When running a business, making the right decisions can lead to success, while making the wrongs can result to failure. With so much riding on each decision, it's important that thoughtful consideration is put into each one that needs to be made. To help them, many business leaders go through a thoughtful decision-making process.
While there are a wide variety of decision-making techniques and tools, many tend to revolve around the same key principles of figuring out the decision that needs to be made, considering and researching the options and reviewing the decision once it's been made.
The University of Massachusetts-Dartmouth outlines seven basic steps in effective decision-making. The steps they advise their students to take are:
- Identify the decision to be made: After realizing that a decision must be made, you then go through an internal process of trying to clearly define the nature of the decision you must make.
- Gather relevant information: Most decisions require collecting pertinent information. Some information must be sought from within yourself through a process of self-assessment, while other information must be sought from outside books, people and a variety of other sources.
- Identify alternatives: Through the process of collecting information you will probably identify several possible paths of action, or alternatives. In this step of the decision-making process, you will list all possible and desirable alternatives.
- Weigh evidence: In this step, you draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. You must evaluate whether the need identified in Step 1 would be helped or solved through the use of each alternative.
- Choose among alternatives: Once you have weighed all the evidence, you are ready to select the choice that seems to be best suited to you.
- Take action: You now take some positive action, which begins to implement the alternative you chose.
- Review decision and consequences: In the last step you experience the results of your decision and evaluate whether or not it has "solved" the need you identified in Step 1. If it has, you may stay with this decision for some period of time. If the decision has not resolved the identified need, you may repeat certain steps of the process in order to make a new decision.
Decision-making tools and techniques
While the basic principles might be the same, there are dozens of different techniques and tools that can be used when trying to make a decision. Among some of the more popular options, which often use graphs, models or charts, are:
- Decision matrix: A decision matrix is used to evaluate all the options of a decision. When using the matrix, create a table with all of the options in the first column and all of the factors that affect the decision in the first row. Users then score each option and weigh which factors are of more importance. A final score is then tallied to reveal which option is the best.
- T-Chart: This chart is used when weighing the plusses and minuses of the options. It ensures that all the positives and negatives are taken into consideration when making a decision.
- 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.
- Multivoting: This is used when multiple people are involved in making a decision. It helps whittle down a large list options to a smaller one to the eventual final decision.
- Pareto analysis: This is a technique used when a large number of decisions need to be made. This helps in prioritizing which ones should be made first by determining which decisions will have the greatest overall impact.
- Cost-benefit: This technique is used when weighing the financial ramifications of each possible alternative as a way to come to a final decision that makes the most sense from an economic perspective.
- Conjoint analysis: This is a method used by business leaders to determine consumer preferences when making decisions.
When making decisions, especially in the workplace, it can be easy to fall into several traps that lead to the wrong decision. The U.S. Small Business Administration warns business leaders to be careful of numerous mistakes that are often made during the decision-making process. Several of the mistakes revolve around turning to outside help when making a decision. The SBA advises leaders to not rely too much on expert information when evaluating their choices.
"Oftentimes, people have a tendency to place too much emphasis on what experts say," the SBA writes on its website. "Remember, experts are only human and have their own set of biases and prejudices just like the rest of us."
Rather than trusting their own gut feelings when trying to make a decision, the SBA said business leaders often both over and underestimate the value of the information they receive from others. Instead of letting others sway your belief one way or another, they said leaders should keep the opinions of others in perspective.
In the end, they said not listening to your own feelings or gut reactions can be one of the biggest mistakes that can be made during the decision-making process.
"Our society teaches us to ignore these feelings, but by tuning into your intuition, you will find that you will make much better decisions in the long run," the SBA writes.
Among some of the other common mistakes that leaders often make, according to Jeff Miller, the director of corporate training and development for human resources and business performance solutions provider Insperity, are not taking enough time to make a decision by rushing to a conclusion.
In addition, Miller said procrastinating over actually making a decision is also a huge misstep.
"As well as being uncomfortable or time-consuming, avoiding decisions can also hurt your reputation," Miller wrote on the Insperity website. "Your staff may perceive it as a lack of care for their well-being, which can create a lack of respect."