Decision making in a company 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.
Making the right decisions opens the panorama to new and better options. For this reason, it is important to understand everything that the execution of this process implies, since it will help you to decide between these alternatives more effectively.
In this article we are going to explain what decision-making is in a company and its importance for the management of your business.
What is decision making in a company?
Decision-making in a company is the process by which its members select, among several alternatives, those that are aligned with the purpose, needs and .
In other words, 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.
In fact, decisions become the compass that directs the course of your company day by day.
What is decision making in a company for?
Decision-making in a company is used to choose the best alternative from among several available, in order to achieve a specific objective or take 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 scope of its purpose. It contributes to productivity because it reduces 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 the objectives.
Therefore, the clearer your collaborators are about the decision-making process in the company and the tools necessary to reach them, the greater the impact on the entire business.
A study by Harvard Business Review and Thoughtspot revealed that 87% of business leaders think that their organization will be more successful when their employees are empowered to make important decisions.
Also, during the identification of the best alternative, you should always consider the importance of . It is very important to have numbers that support your hypothesis, since the greater the amount of data you have, the more grounded your decision will be.
But it is an unusual practice. made by the firm Forrester in 2020, showed that 41% of the organizations evaluated had difficulty turning their data into decisions. Analyze and use the data generated by your company!
What are the types of decision making?
The types of decisions that are 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 and, therefore, impact the entire organization. These involve changes or adjustments of 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 decisions that contribute to the daily management 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 technology equipment for a project.
✔ Strategic
When a decision requires extensive planning, regularly involving 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) 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: deciding to adjust a communication strategy that did not give the expected results or changing the packaging of a product that has a defect.
✔ Weight or risk
Due to their importance and impact, these decisions involve members of all levels of a company. In addition, they 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 when problems arise 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, it is a group decision. While, all those that a single person solves, are the individual ones.
Examples: a vote to choose a new logo for our company (group) or answer a client on Whatsapp (personal) on the weekend.
✔ Mixed
If you choose two or more of the decisions that we have already explained to you, you will have a series of combinations that will test your decision-making capacity at all times. Many of the decisions that you are going to make in your company may fall into this group when you analyze them.
Example: vote between several areas to resolve a conflict with a supplier that became problematic because he altered delivery times in a specific period.
Know more:
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.
This model has six steps:
- Define the problem or dilemma
- I established the criteria or variables
- Consider the alternatives
- Identify the best alternative
- Develop and implement an action plan
- Evaluate the decision
Let’s take a closer look at what each step of the DECIDE model consists of and what questions you should ask yourself to move forward:
1. Define 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?
2. Establish the criteria or variables
With the problem defined, find the different options or alternatives you have to face it. For example: 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?
3. Consider the alternatives
Evaluate each of the possible paths to your dilemma, with the help of information or data that supports 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?
4. Identify the best alternative
Select the option that solves the problem in the best possible way, is attached to the purpose of your company and, in addition, aligned with your .
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 have to contemplate?
5. 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?
6. Evaluate the decision made
It is the moment of 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 company, let’s see a simple example applying the DECIDE model:
The situation
Laura has an online store of aromatic candles and the Christmas season is the period of the year that registers her best sales.
A few months before December, his supplier of corrugated cardboard boxes—important for the packing and shipping of his candles—gave him a notice about a customer-only offer: the quantity of 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.
Now, the dilemma 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, ours has two paths: take the offer or not take it. 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 she will always need boxes for her shipments). But, in addition to the fact that she will use 600 boxes at most this year, she will have in her candles to sell at Christmas.
- B) If Laura doesn’t 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 to take advantage of the discount without altering so much the capital she had contemplated to invest in her candles? Thus, with what she saves from the 100 candles, she can propose to buy 1,800 boxes instead of 3,000.
Identify the best alternative
After discussing how the cost of the boxes has increased over time and the money she will save by taking advantage of the sale, Laura puts decision making into practice and chooses decision C.
Even if the result is negative, you can make one of the other two decisions later. You have nothing to lose by trying!
Develop and implement an action plan
Supplier accepted! Now Laura needs to make the deposit so that…
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