Making good business decisions is the key to operational scalability and financial longevity. From day-to-day choices to executive decisions, these actions have the ability to impact a company's financial standing.
Therefore, the business decision-making process should ultimately be rooted in accurate, unbiased data to yield the best possible results.
The 7 Decision-Making Steps
Depending on the business objective, there are numerous variations of the decision-making structure. However, the following 7 general steps are among the most commonly used and can be applied to a wide variety of operations.
1. Identify the Problem or Objective
In order to start off strong, businesses should clearly define an issue to solve and communicate this information to all involved stakeholders and staff members. Providing this clarity from the beginning will prevent any misunderstanding in the future.
During this step, businesses should ensure the chosen problem isn't too broad as this can be to difficult to tackle as a single objective. Instead, organizations can set smaller, short-term milestones to accomplish a larger goal.
Additionally, if the company is looking to accomplish certain targets, rather than addressing an issue, management should ensure the objectives are timely and measurable to provide a clear structure.
2. Gather the Necessary Data
Gathering relevant and accurate data is the key to any data-driven decision making. Businesses should gather information across various departments through an internal assessment in order to fully inform themselves of the present situation.
If necessary, organizations can also consider external information such as market research, industry studies, and evaluation from consultants. However, management should only utilize the statistics and facts relevant to the issue at hand. Utilizing too much data can deter from the main objective and overly complicate the decision-making process.
3. Identify Possible Solutions
Using the collated data, businesses can begin exploring possible solutions. Oftentimes, organizations will identify several options available to them during this process, giving them the freedom to choose one particular strategy or combine several ideas.
4. Consider the Evidence
Once the business has multiple viable solutions to choose from, management should carefully consider the evidence in support of and against each option. A good way to evaluate these solutions is by analyzing which of these alternatives have worked previously for the business or other related organizations.
5. Pick a Solution
After properly pinpointing the problem, gathering the relevant and necessary data, and contemplating over the different solutions, it's now time to make a final decision on which solution to proceed with. At this stage, businesses should back up their decision with hard data and evidence as well as a cost benefit analysis.
6. Put It Into Motion
Now that a business has completed its analysis and reached a decision, it's time for them to create an actionable plan. This can involve creating a rollout plan including various benchmarks and delegating staff members to assist in executing the project.
After the plan has been completed or a predetermined length of time has passed, organizations should reevaluate their decision. This presents a good opportunity for the company to be honest with themselves and the steps they have taken. Businesses should determine if they adequately addressed the issue and reached all requirement benchmarks. If the decision-making process felt short, management should note the missteps to avoid replicating the same issue in the future.
3 Types of Managerial Decisions
When organizations make business decisions that can alter the trajectory of their finances, these decisions are made by different stakeholders within the hierarchy of a company. Here are the three most common types of managerial decisions.
Strategic decisions are generally the most complex of the three and are often made by the highest level of managers and executives within a company. They usually don't revolve around the day-to-day operations of the business and these decisions tend to have a large influence on the future of an organization. For example, a business that is deliberating whether or not to proceed with a merger or acquisition is facing a strategic decision.
Operational decisions can take two forms- long-term and day-to-day. Long-term operational decisions will have an impact on the future operational needs of the business. This can involve a company trying to secure a lease or a building for their warehouse. Day-to-day operational decisions are more commonplace in an organization as these decisions involve daily operations. Day-to-day decisions are usually made by the middle to lower-level managers.
Managerial decisions are made by higher levels of management and focus on decisions pertaining to the functioning of the company. To operate any company, it will need employees and products to sell. Managerial decisions help to staff a company and determine which products to sell or stop selling.
The Importance of Data-Driven Decision Making
Companies that have an analytical focus and operate on data-driven decision making are putting themselves in a better position for growth. In fact, a study conducted by the MIT Center for Digital Business found that primarily data-driven companies reported 6% higher profits and 4% higher productivity levels compared to businesses that did not utilize company data.
By collaborating quantifiable information across all business operations, such as sales, marketing, and warehouse inventory management, businesses can produce actionable insights and measurable KPIs. Integration and reporting software can automate the data collection and analysis processes to increase the value and accuracy of all statistics.
Data-driven decisions and business strategies ensure organizations are flexible enough to identify and adapt to changing trends, discover new opportunities and business streams, and increase their revenue.