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What is Business Decision Making Process?
Whether it’s a sole proprietorship, partnership, SME or large corporation; the success of every business depends on the quality of decision its management is making.
However, when we talk about decision, it’s a step by step process which allows business people to take calculated risks by weighing different alternative and contrasting among various opportunities. In the business language, it is called ‘business decision making process.’
7 Steps in Business Decision Making Process
There are seven (7) steps involved in the decision-making process. However, there might be some variations in numbers and headings by different authors of business academic books, but the main concept is the same. Here are the 7 steps as follows;
Identify the Problem
First of all, you as a business person must define the problem, what the problem is which you want to solve. While identifying the problem, you should keep in mind that the definition of the problem shouldn’t be too broad or vague; it must be specific and precise.
If the definition of the problem is vague or unclear, it would lead you to make vague decisions. Therefore, problem identification must be clearly defined which would help you to achieve your goals.
Gather Relevant Information
After identifying the problem, now you’ve reached the second stage where you should start collecting relevant information. You should gather information both from internal and external sources. By internal sources, I mean the company’s record. External sources, on the other hand, comprised of case studies, research reports by paid consultant or external journals.
At this stage, it might be a possibility that you would be overcrowded with information which can be overwhelming. Therefore, you should diligently screen all the information with facts and statistic which is only relevant and applicable to your situation.
Identify the Alternatives
The problem is identified and you have collected the relevant information. Now, you should come up with more than one alternative or option at least to choose from. For instance, if you or your company wants more post engagements on social media, then you should have options like changing social media strategy, paid social media advertisement or both.
Weigh the Evidence
Once you have multiple options to choose from. Now look at your company’s wins & losses; and what it needs at this stage. Also, study other companies which have gone through this similar phase and how they made their choice. Then you should choose that option which would provide your organization the best possible reward and lower chances of failure.
Choose Carefully among Alternatives
By going through all the stages from problem identification, information collecting, creating an alternative to weighing the evident; now you fully aware of the situation of your company and what decision is best under the circumstance. In other words, you are fully capable of deciding at this stage.
Once your mind is made up about the decision; now it’s time to draw a proper, achievable and actionable plan. You should let your team go on with their routine task after developing the actionable plan.
Review Your Decision
After going through all the stages of the decision-making process; now you should take a look back at your decision. Then ask yourself does it answer the problem which you defined at the first stage? Does it help you to meet your goals?
If the answer is yes, then move forward and make a note for future references. If the answer is no, then remember we learn from our mistakes and repeat the whole process.
Characteristics of Effective Decisions
An effective and good decision is like; it should be free from bias and prejudice. It should help you to get closer to your goals. Most importantly, it must solve the identified problem and provide you maximum value.
Here are some characteristics of effective decisions which are as follows;
- Longer life span.
- Doesn’t create a conflict of interest.
- assists decision-makers to get and achieve what they are looking for.
- It involves both internal and external factors
Decision support system (DSS), on the other hand, a meticulously designed system which helps in the decision making; if one follows standard protocol of DSS step by step, even then the result obtain from it is distorted.
Challenges to Decision Making
Here are some challenges you face while going through the standard process of decision making;
At first, you don’t have any information about the problem, but when you start receiving information from different sources, and then it becomes very different to manage information. What to choose and what to leave; drawing the right standards for the selection of information is very important at this stage. Choosing the right information would lead you to the right decision, vice versa.
Misleading the Problem
Diagnosis of the exact problem is the most important part of the decision making process; because diagnosing the precise pinpoint would provide you a strong basis to work on. Sometimes things are so complicated at the organizational level that diagnosis isn’t always simple and easy because there would be many small distracting problems. But choosing the main central problem is essential to achieve results.
Overconfidence in the Outcome
There’s another problem that decision-makers made when they know that they have the right decision. Instead of being precautious and keep looking for the contingency plan like if that doesn’t work, then what should be the next game plan? They become so overconfident over their result that they completely avoid the contingent factor. Even the smallest mistake in the result would put them at the first step again, they have to do things over and over again.
There are many tools which help you to make the right business decision like swot analysis, Pestle Analysis or pros and cons list helps to see things more clearly. Depending upon the nature of the problem, you should use relevant decision making tools and techniques. Most importantly, keep in the mind the environmental and circumstantial factor because not all the same problem has the same solution. If a solution works in a particular situation at some organization, there’s a probability that it won’t work for you because of different industry and different circumstances.