Decision-making occurs at every level of a business, advancing in pyramid-like fashion from the mundane decisions made every day by low-level employees to far-reaching executive decisions that may require long term deliberation. When it comes to long-term decision-making, SWOT analyses and other techniques provide a popular way for business owners and managers to organize their thoughts.
Programmed vs non-Programmed. Such decision-making can be divided along the dimension of programmed vs non-programmed. Many decisions will be programmed decisions, executed by an employee under some sort of policy or company guidelines. It’s the non-programmed decisions, however, that can be so much more consequential. We’ve outlined decision-making techniques that will help you weigh your options to make the best decisions.
A. First 5 steps of Decision-Making *
While numerous entities from academic institutions to advice Blogs have attempted to distill the decision-making process into a series of 5 to 7 steps all more or less follow the same format: * Simple
- Identify your Goal/s concisely to assure they are not misunderstood.
- Gather relevant Information. This includes identifying courses of action / alternatives, then doing sufficient research on each to enable a good decision.
- Evaluate your Options. At this point, weigh the requirements for $$$, time, learning, + side effects, consequences, etc.
- Make your Choice – among the options based on previous experience, Risk vs Reward and the above factors.
- Evaluate your Decision. This includes both short-term and long-term expected outcomes. If none stands out strongly, trust your intuition. If you’ve been using it for awhile, it is your best final facet.
B. Rational Decision Making
[ more Detailed – 8 Steps ]
Steps: Problem?Opportunity, get Info, analyse Situation, pick Options/Alternatives, take Action, Evaluation of Results.
1: Identifying a Problem or Opportunity
The first step is to recognize a problem or to see opportunities that may be worthwhile. This rational Decision-Making model is best employed where relatively complex decisions have to be made. b) the first decision making lesson should be to ask yourself: “Do I really have a significant problem to solve or a decision to make? Can I make a good decision on my own, or do I need the advice of others?
2: Gathering Information
What is relevant and what is not relevant to the decision? What do you need to know before you can make a decision, or that will help you make the right one?
3: Analyzing the Situation
Bring in key members of your Team to determine: “What alternative courses of action may be available to you? What different interpretations of the data may be possible?
4: Developing Options
Brainstorm with the Team and generate several possible options. Allow fully creativity. Don’t dismiss any idea till you’ve heard them all, then pick the most probable.
5: Evaluating Alternatives
What criteria should you use to evaluate? Evaluate for feasibility, acceptability and desirability. Which alternative will best achieve your objectives? (use the Decision Matrix below)
6: Selecting a preferred Alternative
Explore the provisional preferred alternative for future possible adverse consequences. What problems might it create? What are the risks of making this decision? What other alternatives might be better?
7: Acting on the Decision
Create a plan to implement the decision. Have you allocated the correct resources to implement? Is the decision accepted and supported by your Management / Team? Are they committed to to making the decision work?
8: Evaluate the Results
Evaluating the decision is very important step for effective decision making, so the good Manager should follow up on his decision to determine if it’s effective. Is there anything that can be done to improve it?
9: Lessons Learned
To develop your decision making skills, you should write down the Lessons Learned after implementing any decision – which you might use on another decision.
C. other Tools & Techniques
With most of the work in decision-making condensed into steps 2 & 3 above, there are also dozens of tools & techniques for organizing your thoughts during these stages. We’ve rounded up some of the more popular options:
TOOLS: Decision Matrix, T-Chart, Decision Tree, Multi-Voting, Pareto, Cost-Benefit, Conjoint, SWOT & PEST Analysis [ from Biz News Daily]
Decision Matrix–helps you evaluate all the options of a decision. When using the Matrix, create a Table with all the options in the first column and all the factors that affect the decision in the first row. Next, score each option and weigh which factors are of more importance. A final score is then tallied to reveal which option is the best.
Rate 0-10 on each Factor
T-Chart – This chart is used when weighing the (+) & (-) or Pros & Cons of the options. It ensures that both are taken into consideration when making a decision.
Add more Factors & Rate as above
Decision Tree– This is a graph or model that involves contemplating each option and the outcomes of each. Statistical analysis is also conducted with this technique.
Multi-Voting – This is used when many people are involved in making a decision. It’s very good for loyalty, because it makes each participant feel important. It helps to shrink down a large list of options to a smaller group & finally – the eventual final decision.
Pareto Analysis. This technique is useful when many decisions need to be made. This helps prioritize which ones should be made first by determining which decisions will have the greatest overall impact by using the 80-20 Rule to know where to focus.
- 20% of Customers give 80% of your Business
- 80% of your new business growth will come from 20% of your products and services
- 80% of your new product ideas will come from 20% of your employees
- 20% of products generate 80% of revenue
- 80% of advertising and marketing successes come from 20% of your ad campaigns
- 80% rewards come from 20% of hard work
- 80% of deliveries use 20% of the stock
- 20% of your employees will deliver the 80% of the results for your organizations
- Helps to identify top Root Causes.
- Helps to prioritize the top issue for a problem to try to eliminate it first.
- Gives an idea of the cumulative impact of issues.
- Corrective & Preventive action can be better planned.
- Gives a Focussed, simple, & clear way to find vital few causes.
- Helps to improve problem-solving and decision-making skills.
- Improves the effectiveness of Quality management like ISO 9000.
- Useful in every form of Leadership decision.
- Helps in general performance management.
- Helps in time & change management.
- Helps in planning, analysis, & trouble-shooting as well.
- Pareto Analysis cannot find Root causes by itself. It needs to be used along with other Root Causes Analysis tools to derive the RC.
- It doesn’t show the severity of the problem.
