Decision making in a company it is a process that helps its members, when faced with a problem, to select the alternative that is best aligned with the purpose and objectives of the organization.
During the day, you face hundreds of them, some simpler and others more complex, but all with their respective level of importance. Choosing the best one always opens the door to new and better options, which is why understanding everything behind them will help you decide between them more effectively. In this article we will teach you the importance of decision making in a company its importance to the direction of your business.
What is decision making in a company?
Decision making in a company It is the process by which its members select, among various alternatives, those that are best aligned with the purpose, needs and objectives of the organization. To the extent that the members of the company are clear about the entire process to choose the best alternative, the reasons for deciding between options, in addition to the tools to support that decision, the greater the effectiveness of the choice made.
Let’s put it another way: if you understand what the path is, why you should select an alternative and how to justify it, you will have everything you need to make the best decisions for your business. If you think about it a bit, decisions become the compass that directs the course of your company day by day.
What is decision making in a company for?
The decision making in a company It is used to choose the best alternative from among several available, this in order to achieve a specific objective or carry out some action in favor of your business. Decisions can be made in advance, during or after the appearance of a problem or dilemma.
Why is decision making important in a company?
The importance of decision making in a company lies in the fact that it supports the scope of its purpose, contributes to productivity by reducing reaction times and allows the opening of new and better opportunities that help business development.
The better and more accurate the decisions made at all levels of the organization, the greater the benefit and the fulfillment of objectives. And what kind of entrepreneurial mind does not want to achieve their goals? 😉
Therefore, the clearer your collaborators have the decision making process in a company and the tools necessary to reach them, the greater the impact on the entire business. Come in Harvard Business Review Y thoughtspotrevealed that 87% of business leaders think their organization will be more successful when their employees are empowered to make important decisions in the moment.
Also, during the identification of the best alternative, you should always consider the importance of making decisions based on data. It is very important to have numbers that support your hypothesis, since the greater the amount of data you have, the more educated and well-founded your decision will be.
And with everything that might sound “logical” or “obvious”, the reality is that it is a not so common practice. made by the firm Forrester in 2020, showed that 41% of the organizations evaluated, had difficulties in turning their data into decisions. Trust and use the data generated by your company!
What are the types of decision making?
According to the level of impact and the actors involved, the types of decisions made in a company are grouped into seven categories:
- Directives
- Operational
- Strategic
- tactics
- Of weight or risk
- Group and individual
- Mixed
Let’s see what features each of them has:
✔ Directives
They are those that are taken at the executive and managerial levels of an organization and therefore, impact the entire organization. As characteristics, these involve changes or adjustments to plans, objectives and events of great importance that do not occur on a daily basis.
examples: decide between investment partners or choose a candidate for the direction of an area.
✔ Operational
Here come all those that guide the path of the processes that appear in the day to day of the company. They are characterized by the fact that they are taken by all kinds of collaborators to allow the proper functioning of their area.
examples– Hiring a new entry-level collaborator or upgrading the technology team for a project.
✔ Strategic
When a decision requires in-depth planning, which regularly involves many participants and a considerable amount of time due to its importance, we speak of a strategic decision.
examples: the creation of the objectives and key results (OKR’s) or the implementation of a medium-term project that involves more than one area of the company.
✔ Tactics
If during a project a problem or unforeseen dilemma arises that requires immediate action to correct the path or make an adjustment, a tactical decision is necessary.
examples: decide to adjust a communication strategy that did not give the expected results or change the packaging of a product that has a defect.
✔ Weight or risk
Due to the importance and impact, these decisions involve members of all levels of a company, and occur in the face of an adverse or unexpected situation that will have consequences that require a detailed evaluation to take the right path.
examples: when a supplier increases the cost of an input or problems with a strategic partner.
✔ Group and individual
As its name indicates, if it requires a meeting, video call or the participation of two or more people, we consider it to be a group decision. All those that can be solved by a single person, are the individual ones.
examples: a vote to choose a new logo for our company (group) or to answer a client on Whatsapp (personal) on the weekend.
