With the ever-increasing complexity of choices, leaders need to understand diverse strategies to arrive at the best decision for their organisation. From rational decision-making methodologies to strategic analyses such as SWOT and cost-benefit analysis, this article aims to equip leaders with a versatile toolkit to make well-informed, impactful decisions.
According to some sources, the average adult makes around 35,000 decisions a day. From what to eat for breakfast to when to call your mother, our minds are constantly whirring over choices. And when decisions are made at the level of governments, institutions and corporations, they have far-reaching effects that can affect numerous aspects of life. Human history is strewn with decisions, both good and bad, and their resulting actions which have been major turning points during our short time on this planet.
As a leader, your decisions carry greater weight and consequences in your organisation. In the fast-paced and complicated world of business, decision-making is a skill that must be sharpened. To make well-informed decisions that drive your company forward, you need to leverage a variety of techniques and approaches.
The decision-making process
Let us begin by looking at a commonly used seven-step decision-making process. This step-by-step process helps you be more effective at decision-making and prevents hasty decisions. The steps are:
- Identify the decision: Clearly define the problem you are trying to solve. The more specific and well-defined your problem statement, the easier it will be to find a solution.
- Gather information: To make an informed decision, you need to collect relevant information and data. This may involve studies, market research, financial analysis, or input from experts within and outside of your organisation.
- Identify alternatives: Once you have a comprehensive understanding of the problem and with the information you have gathered, list the possible solutions to your problem. Brainstorming sessions with your team can be highly effective for this step.
- Weigh the evidence: Assess the pros and cons of each option. Assign weights to each criterion based on their importance to the decision. Look at what other companies have done in similar situations.
- Make a choice: Here is the decision-making part of this process. Select the best option based on your evaluation and analysis. Consider not only the quantitative factors but also qualitative aspects, such as the long-term impact on your company’s culture and reputation. You may even choose a combination of options.
- Take action: It’s time to implement the decision you’ve made. Develop a clear execution plan, assign responsibilities and set timelines to ensure your decision is carried out effectively.
- Review and learn: Consider the results and perform an honest review of the outcomes. Did you solve the problem you identified in Step 1? Take note of what worked, what didn’t and what could have been done better.
Technique 1: SWOT analysis
The SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is a framework for strategic planning and decision-making. It helps organisations develop a well-rounded awareness of all the factors involved before making a decision. Usually presented as a square divided into four quadrants, one for each element, the SWOT analysis is very useful for teams to map out a realistic picture of the issue at hand.
Put together a group that is relevant to the issue or project yet diverse enough to provide different viewpoints. List all internal and external factors, including forces that your organisation has no control over, such as trends, regulations, currency fluctuations, geopolitical situations and so on. Done correctly, a SWOT analysis can be used to distil large amounts of information, make complex problems more manageable and discover factors you may not even be aware of. It is not costly to use and can be applied to almost any kind of question.
Technique 2: Cost-Benefit analysis
Cost-benefit analysis (CBA) is a process of evaluating decisions based on comparing potential costs and expected benefits. This method helps determine whether a decision or project is worthwhile by comparing the positive and negative aspects in monetary terms. Once the question or project has been identified, a list of all estimated costs and benefits is drawn up. Remember to include indirect (utilities, rent, etc) and intangible costs and benefits (customer satisfaction, employee morale, etc). Assign a dollar amount to each cost and benefit, then tally the totals.
The advantage of CBA is that it takes a data-driven, quantitative approach. This reduces subjectivity and enables more logical decisions to be made, especially when multiple options are available. Keep in mind that there are limitations to CBA: it can be difficult to forecast the figures of every item, especially when a project is a long-term one. Also, there will be unpredictable or variable factors that can be challenging to account for.
Technique 3: Decision-Making matrix
A decision matrix is a table that contains your options, criteria and scores to help you evaluate your choices. Place all your choices in the first column, then all the factors or criteria in the first row. For example, when deciding on what car to buy, place the criteria that are important to you in the top row, such as price, safety features, after-sales service, sunroof and so on. Then give a score to each criterion of each option. Tally the scores to reveal the best pick.
Decision matrices allow you to compare and contrast all your options at one glance. It can simplify and streamline the decision-making process as it focuses on rating your options, thereby removing emotions and personal preferences from the process. You can use a decision matrix when you have a few comparable options with around five to eight criteria. If you have many criteria, the decision matrix will become too unwieldy. As this method removes intuition or gut feeling from the decision-making process, it may not be suitable for certain situations.
Technique 4: The Decision-Making Pareto Principle
The Pareto Principle, or the 80/20 rule, suggests that 80% of your results come from 20% of your efforts. As such, a Pareto analysis helps to prioritize the decisions that will have the greatest impact on your business goals. Bear in mind that the 80/20 numbers are not law; simply an observation. The idea is that input/output or effort/outcomes are not balanced or evenly distributed.
Some examples: 20% of your customers generate 80% of your revenue, 20% of players score 80% of the goals, 20% of the flaws create 80% of the problems. Hence, when making decisions, focus your efforts on where you can get the most benefit. Pay more attention to the small group of high-value customers. Fix the few bugs that cause the biggest problems. Reward and develop your top-performing employees. The downside to this practice is that the “smaller” issues (which nonetheless have to be addressed) may fall between the cracks and be neglected.
Technique 5: PEST analysis
For this tool, PEST is an acronym for “political, economic, social, technological”. A PEST analysis helps companies, especially larger ones, improve decision-making by assessing and preparing for major external factors. Political factors include the political climate or stability of a country or region, government policy or changes in legislation. Economic factors include inflation, economic growth, exchange rates and so on. Social factors focus on population, demographics, lifestyle trends, and cultural norms. The technological component might include current and future tech in the industry, cybersecurity, artificial intelligence and relevant technological developments.
You may want to perform a PEST analysis twice a year as part of business strategy planning and to keep your finger on the pulse. When preparing for a new project or venture, it can be used alongside a SWOT analysis for a deeper dive into external factors. Just bear in mind that, as with any method that attempts to predict future developments, the unforeseeable will invariably occur.
“Life presents many choices. The choices we make determine our future.”
As a leader, you will face a never-ending array of choices, each with its challenges and opportunities. We hope these techniques will aid you in making informed, strategic decisions or refine your decision-making skills. Keep in mind that the best technique may vary depending on the situation, so adapt your approach as needed. You may also wish to consider executive coaching to help you sharpen decision-making and other leadership skills. We would be happy to help. Get in touch with us.
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