5 Psychological biases that can impact your energy strategy

Cognitive biases are subconscious shortcuts that influence how we interpret information, assess risk, and choose from a range of available options. While they can be useful when making decsions, they can also distort your process, which may affect cost, compliance and long-term performance.

Let’s take a look at some of the lesser-known psychological biases that can impact your energy strategy, so you can understand them and work out how to overcome them.

Hyperbolic discounting is when we want to have the smaller, immediate rewards over larger, delayed ones. This is despite the fact that we know the wait would be more beneficial. The future benefit feels less real than the one that can happen here and now, and so it feels out of reach.

When looking at energy strategy, this bias often plays out in resistance to investment. You may be familiar with this type of internal conversation:

Yes, installing solar panels could save XYZ amount per year, but the upfront cost is going to make a dent in profit. Let’s revisit it next year, it’s not a priority right now.

This type of conversation always prioritises short-term cashflow (quick wins) over long-term savings. Having this mindset may be risky for your energy plans, as efficiency investments often have more long-term benefits than short-term ones.

If this type of thinking is common in your business, you should come up with ways that you can push back on the type of conversations like the one above. Use visual tools to show the cumulative benefit of action over time. Look at how to frame the initial investment as missed savings rather than costs, and the decisions to some strategic objectives, for example net zero targets or energy resilience, rather than just ROI metrics.

When the future benefit is made clear and aligns with the wider operations business targets, then decision-makers are more likely to act.

In situations where stakes are high, we’re programmed to take action to feel in control. Similar to the fight or flight response, action bias is the impulse to take immediate action instead of taking the time to examine things in better detail.

Action bias is common when looking into energy procurement market volatility, looming deadlines and pressure from the board can push teams to make a rash decision, such as locking into a fixed contract during a price spike without exploring more flexible options, switching suppliers based on a cold call with an offer rather than looking into the risk profile, or rushing into a trial of some energy technology without clear objectives of how it can help.

When it comes to energy management, actually doing less but thinking more will lead to better outcomes.

What can you do to make sure that action bias doesn’t mean you act now, think later? Well, you can start off by developing structured frameworks that have set criteria for decision-making. This could include things like risk tolerance, budget guardrails and supplier track records; look at scenario modelling, which allows you to assess multiple options over different timeframes or look into having an external team like Businesswise Solutions who can help you understand your energy strategy without acting too quickly.

Having a clear process will help create smarter actions and reduce the pressure on the overall business.

Optimism bias stems from the belief that certain events won’t happen to us or they’ll affect us less than others. This type of thinking can make you complacent and project an air of overconfidence, even more so in the areas that we believe aren’t that urgent.

Some businesses assume that billing errors or hidden charges won’t impact their portfolio (spoiler: it will), that they’re doing enough to comply with regulations such as ESOS, SECR or TCFD, or they underestimate that they’ll be exposed to future risks from pricing or compliance and regulation.

Having this bias is seen as a luxury, as it comes from success not failure. Why question something that has always worked previously?

Well, because blind spots like this can prove to be costly. Non-compliance, poor data visibility or contract loopholes can lead to reputational harm or financial penalties.

All is not lost, to overcome optimism bias you could introduce external validation through independent audits or third-party benchmarking to help with objectivity, use case studies from companies that have fallen foul of penalties or disputes to reframe your risk perception and finally, regularly stress-test your assumptions and understand the changes in compliance regulations, that your billing is accurate (or you have someone doing bill validation for you) and your consumption patterns are monitored by something like Energy Insights.

Sharpen your strategy with regular reality checks and assessments.

No, we’re not asking you to rate your flat-packing skills, this bias relates to thinking that something you’ve built (whether that’s a system, process or a wardrobe) is of great value, regardless of the objective quality of it.

For internal energy management teams, this can lead to unwavering loyalty to homegrown spreadsheets that are liable to get lost or misplaced or tracking tools that don’t scale as needed. There may also be resistance to changing automated analytics platforms, outsourcing energy management, or hesitation to challenge the status quo because “this is how it’s always been done.”

While in-house energy management reflects your commitment to sustainability, it can also lead to cost inefficiencies, loss of insight or stagnations in strategy development. If you want to do as much in-house as possible, we recommend running regular capability benchmarking to evaluate whether internal processes are still meeting your needs. You could also look into getting an external partner to perform audits of internal systems, suggest ways to enhance them or use their tools to help with data management. If this is something you want to do, then reframe outsourcing as a complement to your internal expertise, not a replacement.

Empowered teams build systems that matter and know that outside help can bring in added value.

We have all had that feeling of avoiding news or information that may make us feel uncomfortable, challenged or is inconvenient. As a defence mechanism, it’s great for avoiding football scores or spoilers for your favourite TV show, but in business, it can be dangerous.

When it comes to energy management, you may have an ostrich bias by avoiding detailed invoice audits for fear of finding billing errors that may take up a lot of time to resolve, ignoring confusing contract clauses because they’ve already been signed off, or delaying data collection or reporting in case the numbers don’t look good.

If errors are seen as threats, this bias will thrive. Flip the narrative to make errors into opportunities to improve, do this by instilling a non-blame culture and make sure teams are aware that making mistakes doesn’t spell failure, it’s a chance to learn and gain feedback. Start embedding regular reviews for invoices, contracts, and compliance – whether you use an external partner or an in-house team this will help with transparency. Also look at data dashboards such as those used by Panoramic Power that can break down energy consumption and provide proactive insights.

By embracing the uncomfortable information, you can improve and scale much quicker.

Energy management is about much more than procurement, consumption, and regulation compliance, it’s about strategic thinking and systems alignment and the psychology behind these.

Recognising the cognitive biases that influence decision-making is going to strengthen your energy managment strategy, it helps bring clarity and objectivity into a space dominated by data overload.