• Check to see whether you are examining all of the available evidence with equal vigor.

• To reduce the effects of over-confidence in making estimates, always start by considering the high and low ends of the possible range of values.

• Examine all of your assumptions to ensure they are not unduly influenced by your memory.

The authors of the report also warn that dangerous though each of these traps are in isolation, they can also work in concert with devastating effect. For example, a dramatic first impression might anchor your thinking and then you selectively seek out confirming evidence to justify your initial view. You then make a hasty decision and that decision establishes a status quo. As your sunk cost mount, you become trapped, unable to find the right time to seek a new and possibly better course of action.

Thinking through these ideas may pay dividends next time you analyze a supply market or enter into negotiation with a supplier.

Steve has been a consultant, coach and interim manager since 1987 specializing in purchasing category management, strategic sourcing and supplier relationship management. His clients come from both the public and private sectors and include many household names as well as SMEs. He has also held a variety of senior line management positions with both a UK and a US multinational and has extensive experience of working with subsidiaries across the world. He now offers online training and coaching courses on a variety of Procurement and Supply Management topics. You can email Steve at steve.carter@crestbsl.com