How to Make Better Business Decisions?
Running a business involves making numerous decisions day in and day out. For small business owners, that can be anything from deciding on how much stationery to order to setting pricing structures or creating vital growth strategies. All these decisions have ripple effects, so it’s important for business owners to refine their decision-making skills. To facilitate this process we, at Clear House Accountants, have curated a list of Decision-Making Tools depending on the specific situations below.
Related: Entrepreneurs and small business owners often face a great deal of stress during the Decision Making Process. Read our article for tips on how to manage Business-Related Stress.
Business Decision Techniques
The two main types of approaches to making better Business Decisions are Problem-Solving Approach and the Decision-Tree Approach.
1- The Problem-Solving Approach
What is the Problem-Solving Approach?
Effective decision making has a robust thought process behind it, and there are several tools you can use to come to a particular decision. One such method is the Problem-Solving Approach. The process of finding a solution by following this approach is simple; Identify and Define the Problem, Work on Alternative Solutions, Assess and Choose the Best Solution, and Implement the Solution.
1. 1st Step: Identify and Define the Problem
In order to begin, you need to determine the purpose of what you are trying to accomplish. Are you trying to solve an issue or improve a process? For example, let’s say you have a cash flow issue which can have a significant impact on business growth. You notice that even though you are invoicing customers on a regular basis, you are struggling to make payments to suppliers.
After investigating the issue, you realise that cash flow is the issue, but to better understand this problem further, you first need to review and document the existing process. If you have several people in your organization, this step will require you to do a bit of research from anyone involved in this process. You can start your research by asking a few simple questions, such as:
- Who is responsible for this process, and what are their responsibilities?
- What information do they use to complete their work?
- Which tools do they use?
- How frequently do they communicate with co-workers and clients?
- What time frame do they have to complete their tasks?
Next, you should devise a method that will help you develop a solution. For example, you can use a flowchart to identify the existing process and a cause and effect diagram to explore the reasons that led to the problem. You should also consider how the steps in the solution and the process might impact the company and the people implementing those solutions. In this case, a cash flow forecast, or an effective credit control procedure could be a potential solution, our guide to helping businesses getting paid on time would be a value-added resource during this process.
2. 2nd Step: Work Out Alternative Solutions
Once you define the problem, the next step is to identify the objective of the solution, meaning what do you want the solution to achieve. Subsequently, you should work on a series of alternative solutions that are aligned with your objective.
You can use techniques like Brainstorming to come up with several alternative solutions. You should also contrive short-term and long-term alternative solutions, as some problems may have time constraints or might need to be implemented immediately.
3. Third step: Assess and Choose the Best Solution
Once you have a variety of solutions, you can evaluate them with tools such as a Pros and Cons List, for each option. You should consider the following when choosing the best solution:
- Does it have the capability to resolve the issue without disrupting any other process within your company?
- Will it be accepted by every concerned authority in the company?
- Is the solution easy to implement?
- Does the solution have the capacity to perform its function within the organizational constraints?
4. Fourth Step: Implement the solution you Select
Sometimes, picking the best solution is the easy part. Oftentimes, when using new processes or tools, there is some staff resistance. As the leader of this process, you need to make sure that you streamline the implementation process. To do this, you need to ensure that you include employee feedback when planning the procedures for the solution. You also will need to formulate ongoing measures and monitor the effectiveness of solutions from a short and long term standpoint.
2- The Decision-Tree Approach
What is the Decision Tree Approach?
A Decision Tree is a flowchart-like diagram which illustrates various results that are produced from a series of decisions. It can be used for anything from planning strategies to research analysis. A Decision-Tree is also known as a Probability Tree. This approach allows you to choose the best solution by listing the possible outcomes against one another; based on factors such as costs, benefits and probability of occurrence. This tree can also be used informally during brainstorming sessions in a company meeting or can be used to extract an algorithm that helps one choose the best choice statistically.
How to Make a Decision Tree?
A Decision Tree has three main parts: a root node, leaf nodes and branches. The root node is the starting point of any decision tree. In the root node, you write the main problem that needs to be addressed. Leaf nodes also contain questions or criterias that need to be addressed. The branches are basically arrows that connect all the nodes, they illustrate the flow of the tree.
There are three different types of nodes, the first one is the chance node which depicts the probabilities of certain results, and a circle is used to represent it. The second type of node is a decision node which reveals a decision that has to be taken and is usually represented by a square. The last type of node is the end node which reveals the final outcome of your decision journey.
To better understand how to draw a decision tree, see the example below.
Learn how to use a decision tree to analyze data and make effective business decisions. We have trained specialists within our Accounting Firm, who can help guide you using various planning and strategic tools. Combined with our accounting and strategic services, we can devise effective decision-making strategies and improve business performance, modify your business model or stay ahead of your competitors.
