Debiased Decision Making  579
Some of the techniques used to overcome groupthink, such as the use of 
opposing red and blue teams, can help here. The simplest approaches are to 
avoid developing hypotheses too early in the process and to actively look for 
contrary evidence. Other potential correctives for confirmation bias and over-
optimism include the following two methods:
1. Conducting a pre-mortem. A “pre-mortem” is an exercise in which, after 
a project team has been briefed on a proposed plan, its members pur-
posely imagine that the plan has failed. The very structure of a pre-
mortem makes it safe to identify problems. Sometimes team members 
will compete to see who can raise the most worrisome issues.9
2. Taking the outside view. One way to make better forecasts is to take the 
outside view, which means building a statistical view of a project based 
on a reference class of similar projects. To understand how the outside 
view works, consider an experiment performed with a group at a pri-
vate-equity company. The group was asked to build a forecast for an 
ongoing investment from the bottom up—tracing its path from begin-
ning to end and noting the key steps, actions, and milestones required 
to meet proposed targets. The group’s median expected rate of return 
on this investment was about 50 percent. The group was then asked to 
fill out a table comparing that ongoing investment with categories of 
similar investments, looking at factors such as relative quality of the 
investment and average return for an investment category. Using this 
outside view, the group saw that its median expected rate of return was 
more than double that of the most similar investments.10
Loss Aversion
We previously explored loss aversion in Chapter 4, via survey results showing 
that most executives are loss averse and unwilling to undertake risky projects 
with high estimated present values.11 The primary solution to overcoming loss 
aversion is to view investment decisions based not on their individual risk but 
on the basis of their contribution to the risk of the enterprise as a whole (see 
Chapter 29).
9 G. Klein, T. Koller, and D. Lovallo, “Pre-Mortems: Being Smart at the Start,” McKinsey Quarterly (April 
2019), www.mckinsey.com.
10 T. Koller and D. Lovallo, “Bias Busters: Taking the ‘Outside View,’” McKinsey Quarterly, September 
2018, www.mckinsey.com.
11 For more on overcoming loss aversion, see D. Lovallo, T. Koller, R. Uhlaner, and D. Kahneman, “Your 
Company Is Too Risk-Averse,” Harvard Business Review (March–April 2020), hbr.org.

580  Strategic Management: Mindsets and Behaviors
That’s easy in theory, but executives are typically concerned about the 
risk of their own projects and the potential impact on their careers. That’s 
why those decisions should be elevated to executives with a broader portfolio 
of projects whose risks cancel each other out. Often, the decisions must be 
pushed up to the CEO.
To be most effective, companies also must encourage middle-level manag-
ers and other employees to propose risky ideas. Companies can do this by 
eliminating risks to the employee. Many employees censor themselves be-
cause of concerns that their careers will suffer if their idea for a project fails. 
To overcome this concern, it’s important to agree on the various risks up front 
with the top leadership and conduct post-mortems on projects, particularly 
to identify causes of failure. If a project fails because the decision to go ahead 
with the project turned out to be incorrect (which should happen frequently), 
that failure should not bear on the manager responsible for the project. The 
responsible manager should only be accountable for the quality of execution 
of the project.
Some companies have gone even further by demonstrating that failure, 
depending on the circumstances, does not damage one’s career. For example, 
David Pottruck, former CEO of Charles Schwab, wrote about what he calls 
Noble Failures.12 If a project was well planned, had contingencies, limited 
the negative fallout, and followed a policy of “no surprises,” and if partici-
pants learned from their experience, even a failed effort might be considered 
“noble.” Pottruck explained, “The Noble Failure concept is intended to en-
courage people to voice their opinions and ideas more freely because they 
know that even a failing effort will be tolerated, sometimes even celebrated, 
and never punished.”
Synchronized and Streamlined Processes
The typical company’s planning and performance management process in-
cludes developing a corporate strategy, creating a three- to five-year strategic 
financial plan, converting that to an annual operating plan, and finally pro-
ducing a detailed budget. During the year, the company needs to monitor 
performance for potential corrective action or adjustments and may need to 
adjust its resource allocation. Exploring each of these processes in detail is be-
yond the scope of the book. Instead, we’ll focus on certain key elements that 
are essential to ensuring that the corporate strategy and its required enterprise 
resource allocation are implemented effectively.
12 D. Pottruck, Stacking the Deck: How to Lead Breakthrough Change against All Odds (San Francisco: Jossey-
Bass, 2015), 164.