England were awarded a number of kickable penalties, but captain Chris Robshaw opted to go for lineouts and quick taps in an attempt to score a try.
Woodward, however, believes that he should have kept the scoreboard ticking over, and that the decision of what to do in such a situation should not have been made on the field but rather a couple of days before.
"The biggest thing is trying to be smart ahead of the game. If you sat down on a Thursday night and gave the players the situation - you are 20-14 down with 22 minutes to go, you have a penalty, the ball is slow, what do you do? - the right decision is to kick for goal and reduce the points to just three," Woodward told BBC Radio Five Live.
"If you go for the line-out or go for the try you have to score and if you don't you give huge momentum to the defending team, in this case Australia.
"The key thing is not making decisions in the heat of battle, it is getting these things in players' heads before you go on the pitch, so you know what is going to happen in every single situation. That is the secret to coaching."
Things will not get any easier for England in their autumn series as they face South Africa next before the All Blacks come to Twickenham.