✔ Mixed
Make two or more of the decisions that we have already explained to you and you will have a series of combinations that will test your decision-making capacity at all times. The reality is that many of the decisions you will face in your company may fall into this group when you analyze them.
Example: Voting between various areas to resolve a conflict with a supplier that has become problematic because he altered your delivery times for the season.
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What are the stages of the decision-making process?
Although there are many models or processes that you can follow to make a decision, one of the most practical —and easy to remember— is the DECIDE model, created by doctor and researcher Kristina Guo in 2008. It has 6 steps:
- Ddefine the problem or dilemma
- ANDestablish the criteria or variables
- Cconsider the alternatives
- Yoidentify the best alternative
- Ddevelop and implement an action plan
- ANDEvaluate the decision made
A great advantage for your memory is that the acrostic is the same in English and Spanish. 👍 Let’s take a closer look at what each step of the model consists of and what questions you should ask yourself to help you move forward:
➔ Ddefine the problem or dilemma
Being the beginning of the whole process, it is very important to have as much information as possible; How does it affect you? Who is involved? How much time do you have to solve it?
➔ Set the criteria or variables
With the problem defined, find the different options or alternatives you have to deal with it. Is it a problem with two or more solutions? What are they? What do they depend on? Have you faced similar decisions in the past? How did you solve them?
➔ Consider alternatives
Here you evaluate each of the possible paths to your dilemma, with the help of information or data that support your selection or the hypothesis that each one represents. Do you have data to help you enrich the decision on any of the paths? What repercussions would each decision have? Which one can be implemented faster? Which one costs less?
➔ Identify the best alternative
Now is the time to select the option that solves the problem in the best possible way, is attached to the purpose of your company and is also aligned with your organizational culture. Does that decision adhere to our values, mission and vision? Does the decision taken solve the underlying problem? Are there any collateral effects that you should contemplate?
➔ Develop and implement an action plan
The time has come to bring that decision to the real world to solve your dilemma. Who is going to support you? Who does each thing? Is it a problem that can be solved in several stages?
➔ Evaluate the decision made
The moment of the truth. Did it work? Mission accomplished! Didn’t work? Why? What can be adjusted? Does the process need to be restarted? Has the underlying problem changed? Are there any factors you forgot to consider?
Example of decision making in a company
To better understand the importance of decision making in a companylet’s see a simple example that we will solve with the DECIDE model:
The situation
Laura has an online store of aromatic candles, and the Christmas season is the period of the year in which she makes her best sales. A few months before December, his supplier of corrugated cardboard boxes—important for the packaging and shipping of his candles—gave him some great news, a special offer for customers only: 3,000 boxes at a 20% discount on the list price. .
It’s a big discount! Especially if we consider that one of Laura’s goals is to reduce her shipping costs. The dilemma now is that Laura’s business forecast sales for the season only require one fifth of that number of boxes. Also, if she spends on boxes, her investment in candles would have to decrease.
What should Laura do?
➤ Define the problem or dilemma
Should Laura purchase the 3,000 boxes at a discount or not even though she only needs 600 to meet her business needs?
➤ Set the criteria or variables
Basically, our entrepreneur has two paths: either she takes the offer or she doesn’t. Perhaps you could negotiate with your vendor to come up with a third path or solution?
➤ Consider alternatives
A) If Laura buys the boxes, she would save 20% on the total cost of the 3,000 boxes (and she can always save the surplus, because the one thing she will always need is boxes for her shipments), but in addition to using 600 boxes as maximum this year, you will have less capital to invest in your candles to sell at Christmas.
B) On the other hand, if Laura does not buy them, she will pay the regular price for the boxes, losing the opportunity of the discount and reducing her shipping costs, but keeping her capital intact to invest in her candles.
C) Data from previous years says that although Laura may sell 600 candles, it is much more likely that she will only sell 500 in the first few weeks of December. What if Laura proposes to the supplier to buy a smaller number of boxes…
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