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How to Reduce your Financial Data Bias

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10 2021 Blogpost Calumo Financial Data Bias Inline

How to Reduce Data Bias in Finance  

As a finance manager, your CFO and board expect you to provide accurate information along with informed, balanced recommendations. In an environment where data-driven decision making is so important, unconscious bias in finance can make it difficult to verify the logic used to make strategic decisions.

Although past experience and instinct are both essential components in successful strategic leadership, given the recent turbulence of markets and industry, an over-reliance on intuition may result in completely invalid decision-making.

Put simply, bias is everywhere, and you need to confront it.

Don’t Trust Your Gut

A recent BARC survey found that 58% of companies surveyed base at least half of their regular business decisions on gut feel or experience, rather than on data and information.

Though intuition may have guided you well in the past, it’s hard to go against our instincts, making it a risky strategy going forward. For this reason, even when making a decision in areas of expertise and familiar environments, using intuition should be considered only one data point among many.

A McKinsey study of more than 1,000 major business investments showed that organisations who addressed bias in their decision-making processes achieved up to 7% higher returns.

In this blog, we explore the most common biases that affect decision-making in business and finance and how to address these to ensure you’re making the best decisions to achieve maximum returns.

How Does Bias Affect Decision-Making­­­ in Finance?

Cognitive biases affect how we judge alternatives when making a decision. While there are many biases humans are susceptible to, three of the main biases affecting decision-making in finance (and business more generally) are confirmation bias, cognitive inertia, and groupthink.

Confirmation bias makes us favour information that conforms to our existing beliefs and discount evidence that doesn’t. Even though we have the best of intentions, intrinsic favouritism might mean you are more willing to accept a business case with soft numbers from someone in a senior position, or someone with whom you have a good relationship.

Cognitive inertia and anchoring make us reluctant to consider alternatives or revisit first assessments. This often leads to sticking to outdated beliefs despite the data proving otherwise. Anchoring occurs when you use an initial piece of information to make other judgements–once this “anchor” is set, bias affects the interpretation of information around it. For example, starting a budget by seeding it with last year’s numbers can save time, but introduces biases which may never be overcome.

If you’ve ever attended a meeting, you’ve almost certainly experienced groupthink firsthand. In many cases, rapidly achieving consensus is a good thing, but groupthink can just as easily result in poor decision-making as we strive for harmony and avoid conflict.

For most of us, this won’t be a surprise. But the fact that these biases are unconscious makes them insidious. They require active management to mitigate. It’s not something you can just set and forget.

Key Methods to Reduce Bias in Your Decision-Making

Be Aware

Everyone is susceptible to bias. By accepting that bias in decision-making is a given, you can create a system designed to reduce bias. Reflection and thinking twice (or thrice) about options can help you understand your limitations and avoid bias in your decision-making.


To address your own biases, consider either delegating or working with a team. Relying on team members to share their different perspectives can help you see biases. When collaborating, don’t lead discussions with your opinions. This will prevent you and your team from being anchored to a particular idea. Have your team outline their ideas separately before meeting, so that each individual brings their own experience and expertise, without the influence of team members.

Encourage divergent thinking within the team and provide a platform to meaningfully debate opposing views. You can take things further by assigning a member of the group to play devil’s advocate and ask the tough questions. Remove any scenarios or solutions that don’t hold up to scrutiny.

Plan for Multiple Scenarios

Bias means that we often think too narrowly about the future and possible outcomes. Always make three forecasts when assessing an idea–this tempers optimism and gives a more accurate and realistic assessment than just stating a low and high range.

Similarly, you need at least three options to choose from to make sound decisions. To ensure the best outcome when thinking about options, evaluate alternatives simultaneously, rather than sequentially in isolation. Considering the opportunity cost of different choices will help with your assessment.

Think Broadly

Assuming you can’t choose any of the options you’re weighing up can broaden your thinking and force you to explore other alternatives. Thinking “outside the box” can help bring in new ideas and alternatives that weren’t apparent on first assessment. Similarly, the way you frame your options–focusing on what you could do rather than focusing on whether or not to take a certain action–helps open up opportunities.

Now that you have the resources to keep your own biases in check, we can discuss how to de-bias your team.

Bias and Your Finance Function

That’s the way we’ve always done it.” “We’ve already tested something like that.” “There’s no budget for this risky stuff.”

If you’re hearing these phrases, you might be seeing cognitive biases at play within your team.

The “curse of knowledge” refers to the unconscious biases of how we apply prior knowledge, particularly in decision-making. The more success you have in applying prior knowledge in a particular way, the harder it is to assess alternatives. As most decision-making is impacted by unconscious bias, the “curse of knowledge” can severely limit innovative thinking where decisions are made.

Where strategic decisions are concerned, we often fall into the same bias traps:

  • Loss Aversion: Losses are felt more acutely than gains of the same amount, making us more risk averse.
  • Sunk-Cost Fallacy: When assessing future courses of action, we take into account historical costs.
  • Escalation of Commitment: We invest additional resources in underperforming or failing initiatives because of money and time already invested.

When under time-pressure, which is often for most finance teams, negative emotions, individual motivations, and other stressors can amplify the effects of bias in decision-making. It is important to recognise that these stressors exist and have a system and processes in place to counteract them.

De-Bias Your Team

Use Premortems

According to Harvard Business Review, research has found that prospective hindsight—imagining that an event has already occurred—increases the ability to correctly identify reasons for future outcomes by 30%.

Premortems are conducted at the start of a project, rather than at the end, so that the project can be improved. Using premortems can help you get ahead of possible problems or challenges that your team might not have thought of. Imagine potential future failures when assessing projects or options, generate plausible reasons for the project’s failure, and then map out the causes. This technique encourages teams to think more broadly. A solid CPM solution with driver-based financial models will help you with what-if and scenario-based analysis.

Increase Accountability

Holding individuals accountable for their judgements increases the likelihood that they will reduce bias from decision-making. Rotate responsibilities within your team so that team members get a fresh perspective. Furthermore, the knowledge that decisions will be scrutinised by rotating staff encourages people to make more disciplined choices and have justification for decisions they make.

Democratize Your Data

Breaking down silos and granting people access to interpret data reduces bias and helps foster a culture of data-driven decision making within your team. Allowing early access to data enables early detection of possible errors, incorrect assumptions or biases.

Tip: 10 ways to create a data-driven team

Challenge Assumptions

Testing assumptions gives you a better understanding of the factors contributing to failure or success of similar decisions. When presented with conflicting information, working with a team (and software) that know your data provides you with helpful insights and feedback.

It is so important to ask the right questions, and have the right software to help you find the answers, rather than “fix” the data to align with preconceived ideas.

Verify Your Data

Tracking the right metrics and verifying your data ensures that you have information that your team can trust. This trust empowers teams to consider different data points when decision-making, especially under conditions of uncertainty and incomplete information. Calumo builds robust, explainable financial models which can go a long way to fighting bias in your planning and budgeting processes.

To ensure that you’re making sound decisions based on ironclad data, work with our specialised team of consultants to create a decision-making process that will confront different biases and limit their impact. To learn more, get in touch with us

Additional Resources