‘Hindsight bias’ has been defined as believing that the onset of a past event was predictable and completely obvious, when actually, the outcome could not have been predicted. Politicians, media (and social media) commentators, and sometimes Counsel Assisting commissions of inquiry, all demonstrate a tendency to this form of cognitive distortion. Directors and managers are no less at risk of this.
Three levels of hindsight bias have been identified as follows:
- Predictability – “I KNEW it would happen”
- Inevitability – “IT HAD to happen”
- Memory Distortion – “I SAID it would happen”
While understanding the risk of hindsight bias, non-profit directors and managers nonetheless have an obligation to reflect on past events in order to identify opportunities for improvement, or the need for new control measures to prevent an adverse event from occurring or recurring.
From my observations, directors have little difficulty looking at their historical development to gain insights which allow them to foresee an imagined future strategy. They can recognise that hindsight, insight and foresight are really three aspects of one activity. It is less common however, for directors to recognise that the same can be said of incident analysis as a source of insights about ways to improve future risk controls.
Systematic Cause Analysis
In a recent post, I explored a process of root cause analysis following a risk event, using a set of questions to determine what happened, the contributing factors and the basic or root cause of the incident or event.
A variation on that method is called the Barrier Based Systematic Cause Analysis Technique (BSCAT), illustrated below, which takes the analysis down to the level of preventive and mitigation controls to ask which of these failed and why. This process allows identification of missing or ineffective controls which, had they been well designed and applied appropriately, would have prevented the incident.
The recent NSW Ruby Princess Inquiry, the Victorian Hotel Quarantine Inquiry and the Federal Aged Care Royal Commission all offer topical insights into risk management failures. They also share certain common factors, including under-funding, poorly structured coordination structures and processes, and people at all levels being expected to respond effectively to a massively complex collection of challenges ‘on the fly’.
As we have seen during the pandemic, people involved in response roles across all sectors had no opportunity to catch their breath, and to do the kind of detailed planning which is a foundation for effective response coordination. Often, they were working extended hours, suffering stress and exhaustion, and yet they are still expected to make fault-free decisions.
In some ways, the accumulated impact of government decisions over some decades meant that the capacity to respond effectively simply wasn’t there. The system failed. Both conservative and progressive governments have played their part in that legacy over an extended period.
To the extent that incident analysis indulges the luxury of looking back with 20:20 hindsight, it may seem obvious now what steps and systems would have helped prevent each crisis. For those of us faced with responsibility for managing future risks, the precise nature of which we cannot know, the benefit of allocating time to incident analysis is that we gain insights into at least some of the types of issues we could be faced with. Those insights can then translate into control measures to prevent risk events, and mitigate outcomes if they do occur.
Root cause analysis seeks to ensure that an underlying causal factor is addressed so that a similar incident cannot occur again for that reason. If one only addresses contributing factors, while leaving the root cause undeclared and unaddressed, then the opportunity to take the required preventive action is missed. Thus, we can see that incident analysis is not just looking backwards. In fact, it’s a key measure by which to prevent repetition of an incident, or to entirely remove a hazard from the operating environment.
Agile non-profit strategy
Many non-profit organisations have limited resources, and yet ask their volunteers and staff to achieve success and avoid faults in executing complex strategies.
At a time when volatility, uncertainty, complexity and ambiguity (the negative VUCA) are strongly in evidence, boards and their management teams can help their people by creating space to reflect on priorities (vision), use data and insights to improve understanding, clarify the short to medium term goals, and promote agility by testing and progressively refining problem solutions (the positive VUCA).
This last element is not granting permission to fail, but is offering the freedom to discover problems with an initial plan. The ‘agile strategy’ approach is meant to allow greater flexibility in strategy execution, but also recognition that a plan is likely to require adjustment along the way, whether due to unforeseen (sometimes unforeseeable) external factors, or due to insights gained through the implementation process.
If ‘hindsight bias’ describes a form of distorted thinking about the past, how should we describe distorted thinking about the future? Optimism and pessimism are the two extremes on the continuum of future thinking modes, and yet each of these in themselves represents a spectrum of positive and negative elements.
Optimism is good when it expresses confidence in growth opportunities and drives effective strategy. It is risky however, when it is simply ‘wishful thinking’. It can be unrealistic and fail to adequately account for resource constraints and external circumstances which prevent success.
Pessimism is good when it is risk averse and takes care of the people involved, the environment, and anything else that could be harmed if something were to go wrong. It is bad however, when it causes leaders to avoid new ventures and responses to emerging needs.
Boards therefore need to calibrate their risk appetite so that innovation is prudently supported, and consequently, so that progress can be achieved. Balancing entrepreneurial energy with appropriate controls is at the heart of good governance.