Different Types of Decision Making Styles
Every entrepreneur has a distinct perspective which allows them to run their business in a unique manner. An agile business owner is able to adapt their decision-making abilities as needed to meet the demands of ever-changing business circumstances. Learning about the different styles will allow an astute entrepreneur to exploit each method, as and when the situation demands it. The four key types of Decision Making Styles are: Directive, Conceptual, Behavioural and Analytical.
1. Directive Decision-Making
Directive decision-makers investigate the advantages and disadvantages of a particular situation based on the set of information they already have. These decision-makers leave very little to no room for ambivalence. They utilize their personal and organizational knowledge, experience and logic to decipher a solution instead of approaching others to extract more information. This allows them to make swift decisions.
When to Adopt?
Directive decision is recommended in circumstances where the company has faced the same issues before and involves repeated patterns and recurring events. This style is recommended in cases where the solution already exists, and the procedure is understood by every key employee.
2. Conceptual Decision-Making
Conceptual decision-makers undertake a socially collective approach to the decision-making process. These decision makers promote creative reasoning and collaboration. They also welcome ambiguity when scrutinizing the decision. Conceptual decision-makers are achievement-oriented and are more likely to consider long-term consequences when making a decision.
When to Adopt?
This type of approach is recommended for situations where there are different competing ideas. The conceptual approach to decision-making is recommended for unanticipated situations that require innovative approaches to carve out different solutions.
Related: When looking to create innovative decisions to a business’s model, the business model canvas can be a useful tool.
3. Behavioural Decision-Making
Behavioural decision makers take a more group-oriented approach to decision making. These decision-makers only consider the options that are available to them. They investigate the advantages and disadvantages of every option available to them and shortlist one after a proper analysis. They also incorporate opinions from relevant stakeholders and the concerned employees during the process of decision-making.
When to Adopt?
The type of approach is recommended when the decision-maker has to engage in proactive communication. The behavioural style considers an introspective approach to a solution that requires decision-makers to discuss different options and evaluate the ones which have worked in the past in a very detailed manner.
4. Analytical Decision-Making
Analytic decision-makers base their decisions on direct observations, available facts and statistics. Unlike Directive decision-makers, Analytic decision-makers welcome ambiguity and might adapt accordingly to changing business circumstances. However, they still prefer to have an influence on the major factors of the decision-making process. The biggest downside to this approach is that it may be time-consuming.
When to Adopt?
This type of approach is recommended for situations where there are multiple feasible solutions to implement.
A Step-By-Step Approach to Making Better Business Decisions
Considering how important it is to make well-informed and logical decisions, our London Accountants have curated a brief guide on the steps you can take to improve the quality of business decision-making as a business owner.
It is crucial to conduct a thorough risk assessment before finalizing a decision. You can use our risk assessment matrix template to analyze risks that can impact your decisions. A Risk assessment is not just about what is at stake but also how you plan to overcome the potential risk. Once you have assessed the risks, you should create a well-defined Risk Management Plan to help you take the appropriate response for the associated risk. Working in collaboration with risk managers, insurance brokers and business advisors, we have formulated an in-depth guide to effective risk management.
Talk to an Expert
Sometimes, particular problems cannot be solved in-house. At that time, it is important to seek assistance from a professional in the field. They can help you make reliable decisions based on your circumstances. You should consider it an investment when seeking expert advice as it will save you time and resources in the long run.
Data is a powerful tool for business owners and has given them the ability to make more refined and logical decisions. Learn about the data-driven decision model and the steps you can take to make your decisions more data-driven in the video below.
Video: 5 Steps to Data Driven Business Decisions
Data-driven decision making is a process that involves collecting data based on certain pre-defined goals or KPIs. Analyzing them and using them to develop business strategies. Our video covers 5 steps to data-driven business decisions.
Pay Attention to the Changing Trends
Businesses operate in a dynamic environment. Business owners are expected to be well-versed with the changing trends and should mould their business decisions accordingly. The ability to stay updated with the current trends will improve your decision-making ability and help you in your risk assessment procedure as well. Staying out-dated will result in slow progression and eventually, complete business stagnation.
Use the Right Tools
Using the right tools can help you make the better decisions. There are several tools when used in conjunction with the approaches mentioned above, can help you make effective decisions.
Adopt Powerful Daily Habits
Success is the result of discipline, intellect and persistence. The most successful people around the world follow a routine defined by discipline and consistent efforts. Being the owner of a business, you must define your goals and set milestones for yourself. Being organized will help you improve your judgement and develop better decision-making abilities over time.
Clear House Accountants are professional Accountants in London who help businesses with their financial, management and strategic needs. Our highly qualified accounting specialists have been trained to help businesses improve performance, grow and stay ahead of their competition.