- It focuses on past data where damage has already happened. Sometimes it might not be relevant for future scenarios.
- It cannot be applied to all cases.
Cost-Benefit Analysis This technique is used when weighing the financial effect of each possible alternative to determine what makes the most sense from an Economic perspective. – [Mktg 91]
- Determine the costs & benefits
- Identify & categorize costs & benefits
- Assign a monetary value to each
- Discount & compare C&B
- Perform social sensitivity analysis
- Making a recommendation
Advantages & Limitations (see Marketing 91)
1) worth the Capital investment, feasible, hire, desirable?
2) weigh one Marketing initiative against another
3) Benchmark to compare Projects.
Conjoint Analysis – This is a method used by business leaders to determine consumer preferences when they’re making Buying decisions. [Mgt Study Guide]
1) Recognizing the product attributes: brand, price, configuration, etc.
2) Selecting the degree of importance of these attributes.
3) Creating virtual products by fusing several degrees of these attributes to determine if a this new product is feasible.
4) Surveying this possibility & analyzing responses to determine feasibility.
5) Test Market simulation to verify feasibility
Other Usage: test marketing, new product development, niche, advertising
Conjoint analysis is also applicable in situations where segmentation needs to be done. Certain clusters of users give preference to one set of attributes, whereas a different set would be more important to few others. Conjoint uncovers this pattern so that the company can target users accordingly.
Strengths [Lead Quizes]
- What are your unique advantages? Better, Faster, Cheaper ???
- What are customers’ positive opinions about your business? Do they refer you?
- What is Unique Selling Proposition (USP)?
- What are the things you should improve?
- Is there any (-) feedback about your biz?
- What are the things that cause sales drops?
- What are the current trends in tech, social media, etc? How could these trends affect your business in a positive way?
- What are the trends in your industry? How could you use them to your advantage?
- Can you use changes in other or adjacent industries to your advantage?
- Are there any unexplored niches in your target market?
- What are the obstacles to your growth?
- What are some of your competitors’ successful practices that could affect your business in a negative way?
- Are there any global, regional or local changes in policies, technology or lifestyle that could threaten your business?
- Have you had any financial problems?
- What is the level of any of these threats?
– an Acronym for Political Environment, Economic Conditions, Social & Tech trends.
PEST can improve decision-making and timing by analyzing external factors. This method considers present trends to help predict future trends.
- A greater understanding of the context of your company in these conditions.
- More effective long-term strategic planning
- Heightened attention to potential threats.
- Insight for business opportunities
Your Intuition is the Best “final” Decision-Making Tool
If you’re like most people, you probably think that emotions should leave the room when key decisions need to be made. But, sometimes your Intinct pokes and prods at your reasoning until you either listen to it — or do a good enough job pouring over reams of data to justify ignoring it.
Hind-sight. when I look back on decisions that I’ve made that I wish I could reverse, I find a moment in time where I ignored my Intuition. Instead, I used the wisdom of experts and mountains of data to push down my Intuition instincts to help me sleep at night, and it almost cost me the business. Your Intuition can be the best decision-making tool you have in your arsenal.
Sometimes Facts paint a False Picture
Expert advice & data are helpful when you’re trying to make a decision, but be aware – that sometimes they paint a false picture. Make sure that you know the origin of the data that you’re using, including any factors that might be influencing it. Then, test your Intuition instinct against the data to determine if that sinking feeling is based on intuition rather than fear.
If it’s fear, you’ll sleep better at night knowing that you have the data you need. Otherwise, you may want to revisit the testing strategy or choose to give more weight to your intuition and go with your Intuition on the final decision.
History. A few years ago, Infusionsoft created our Everest mission. This mission declared our purpose to help small businesses succeed and was focused on changing the game for hundreds of thousands of small businesses by being the standard in sales and marketing software. This mission was bold and we were set on delivering it as fast as possible. Advisors and board members were insistent that we remove the biggest barrier to purchase, which was then Implemented and a Training fee was charged to each customer. I knew by my Intuition that this wasn’t the right move for, but I felt compelled to listen to experts and those with more experience.
The Test. Along with their advice, I sought to collect data to convince myself that my Intuition was operating out of fear instead of fact. For 6 months we tested the plan to remove the barrier to entry with a select group of Buyers who wanted to purchase, but couldn’t afford the Setup fee. The data was overwhelmingly positive and proved that eliminating the fee would increase usage and sales volume. When the data came in, I couldn’t argue with it. In one day, we removed the Setup fee and all of the services that came with it.
Lesson Learned. What I failed to realize about the data & testing plan, was that the select group of Buyers were unique. They knew a lot about Sales & Marketing, but they didn’t represent a good sample of the small business population. Suddenly, we had a huge volume of customers coming in and a mass exodus out. Our cancellation requests went through the roof. The business was hemorrhaging cash, and we had to take swift & massive Corrective Action to save the business. We learned through experience what my Intuition knew intuitively. We were doing a dis-service to our customers by providing a tool to grow their business without providing the help to use it. I could’ve avoided the frustration and huge setback we experienced – if I would’ve listened to my Intuition. As it turns out, many small businesses need help to get started with Sales & Marketing campaigns. They also need to have some skin in this game, so they can spend time focusing on getting their business out of chaos and running smoothly.
Why you should Listen to your Intuition
Accumulated knowledge over the span of your life is stored in your long-term memory. While you may not know why you feel a certain way about a decision, your brain is processing years of experience and creating this feeling in your Intuition.
No one knows your business and your customers better than you do. Although you may not always be able to fully articulate the reasons why you feel a certain way – never ignore what your Intuition is trying to tell you. It could save your business someday !!!
For more Info, click on Decision-Making.