What is the cost of poor decisions?

The question asked in a book by Wharton faculty entitled:
Wharton on Making Decisions

In their book, Barings Bank is the prominent example, and the authors Hoch and Kunreuther use that case to illustrate how a number of strategic errors in decisioning…that are discussed in detail in various chapters of their book, eventually led to accumulated trading losses for the bank of more than $1 billion.

The authors begin by recapping the key events of the story, starting with Nick Leeson’s decision on July 17, 1992, to cover up a mistake made by a new trader in the Barings Futures Singapore office. The trader had sold contracts instead of buying them, an error that would have cost the firm [chump change] approximately $29,000 to cover.

"Should Leeson have revealed the error to his superiors or concealed it?" the authors ask. "He decided to hide the mistake. What he justified initially as a desire to protect one of his employees snowballed into a habitual hiding [the decisions] of his own trading errors in the derivatives market…deceptions that three years later brought down Barings Bank. How did a back office clerk in his 20s become responsible for bankrupting one of the world’s oldest merchant banks?”

The answer: Many bad decisions.

ZDT Author’s Comments:
A very clear and real example of not only making a series of bad decisions, but the intentional cover up [which was also a decision] that could have been corrected by a relatively small cost (BP?). But, left to simmer, the ultimate cost was the failure of one of the world’s oldest financial institutions. Again, at the highest levels, the obvious mistake was the lack of cold objectivity and any decisioning model. The following chapter headings support that premise:

Blinded by Emotions
Over Reliance on Intuition
Emphasis on Speed
Failure to Detect Deception
Underestimating Risks
Insufficient Information Technology for Decision Support
Insufficient Monitoring and Control

Given the increased speed and complexity of today’s business environment, Hoch and Kunreuther note that: insights and objectivity in decision making are more important than ever.

We agree to the zillionth power.