Decision-making is an essential part of any business and a central function of the company’s success. Business leaders and managers make dozens of decisions every day, many of which directly impact the company’s future. This is why decision-making requires a strategic approach and is most effective under the guidance of a step-by-step process.
The decision-making process generally follows a set of sequential steps. One must first define the problem, then gather the information that can inform their analysis, identify alternative solutions, choose a solution, and finally, test the effectiveness of their decision against real-life results. There are many techniques that executives can use to help them choose among the alternatives and make the right decision.
One crucial aspect to consider before choosing a decision-making technique is the data you will use to inform your decision. If your company handles large amounts of data, you will eventually select a database to help you manage and adequately utilize that data. Choosing the suitable database is a preliminary step in making effective decisions, which is why we are going to start by looking at the type of database that is most suitable for your business.
Databases – SQL and NoSQL
The database landscape can be split into two classes: SQL, or relational databases, and NoSQL, or databases for everything that is not relational. To choose the adequate type for your data sets, we recommend diving a little further into the SQL vs. NoSQL database debate and go with the type that best suits your operational needs. The basic guidelines to follow are:
A SQL database is best suitable for:
- Structured data with defined data requirements (ex. customer information, accounting).
- Smaller or unchanging data sets.
A NoSQL database is best suitable for:
- Unstructured data with evolving data requirements (ex. social networks, logistics).
- Scalability and performance are prioritized.
5 Best Decision-Making Tools And Techniques
A SWOT analysis is especially beneficial when deciding on a strategy, action, or initiative that can significantly change your business. It can help you assess the process by breaking it down into four aspects:
- Strengths: What sets your company apart from its competitors?
- Weaknesses: How can your company improve?
- Opportunities: Consider how you can either use your strengths or eliminate your weaknesses to create new business opportunities.
- Threats: Identify potential challenges for achieving your goals. What poses a threat to your organization?
Essentially, a SWOT analysis is a significant management application that can provide a framework for assessing an organization’s present situation. By identifying the forces that influence the company’s strategic advancement, this framework can help you make use of your best assets and improve on your weaknesses for you to make a move in the right direction.
If you are facing multiple choices and variables, the best way to construct a clear framework is by using a decision matrix. You can think of it as a pros and cons list, the only difference being that each factor is assigned a different level of importance. This will allow you to weigh different options against each other accurately.
If, for example, you are deciding on which supplier to work with, you might consider factors such as cost, quality, location, reliability, and payment options to perform a comparative analysis. With a decision matrix, you might place higher importance on certain factors over others – for example, you might care about quality more than location. This will yield a higher score in favor of certain suppliers that rank high in quality, even though others have a more favorable location.
A Pareto analysis, also known as the 80/20 principle, is a technique used for identifying a limited number of factors that create a significant overall effect. In the context of business management, it assumes that 20% of your company’s efforts or factors will lead to 80% of its growth.
One example that would illustrate the workings of this principle is your sales revenue, where 20% of your clients will likely produce 80% of your sales. You can leverage this concept by identifying the clients that mainly contribute to your sales and concentrate your efforts on finding clients with similar characteristics. This allows managers to use their resources and time efficiently and make a significant impact on the business.
When making and evaluating business decisions, assessing the benefits from investing your resources will not be sufficient—you must also consider the costs.
A cost-benefit analysis will help you weigh the financial implication of each alternative against its benefits to determine the best course of action from an economic perspective. An analysis of this kind will therefore help you achieve the best return-on-investment (ROI).
It is essential to take into account as many related costs as possible. This includes charges incurred during and after the entire course of a project and costs that might change over time.
To weigh your costs against the benefits, you will need to assign a monetary value to the said benefits. This part might be tricky, considering the benefits might be things like employee satisfaction or increased productivity, but it is essential for performing this type of analysis.
When planning to implement a project or strategy of any kind, you might first evaluate the project’s viability. For a project to be feasible, it will typically need to be legal, technically conceivable, and economically justifiable. In other words, a feasibility study should tell you if your project is above all realistic and also worth the investment.
A well-performed study will offer a full-scope background of the business or project – a description, financial data, operation and management details, marketing research, legal requirements, and tax obligations. A feasibility study should precede the technical planning and project implementation, as it should inform the decision-making about the project as a whole.
Making informed and strategic decisions is essential for the growth and profitability of any business. While there are dozens of decisions that business management makes daily, there are also more complex decisions that require a more systematic and defined approach.
The above-mentioned five business decision-making techniques have proven effective. They can help you reach your business goals by evaluating the necessary factors and arriving at the best decisions for your organization:
- SWOT Analysis;
- Decision Matrix;
- Pareto Analysis;
- Cost-benefit Analysis;
- Feasibility Study.
Before you turn to data and statistics to inform your decisions, make sure that you have the proper data management systems in place to utilize the data at your disposal effectively.
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