Every day, you make a multitude of choices. Some of the choices appear small since they are part of your daily bread and butter. However, no matter how little the choice is, it can have repercussions on your day-to-day life outcomes. In the context of professional or social life, these effects can be more ripple. So when it comes to making important decisions that can impact the social or professional environment around you, it is increasingly important to master the art of decision making.
By any measure, decision making is a vital management skill. An indecisive manager or waffling supervisor can quickly erode a corporate culture with employee frustration, loss of momentum, a dip in team morale, and there can be bottom-line consequences. On the other hand, having a manager prone to making impulsive decisions based on emotion or without the necessary facts can have similar negative consequences for a company.
In this article, we reveal the strategies leaders can employ in effective management decision making.
What Is Management Decision Making?
In simple terms, decision making is the process of making choices by recognizing the problem, gathering information about feasible solutions, and finalizing the best alternative.
This process is carried out through an intuitive or logical process, or a combination of two. Intuition is all about using your gut feeling to take a stand on the possible course of action. In contrast, a logical process uses facts and figures to make scientifically sound decisions.
Intuition is an acceptable way of decision-making; nevertheless, it is often more suited when the decision is easy, personal, or needs to be made quickly. More complex judgments typically need a more formal, systematic approach that incorporates both intuition and logical reasoning. It is critical to avoid rash reactions or intuitions in such scenarios, majorly in business decisions.
You live in an era of digitalization where new information is generated every second at a rapidly increasing rate. And it circulates all around the globe, 24 by 7. This means the amount of historical records you have in databases spread across the globe is huge. And not making use of it seems totally delinquent. That is why organizations are increasingly relying on business and data analytics to guide their decision-making.
Next, in this ‘what is decision making’ tutorial, you will explore the process of corporate decision-making.
Why Decision Making Matters
Making informed, sound, and collaborative decisions can help build a solid organizational direction and have a favorable impact on costs.
Decision Making in an Organizational Context
The modern business environment is replete with examples of corporations that have made strategic mistakes, most of which are the result of poor judgments made by CEOs and management in these firms. For example, the recent crash of Netflix stocks along with the substantial drop in subscriber count. All of this is because of statements made by Netflix’s CEO Reed Hastings in one interview. He talked about launching an ad segment for the low-cost Netflix packs, which led to a horrendous ripple in the share market. Hence, thinking about every statement, initiative and announcement are increasingly critical in an organizational setup.
Another overarching rule in decision making is that the decision-maker must have legitimacy and power over the individuals on whose behalf they are choosing. In other words, decision-makers succeed only when the persons or groups involved in the process respect and obey their choices. Another important aspect of organization-wide decision making is finding the right data. Having incomplete or incorrect information (data) frequently leads to analysis paralysis, which is another label for poor decision-making skills.
Moving forward, in this ‘what is decision making’ tutorial, you will discover a step-by-step approach to making effective organizational decisions.
What Is the Decision Making Process?
The step-by-step decision-making process can lead to more deliberate and effective judgments. So, go ahead and discover the involved steps one by one.
1. Identify Your Goals
The first step in mastering the art of decision-making is to clarify your objectives. When it comes to making a professional decision, you should have a rough idea about which direction you want to follow. Once you've narrowed down your objectives, you'll be able to make more informed judgments. Try to define the nature of judgement you want to make.
2. Make Use of the Elimination Process
Along with what you want to achieve with your judgment, evaluating what you don’t is also critical. Making smart judgments might be difficult if you're still trying to determine what you want to do. However, if you know what you want to avoid, the process of elimination might make certain decisions easier.
3. Use SWOT Analysis Method
SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT analysis is an excellent decision-making tool since it allows you to determine the pros and cons of a certain decision readily. All you have to do is draw a rectangular shape, divide it into four parts and label each section of the table with SWOT parameters. The image given below portrays the sample SWOT metrics.
In the next step, you will fill all the positives and negatives of your initiative. Focus more on what connects strengths and opportunities when you complete your selection. Anything that is continually linking threats and vulnerabilities should preferably be avoided.
