THE McNAMARA FALLACY: THE VITAL INFORMATION THAT DECISION MAKERS IGNORE
Use to ensure that you take account of all the relevant data prior to making a decision.
During the Vietnam War the US Secretary of Defence Robert McNamara developed what has come to be known as the McNamara Fallacy. It was his attempt to understand why for much of the war America and its politicians thought that they were winning.
McNamara concluded that too much attention had been paid to hard measurable facts such as the number of Viet Cong killed or captured, whereas little or no attention had been given to the soft data such as enemy morale and the Vietnamese people’s desire to be free from foreign rule following the departure of the French in 1954.
McNamara outlined his fallacy model using four statements to describe the decision-making approach of politicians and the military at the time. According to him they had:
- Measured what could be easily measured.
- Ignored or poorly quantified anything that was difficult to measure.
- Assumed that what couldn’t be measured was of little importance.
- Assumed that what couldn’t be measured didn’t exist and had no effect on the war’s progress.
The implications for managers are obvious. When making decisions, managers must find a way to take into account factors that are difficult, or seemingly impossible, to express in financial terms.
HOW TO USE IT
- Acknowledge that scientific management has been the main form of management since ownership and management of organisations started to diverge at the end of the nineteenth century with the advent of limited liability companies.
- Recognise that this split between owners and those managing the organisation has led to soft non-numeric data being marginalised. This has been done because managers wanted to demonstrate that their decisions were based on hard evidence and not just gut instinct. This is particularly important when things go wrong as it enables managers to blame the data.
- To include qualitative data, start by identifying the main non-quantifiable assets of your organisation, for example staff morale, staff expertise, intelligence on competitors, relationships with customers and between staff and management, management effectiveness. I could go on, and my friends say I regularly do, but you get the point.
- Use your list as a starting point for a brainstorming session with five or six members of your team to identify other non-financial costs and benefits that you need to factor into your future decisions.
- Collect additional qualitative data from staff and other relevant stakeholders using Management by Walking About, informal conversations, observations, questionnaires and interviews (see Theories 7 and 17).
- Use cost–benefit analysis to allocate a value to each of the non-quantifiable assets identified. Use these values in any decisions they impinge on and update them regularly.
- Don’t accept financial or statistical data without understanding how it was calculated. Ask your accountant to explain how they arrived at the figures. Accountancy isn’t a science. It involves choices, opinions and professional judgements, some of which you may want to challenge.
QUESTIONS TO ASK
- What’s my attitude towards the use of non-financial/numeric data? Do I think it’s important or a load of rubbish?
- Did I fail to use any important qualitative data when I made my last significant decision?