Halo Effect Impact for Tender Evaluation (and Ways to Fix It)

The Phenomenon

Halo effect is a type of cognitive bias. Cognitive biases are errors in thinking that influence how we make decisions. This phenomenon affects us both at conscious and sub-conscious levels. It affects personal and professional life decisions. Nobody is an exception. Not recruitment specialists, not IT and not procurement or any other specialist area. Procurement professionals, however, are exposed to it even more – they have to deal with multiple external sources of influence every day. This subject is very wide, but this time let’s look into a very narrow area: tenders and their evaluation.

Cognitive bias in procurement

“Procurement Academy” provides some very simple and good explanations of the most common biases. According to them, cognitive biases appear during the negotiation process or in daily communication with suppliers and would not apply to tender process. Therefore, the tender would make your buying process efficient. That is not necessarily so. Let’s leave all the malevolent intentions aside – this time we talk only about unintentional cognitive bias.

Cognitive bias in tenders

There are a lot of different types of biases. Too many to analyse all of them here. Also, tender processes vary across different companies. However, here are the examples how, without even knowing about it, your decisions on supplier / product / service selection might be influenced:

  • Overconfidence. I wrote about it some time ago. I loved Jennifer M Wood’s article on similar subject, where she points out: “Experts are more prone to this bias than laypeople, since they are more convinced that they are right”. How is the connected with the tenders? Well, WHO is running your tenders for you?
  • Halo effect: the tendency for an impression created in one area to influence opinion in another area. Think about Account sales manager David. During the tender presentation meeting, he was charming: professional, knowledgeable, personable. Did you not automatically expect the whole company to be just as David is? Another example is the sequence of replies to the questions. It is proven, that if the first questions are replied extremely well, the evaluator tends to evaluate the following replies much higher. Was there a time pressure to submit the tender proposal? Most likely the greatest effort was put into replying the first questions.
  • Framing effects: You will tend to make different conclusions from the same information, based on it’s layout: sequence of words, mathematical representation. Think about it: would you rather have a half-empty or a half-full glass of water? Would you choose 90% fat free or 10% fat yogurt? All tender submission documents will be “adjusted” to communicate “the right” message.
  • Base-rate neglect: it is a tendency to ignore base rate information (say, historical supplier performance information) and focus on specific information (a tender submission data). I did my own small research on this: results are here. We are all guilty of this.
  • Confirmation bias: I tend to call it selective hearing or memory. People tend to search for, focus and remember information in a way that confirms their perceptions. The questions asked in tender documents here become critical. Compare: “Is Sam friendly?” and “Is Sam unfriendly?” These questions are about the same thing, but the answers would give you a different picture.
  • Post-purchase rationalization. It is not a joke. There is such a thing.

 

Ways To De-Bias Tenders

First of all, we need to remember, that as long as there are people involved, there will always be various types of communication and thinking variations. Also, the tender itself is a very limited tool to ensure procurement efficiency. However, sometimes you will have to use them. When you find yourself running a tender:

  • Consider confidence calibration. No, I am not suggesting NOT hiring experts overall. I am suggesting calibrating your experts. And, sometimes, to can ask yourself: why exactly am I hiring a SME? What do I expect from him / her? Why do I think, that having run a tender for OTHERS several times means they will know what is best for OUR company? What exactly am I looking for?
  • Evaluate the company, not the person that is representing it. Meet all of the team (or the core team), that will be running your account and servicing your company. Use testing platforms to get some data to back up your impressions. OR do not meet anyone at all.
  • Remove the supplier names from their replies before handing tender submissions for the evaluation.
  • Improve question evaluation process: split the questions and evaluate so that you can compare question 1 from supplier A with question 1 from supplier B as opposed to firstly evaluating all questions from supplier A prior to moving on to supplier B.
  • Use reframing techniques: challenge assumptions; ask wicked questions (create paradoxes); use “5 Why?” process; adopt multiple stakeholder perspectives).
  • Scientists and philosophers by-pass confirmation bias by trying to disprove theories. Challenge and doubt all sales claims. It is better, if you have historical data which you can analyse. If your suppliers provided you with 10 statements of how well they will meet your business requirements, try to disprove all. If you succeed in half of them… well, then should your tender evaluation reflect that?
  • On the other hand – be critical about the questions you ask in your tender questionnaires.
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Knowing how our brain works helps us not to only avoid our own errors. You can use this knowledge to your advantage. Are you taking any exams any time soon? Reply firstly the questions you know best. And make sure to make a magnificent impression for all of the further questions.

