Have you ever wondered why you make certain decisions in your company? Are your actions based on hard statistics and facts or your own experience? This is a question which, although its answer should be clear, in practice more often takes an intuitive approach than a reasoned one. And yet, when managing an enterprise, we cannot afford unnecessary risks or simple avoidable mistakes.
The process of managerial decision-making is an activity that is one of the key aspects of a healthy business. Therefore, it should be handled with deliberation. In the following article, you will learn how to improve the decision-making process in a company with BI solutions, what are the stages of decision-making and what are the most common mistakes in decision-making. Read on!
What is the decision-making process in a company?
The decision-making process is the recognition and definition of the essence of the decision situation, the identification of alternative possibilities, the selection of the best one and its implementation. To arrive at such a decision, most often all kinds of data and statistics from surveys, interviews, databases or measurements are used. Since business decisions in the daily operations of a company are extremely numerous, it is crucial to prioritize tasks accordingly. This will not only help us decide which decisions should be more thoughtful and which should be less but also find out which ones should be made intuitively.
Basic models of decision-making processes in a company
How do you make decisions? The literature most often mentions two models of decision-making processes in an organization. These are the classical model and the managerial model.
The main difference between the two is the goal that the decision-maker plans to achieve. In the classical model, one strives to achieve the optimal solution by analyzing all available options and rationally selecting the most sensible one. Even though the assumptions of the model sound as logical as possible, in practice it is hard to implement due to limitations of time, money or errors contained in the process. Therefore, in enterprises, it is more common to encounter the second method of decision-making, the so-called managerial. According to its assumptions, decisions are characterized by limited rationality. Instead of striving for an ideal solution, we take satisfaction as our goal. As a result, we don’t have to devote all our efforts and resources to finding a solution, which is a much more feasible option for companies. Instead, it is important to keep approaching the problem with the idea of finding the best solution, rather than settling for the first satisfactory option encountered.
The decision-making process in an enterprise – stages
According to a study by W.F. Samuelson, the managerial decision-making process can be divided into six basic stages.
Any approach to a problem should start with defining it. It is useful to pause for a moment and answer the most crucial questions.
- What made the decision necessary?
- What is the nature of the problem?
- What is the background, environment, and shape of the decision problem?
- What influence do the above factors have on the objectives, criteria, and options for selection?
- Who is responsible for making and implementing the decision?
- Who makes the decision and why?
Only after answering the questions above the manager can move on to the next stage to set the goal they are pursuing. This time we aim to determine what results we want to achieve, what is the criterion for selection or how to deal with problems when our goals start to exclude each other.
Next, we move on to examining the options of choice. What are our available options and why are other choices impossible? Setting up potential paths will make it easier to decide without missing out on a solution that might be more satisfying.
In the fourth step, the manager determines what are the consequences of each option. In this step, we try to get the most accurate information possible to predict potential outcomes. This is a key step in the decision-making process. This is where we get the answer as to what is more profitable for us. Therefore, let’s approach it as carefully as possible. Let’s try to explore solutions from start to finish, using calculations, data or tools available to us. Maybe consult specialists or your employees.
Once we have the results, we are ready to move to the fifth step and make a decision. Based on the gathered information, the person in charge chooses which variant will be the most optimal, allowing us to fully achieve the set goals. Unfortunately, this will often involve risks. They also need to be taken into account in the planning and decision-making process. Sometimes the most likely events, may not work out.
It may be necessary to use methods based on marginal analysis, linear programming, decision trees, and cost-benefit analysis to make decisions.
The final step in the decision-making process is sensitivity analysis. It occurs when we want to assess whether the option we have chosen has fulfilled its function. If not, what was the reason for this?
Sensitivity analysis can also be used when environmental conditions are unstable. It allows us to assess how the optimal decision would change if economic quantities or operating conditions transformed during the examined period.
Decision-making process in the company – example
Decisions in a company should always be considered individually. After all, we have both choices: the ones that take us a moment, such as buying paper for the office, and the decisions that will directly affect all aspects of the work, such as the choice of office premises.
A suitable example, without resorting to any extreme, could be the hiring process for the marketing department.
The first step would be to understand if and why we need the employee and what we expect from them. Next, we set a goal. What kind of person do we need to hire, in what timeframe, and at what is our budget? Once we have that, we move on to reviewing the available candidates. We try to find the largest possible number of people who fit this job position. Then, all that is left, is to analyze the potential employees and choose the best one. A seemingly simple process of rational decision-making requires a lot of work and planning if it is to be done well.
How does the information system support the decision-making process?
We live in the information age. Acquisition of data and its analysis, is easier every day, providing a significant competitive advantage. It’s not 2010. Today, companies around the world can’t function without electronic information management systems.
These tools are the command center of the enterprise. All the documents, processes, employees, virtual resources or connections to external services fit inside them. Thanks to tools information are easily analyzed. It gives these entrepreneurs opportunities never before possible. Remarkably, we get a solution to many of our problems and an inventory of processes that can be optimized. BI systems do the work for us, suggesting what business decisions lead to the greatest benefits.
You can learn more about BI systems in the articles:
- What is the Business Intelligence process in an organization?
- Which BI solutions in NAVIGATOR?
- Selected factors influencing the success of implementing Business Intelligence tools
The most common mistakes in decision-making
One of the most common mistakes is making decisions without proper thought. Many business choices have far-reaching consequences. Especially when making key decisions for the company, we should stop for a longer time and use the available data to increase the likelihood of making the right choice.
Naturally, we shouldn’t wait too long. Every entrepreneur must choose the moment when he is ready to make a decision. Unfortunately, there will never be a perfect moment. Let’s not postpone it indefinitely, especially when our hesitation blocks other tasks waiting in line.
Common mistakes are also made by falling into so-called thinking traps. These are all errors in reasoning that lead to a misjudgment of the situation.
Get to know more about Electronic Workflow, AI, Business Intelligence and No-code applications in NAVIGATOR system
Marketing Intern, especially interested in SEO and SEM.
Right now is beggining to write his master's thesis in Informational Management at Jagiellonian University. Michał loves playing billiards, board games and is a huge e-sports fan.
