What is decision-making?
Each day we humans are faced with a variety of choices. Making the right choice from among them can propel us forward towards our goals while a bad choice can change the direction of our course leaving us astray. Decision-making happens every moment. Life is nothing but a continuum of the decisions that we make. Some decisions can be very easy to make and have a low impact on our lives like which movie to watch on Netflix tonight while some are big and bold and can alter the outcome of our lives like the decision of marriage. Hard decisions can often leave us confused, stressed, and overwhelmed and therefore it is important to understand that a decision that is not based on research but on cognitive biases, poor data, peer pressure, manipulation, hustle, power imbalance, focus on the short run, superstition or indoctrination (set of beliefs) can be misleading and harmful for future. The good news is that each of these is an outside force and can be unlearned and insulated against.
What is decision-making in Management?
Peter Drucker, the management guru, had said, “Whenever you see a successful business, someone once made a courageous decision.” Decision-making is an inevitable part of management. Every managerial function like:
- Planning– defining objectives and what needs to be done to achieve them
- Organizing– combining and allocating the resources available
- Directing– over-seeing and influencing the staff’s behavior to reach the goals
- Controlling– monitoring the progress of the organization
involves decision-making at every step. A field like investing is heavy on decision-making and if the decision is well-researched and informed, the investor substantially reduces his risk of a heavy loss in the stock market. As Warren Buffet, the investing genius, puts it, “I read and think. So, I do more reading and thinking, and make fewer impulse decisions than most people in business.”
An example of no decision-making
Often management may just sit back in their over-confidence of their successful product or service in the market and repent later over their bad choice of not making a decision at the right moment. Making no decision is also a decision. Kodak, the American company that revolutionized the world of photography and videography, held the patent for Digital photography in 1975. Instead of deciding to adopt the new technology of digital cameras that was invented by their own electrical engineer, they continued with their business of films and paper. Soon other companies joined the bandwagon and Kodak had to file for bankruptcy in 2012.
5 steps to effective decision-making
The decisions taken by leaders and authorities in their respective fields be it business, politics, military, medicine, or even household, can be learned and need not be based on just feelings or gut instincts. There are 5 steps to effective decision-making:
- Identify the problem– The first step is the recognition that there is a problem to be solved or a goal to be achieved.
- Gather information– The second step is to gather appropriate data. Proper facts, metrics, and figures should be gathered and analyzed before making decisions.
- Identify the options/ alternatives– Weighing the pros and cons of all the choices available and selecting the one that has the maximum chance of success is imperative to effective decision making. Figuring out the consequences of all the alternatives will help in choosing the right one.
- Implement the decision– After choosing the best option out of all the options, you have to ask yourself, “Does this feel right to me?”, or “Am I fearful?” This is the time to trust your instinct and execute your decision if the above answers are positive. Although the decision was taken may cause some anxiety but the long-term result will always be the best.
- Review the decision– This step is as important as any other step mentioned above as it will allow you to keep a plan B ready for yourself in case the implemented decision does not work out as expected. But the important point is to be patient and persevere before you see the results of your decisions.
Tools for effective decision-making
There are many tools available for making effective decision-making to run an organization productively. Some are listed below:
- Market Research on customers, competition, market, etc.
- SWOT Diagrams for analysis of Strengths, weaknesses, opportunities, and threats of your organization.
- Pareto Analysis or 80/20 rule which means 20% of your work will generate 80% of the benefit of doing the work.
- Ishikawa Diagram to detect possible causes of an effect or a problem.
- Force Field Analysis is an important tool to weigh the pros and cons of specific decisions to implement changes.
- Breakeven Analysis is largely used in financial modeling to determine the number of products or services to sell to cover the costs and come to a point where the revenue and cost are equal.
- Strategy Map is a graphical tool to document the strategic goals of management.
- Pugh Matrix or the decision matrix method is used widely to find the best solution out of all the possible alternatives generated.
- Ratio Analysis is a quantitative method to get insights into a company’s profitability, balance sheet, operational efficiency, etc.
- CRM Platforms gives a 360-degree view of your customers and an easy-to-use interface. This results in genuine and long-lasting relationships with your customers.