4. Simulate Feasible Outcomes
While simulating probable outcomes isn't a reliable approach to predicting what will happen after you make a decision, there are certain ways to simulate what is more likely to happen because of your decision. If you’re familiar with project management concepts, some of your learnings can be applied here to visualize the outcome of your decision. Scientific methodologies such as problem trees, SCQA (situation, complexity, question, answer), and MECE (mutually exclusive, collectively exhaustive) can also help you add a touch of science to your decision making.
5. Choose Best Alternative
After you've analyzed all of your options and created a solid visual picture of the repercussions of each, you're ready to choose the one that appears to be the greatest fit for you. If you cannot decide the course of action, ask for help from your colleagues, leadership team, and friends.
Decision Making Techniques and Tools
Up to this point, we’ve merely mentioned the need for research in coming up with alternatives for management decision making. The following is a list of techniques and tools a manager can use to explore different options to land upon a chosen decision:
Marginal analysis helps organizations allocate resources to increase profitability and benefits and reduce costs. An example from indeed.com is if a company has the budget to hire an employee, a marginal analysis may show that hiring that person provides a net marginal benefit because the ability to produce more products outweighs the increase in labor costs.
This tool helps a manager study a situation in four quadrants:
- Strengths: Where does the organization excel compared to its competition? Consider the internal and external strengths.
- Weaknesses: What could the organization improve?
- Opportunities: How can the organization leverage its strengths to create new avenues for success. How could addressing a specific weakness provide a unique opportunity?
- Threats: Determine what obstacles prevent the organization from achieving its goals.
A decision matrix can provide clarity when dealing with different choices and variables. It is like a pros/cons list, but decision-makers can place a level of importance on each factor. According to Dashboards, to build a decision matrix:
- List your decision alternatives as rows
- List relevant factors as columns
- Establish a consistent scale to assess the value of each combination of alternatives and factors
- Determine how important each factor is in choosing a final decision and assign weights accordingly
- Multiply your original ratings by the weighted rankings
- Add up the factors under each decision alternative
- The highest-scoring option wins
The Pareto Principle helps identify changes that will be the most effective for an organization. It’s based on the principle that 20 percent of factors frequently contribute to 80 percent of the organization’s growth. For example, suppose 80 percent of an organization’s sales came from 20 percent of its customers. A business can use the Pareto Principle by identifying the characteristics of that 20 percent customer group and finding more like them. By identifying which small changes have the most significant impact, an organization can better prioritize its decisions and energies.
Decision Making Pitfalls
Taking a systematic approach to decision making helps managers avoid making quick decisions without adequately considering the consequences to the organization or their reputation. Some of the pitfalls of decision making include:
- Consultation ambiguity – This can be a scenario where a group of employees all feel like they have a vote in a decision or when a manager asks for input but doesn’t consider a group’s views. It’s important for a manager to solicit feedback but to make sure that contributors understand it’s the manager’s final decision.
- Avoiding discomfort – Sound management decision making requires leaders who do not confuse their need for comfort with making the best decision. Some of the most effective decisions involve a degree of discomfort for the manager.
- Appearing indecisive – Sometimes, a systematic decision making process has a downside. Being too rigorous in evaluating every possible angle can draw out the process and open the risk of appearing indecisive. Keep stakeholders informed about the timeline for a decision.
- Blind spots – People have particular perspectives and ways of thinking that can create blind spots, which may be important for an effective decision but cannot be readily apparent. It can be helpful to seek input from trusted colleagues to provide a different perspective.
- Groupthink – This occurs when a group’s members want to minimize conflict and reach a comfortable decision at the expense of a critical evaluation of other ideas and viewpoints. It’s important to explore alternatives a group may not have considered.
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Learn from Past Mistakes to Improve your Decision Making
Most humans make mistakes now and again - after all, you are just human, and no one is flawless. Even if you make poor judgments, reflecting on them can help you improve your future decisions. Try to figure out what went wrong and how you might avoid making the same mistakes in the future. Lessons learned from prior failures can open doors to new ways of approaching problems and possible alternatives, ultimately assisting you in mastering the art of decision-making.
Decision making is one of many project management skills professionals can obtain or refine by enrolling in Simplilearn’s Post Graduate Program in Project Management. In this project management certification program, professionals learn the leadership and operational skills necessary to oversee and execute large, complex, transformational projects.