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Halo Effect Impact for Tender Evaluation (and Ways to Fix It)

Measurement is a reduction of the uncertainty

In my work I hear quite frequently a lot of smart words. Very often those words are used as a justification to implement one or another project. To keep it short – people spend millions and go through painful change projects because they chase “improved transparency, compliance, control, visibility; increased speed of transactions and operations; reduction in resource intensity; simplified and streamlined processes”. Those are all good reasons. The bad part is – businesses rarely evaluate the benefits in the same units of measure as the price for project implementation. In other words – they simply think it cannot be measured. It is INTANGIBLE.

In the pursuit of attempt to find the answers, I read a book during my recent holidays: “How to measure anything. Finding the value of “intangibles” in business” by Douglas W. Hubbard. Not the best choice for holiday read: according to Lexile framework for reading, it is evaluated at 1240. Almost like reading Stephen Hawking’s “A Brief History of Time”, evaluated at 1290. However, some of the things I found there are brilliant with their simplicity. I would like to share my favourite quotes below.

  • Anything anyone really needs to know is measurable. Including employee morale, reputation, transparency, management effectiveness, value of information, risk of bankruptcy, control and other similar things.
  • Information has a price and a value. The best part is that the initial smallest effort to get the information brings the biggest return on investment (Pareto rules here, too). At the same time, not everything matters. Measure only what is worth measuring.
  • Measurement is a reduction of uncertainty. It is not by any means elimination of uncertainty. To make an informed business decision, you do not need to measure the full population. A sample (representative sample) is enough. Knowing, that it will be impossible to measure EVERYTHING, should not stop you from measuring SOMETHING. Make an attempt.
  • There are a lot of methods to help you measure “intangibles”: focusing of what you know as opposed to what you do not know; decomposing the challenges you are facing; experiments; trials; observations; “catch and re-catch”; measuring traces; historical researches – Google or your colleagues might already “know” the thing you are looking for.
  • Object of measurement is a very important starting point in the process. If you think “improved control” cannot be measured, think of consequences it might bring and measure them.
  • Rule of Five. It sometimes might be as simple as that. Only taking 5 measurements can give you the answer you are looking for (with a confidence of 93.75%). Median of those 5 numbers is the number you are after (Commuting time to work, time on conference calls, etc.). All the difficult details – in the book.
  • Expert judgement (estimation) is also a skill (a tool) which can be improved and calibrated (see here).
  • Categorization and rating (High / Medium / Low) can be very misleading risk assessment methods. Average is not always a good measurement. Compare an average PO value of £516 to a mean PO value of £209. When you are calculating average PO administration costs (£50) per PO in %, the difference is big: 9,7% vs 24%. And now, for the fun of it, imagine you have in total 100k of orders a year… Your priorities in process optimization initiatives for the next year would change, I assume, seeing numbers in different perspectives?
  • “…people do not know how to generate electricity – but they still use it…” There are tools available on the internet and tips to create Monte Carlo simulations on Youtube – almost no excuse not to carry out an assessment when it is really needed.
  • Errors do happen. Intentional, unintentional, systematic, random – you need to keep that in mind when you are trying to estimate anything. By understanding sources and types of errors, you can minimize or eliminate them.

In my experience, I have faced some situations, which looked intangible. Some of the examples where I managed to measure and take action:

  • Economical cleaning efficiency in food retail restaurants and food factories;
  • Organisational structures’ economical efficiencies comparison;
  • P2P systems expected financial benefits versus costs;
  • Behaviour change projects expected efficiency versus costs of change program.

Did you manage to measure something that was considered to be “intangible”? Please share your experience in comments! I would be grateful for examples and I am pretty sure many of us would learn quite a bit!

Measurement is a reduction of the uncertainty