21 Nov The 5 stages of the Business Decision-Making Process
Life is based on decisions. Many of them are easy to take, and others require time to gather information and think about the situation. The second ones are the most complex since their consequences can define the course of our future, either for better or for worse.
The same thing happens in the business world. Among the main functions of managers and executives we found strategic business planning. And, to get successful plannings, it’s necessary to go through a complex decision-making system. These decisions are the ones that will mark the path to follow towards the achievement of objectives set by management. So, they are the ones that will decide if the company will be successful or not.
Next, we show you which are the 5 stages to take into account when carrying out a decision-making process in the company.
How is the decision-making process in the company?
According to William Greenwood’s theory, a decision is the choice of the most appropriate alternative among several options in order to achieve the desired objective, taking into account the limitation of available resources.
One of the most important keys in decision-making process, especially in the case of companies, is the information. Depending on the amount of information gathered the context will be:
- Certain. All the data is well known to choose the best alternative, and the person who decides knows in advance what is going to happen.
- Uncertain The data is incomplete or of low quality, so the decision is based on intuition, without knowing what the result might be.
- Risky. The person who makes decisions knows the probabilities of success for each alternative, so they are based on an expected value criterion. That is, what is “expected” to happen.
Certain decisions are very rare in companies since the environment is not fixed and is always in constant evolution. Consequently, flexibility and openness to new approaches gain prominence in current strategies.
In the end, the point of a decision is to move us to action. That is why having the right information is such a critical factor for any decision-making process: because the more data, the more likely to be successful.
Decision models vary based on many criteria. For example, it’s not the same to decide to open a new office in another city, to choose an employee representative, or how to classify the folders within the team’s Drive.
In general, we can classify 6 types of decisions: according to the hierarchical level of who makes the decision, or the method used to carry it out.
Types of decisions according to the hierarchical level
- Strategic or planning decisions. They are the ones taken by senior managers, and regulate the general goals of the business and the medium and long-term plans in alignment with the corporate mission and vision. They are the most important decisions, since a mistake could end with the closure of the company. Here, everything related to financial resources, remuneration policies or the location of new offices.
- Tactical decisions. They are carried out through middle managers , and serve to have more efficient resource management. Examples of this type of decisions would be the distribution of employees in the plant or the selection of budgets.
- Operational decisions. These decisions are those made by team managers, and refer to all those aspects that have to do with the day-to-day of the company: organization of tasks, inventory classification, etc.
- Individual decisions. They are those carried out by employees and that greatly influence their motivation and satisfaction since these are the decisions that allow them to take control of their own actions. In this sense, employees need to have the freedom to decide how to organize their own routines.
Types of decisions according to the methodology
- Scheduled decisions. The everyday decisions that characterize the job at hand. As these are routine decisions, the problems faced are well structured and defined, allowing employees to choose the best alternatives with agility.
- Unscheduled decisions. They are those that have to be taken due to unforeseen events, which hinders the logical process because of the lack of enough information. When facing these decisions, creativity is the best resource. A good example of unscheduled decisions are those that must be carried out in the middle of a crisis or a natural disaster.
The 5 stages of the making-decisions process in companies
Making decisions is a cycle that feeds itself. As we have mentioned before, a decision is used to carry out an action. But this action will provide new information that will make us likely to need to make new decisions.
Within this iterative process there are several phases: the 5 stages of the decision process.
The first thing to do is identify the source of the problem. To do this, it will be necessary an analysis of the current situation and gather all the relevant data that is available.
It must be taken into account that this analysis is in many cases biased by the very subjectivity of who perceives the problem, since not all of us interpret our environment in the same way.
So, during this stage, it’s essential to have the right tools to help the person responsible for the making-decision process to choose the best solution.
The second step is to list all possible courses of action. For a more effective design phase, it’s advisable to keep in mind different approaches and points of view, including those given by employees.
Thus, with a heterogeneous vision of the problem, it’s less likely that there will be loose alternatives that might otherwise have escaped you.
Once all the alternatives have been listed, carefully evaluate them thinking in what you want to achieve, the objective.
Of course, you have to be consistent with your actions. So, during this stage, it’s advisable to make an extra effort and try to anticipate the risks associated with each alternative.
Then you can choose the best alternative: the one that contributes the most to reach the proposed goal, with the resources available, and that causes fewer problems.
This is the stage when you take the necessary measures to implement the chosen alternative. Here two things can happen: problem solved, or it does not and you must restart the process.
In any case, it is important that all those people who are affected by the decision, either directly or indirectly, are duly informed about the movements that the company plans to implement before they happen.
Finally, during this last stage, you evaluate the results. What’s its impact? Has been any improvement?
It’s also a good idea to write a report stating how the entire process has been developed, which will help identify strengths and areas for improvement for future occasions.
The decision-making process in the company is key as well as delicate. A good decision can make the business develop and grow to expand to other areas and become more profitable. Or, a bad decision can turn into an internal crisis that ends in layoffs and the closure of the business.
To avoid problems, information is the cornerstone. A decision-making process will be only as good as the quality of its data, and having the best tools is crucial for an in-depth analysis of the situation.
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