Running a business requires the ability to make good decisions. One wrong choice can affect the entire company. It is crucial for business owners to understanding the weight behind each decision they make, and to continually improve their decision-making skills.
The University of Massachusetts-Dartmouth outlines seven basic steps in effective decision-making:
- Identify the decision to be made
- Gather relevant information
- Identify alternatives
- Weigh evidence
- Choose among alternatives
- Take action
- Review decision and consequences
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. Here are some of the more popular options, many of which use graphs, models or charts. You may want to use a combination of these techniques to arrive at your final decisions.
- 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 analysis: 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.
- SWOT Analysis: SWOT stands for strengths, weaknesses, opportunities and threats, which is exactly what this planning tool assesses.
- PEST Analysis: An acronym for political, economic, social and technological, PEST can improve decision-making and timing by analyzing external factors. This method considers present trends to help predict the future ones.
There are a few common mistakes people make during the decision-making process that could result in a poor choice. Jeff Miller, the director of corporate training and development for human resources and business performance solutions provider Insperity, said that leaders often either rush decisions or procrastinate on making them.
"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."
Another mistake is not trusting your own gut feelings when trying to make a decision. 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, the U.S. Small Business Administration advised leaders to keep the opinions of others in perspective.
"Our society teaches us to ignore [our gut] feelings, but by tuning into your intuition, you will find that you will make much better decisions in the long run," the SBA writes on its website.
While you can and should consult expert advice on particularly difficult decisions, the SBA advises leaders not to rely too heavily on those opinions when evaluating their choices.
"Oftentimes, people have a tendency to place too much emphasis on what experts say," said the SBA article. "Remember, experts are only human and have their own set of biases and prejudices just like the rest of us."
Additional reporting by Chad Brooks.