Techniques and Tools to Help You Make Business Decisions

5 steps of decision-making

Numerous entities, from blogs to academic institutions, have attempted to distill the decision-making process into a series of steps. For example, the University of Massachusetts/Dartmouth’s seven basic steps is an oft-cited decision-making system. However, the steps involved in making decisions typically include the following:

1. Identify your goal. This may sound like a no-brainer for personal goals, but it’s also critical when setting achievable business goals. The more stakeholders involved in the outcome, the more likely your goals will be misaligned. Therefore, goal clarity is crucial.
2. Gather relevant information. Amass a wealth of information about your goal and what it will take to achieve it. For example, relevant courses of action and alternatives should be identified and researched thoroughly.
3. Evaluate your options. During this step, decision-makers must carefully weigh all the evidence they’ve collected.
4. Make your choice. Based on all the above factors, you’ll arrive at your decision.
5. Evaluate your decision. Gauge your decision’s success with both short-term and long-term evaluations.

Decision-making tools and techniques

There are dozens of tools and techniques for organizing your thoughts during the decision-making process. Here are some of the more popular options:

• Decision matrix: A decision matrix helps you evaluate all your options. When using the matrix, create a table with all the choices in the first column and all the factors that affect the decision in the first row. Next, score each option to decipher which factors are more important. A final score is then tallied to reveal the best pick.
• Pros-and-cons list: Many decision-makers use a T-chart – or pros-and-cons list – to weigh the benefits and disadvantages of all options. This list ensures that you consider all positive and negative outcomes when making a decision.
• Decision tree: A decision tolree is a graph or model that contemplates each option and its outcomes. This technique is also helpful for conducting statistical analyses.
• Multiple voices: Multivoting is used when multiple people are involved in making a decision. This technique helps whittle down an extensive list of options to a smaller group until the final decision is revealed.
• Pareto analysis: A Pareto analysis technique is helpful when making many decisions. This tool helps prioritize which decisions should be made first by determining which will have the most significant impact.
• Cost-benefit analysis: This technique is used when weighing the financial ramifications of each possible alternative to determine what makes the most sense from an economic perspective.
• Conjoint analysis: A conjoint analysis is a method business leaders use to determine consumer preferences.
• SWOT analysis: A SWOT analysis assesses strengths, weaknesses, opportunities and threats to help you arrive at the best decisions.
• PEST analysis: An acronym for “political, economic, social and technological,” a PEST analysis can improve decision-making and timing by analyzing external factors. This method considers present trends to help predict future ones.

AI-powered decision-making

Artificial intelligence is increasingly used to help businesses make better decisions. The more complex a decision is, the greater the benefit of using AI will be, because this technology can process significant amounts of data using algorithms and computing power.

More and more companies are utilizing AI systems in decision-making; the industry is projected to grow significantly. In fact, according to IDC data, researchers predict that 85 percent of enterprises will combine human input with AI to become better decision-makers by 2026. 

Here are two examples of AI-powered decision-making tools:

• MakerSights: MakerSights is AI decision-making software for retailers. It analyzes product attributes, sales data, customer data and production parameters to help make decisions about new product introductions, marketing and waste reduction.
• Rainbird: Rainbird is an AI decision-making platform that focuses on optimizing customer experiences and creating new digital products.

Why decision-making tools are useful

Businesses can benefit from decision-making tools in the following ways:

1. Decision-making tools help you make sense of data.

When analyzing data related to a decision, it can be challenging to weigh all the varied factors and their impact on your decision’s outcome. A decision-making tool will help put things in perspective and guide decision-makers to act according to the organization’s most important factors.

2. Decision-making tools encourage brainstorming and creative thinking.

When tasked with using a decision-making tool, team members tend to stretch their imaginations to consider different possible outcomes. Decision-making tools inspire more creativity, guiding users to think outside the box instead of weighing only the options that immediately come to mind.

3. Decision-making tools help organize and prioritize goals.

Decisions tend to involve multiple goals. For example, a company may need a project to be profitable while adhering to relevant laws and regulations. Decision-making tools can assign importance to a decision’s competing goals, helping you settle on a solution that matches your company’s priorities.

4. Decision-making tools remove bias from the decision-making process.

Everyone has some bias that can disrupt the decision-making process. Decision-making tools remove a great deal of individual bias and emotion from the process. For example, a product manager may want to develop a product their department created without thinking clearly about production costs or customer demand. A decision-making tool would introduce these factors in its framework.

5. Decision-making tools prevent your company from being guided by fallacy.

A formal decision-making process can prevent your company from being guided by fallacies, which often result from “gut decisions” or a lack of planning. In the field of behavioral decision theory, which examines the separation of objectively rational decision-making and (often irrational) intuitive decision-making, these fallacies fall into the latter category.

“Decision-making fallacies are rampant in companies of all sizes,” explained Robert Stephens, founder of finance and strategy resource provider CFO Perspective. One example is sunk-cost bias, in which irretrievable investments are used to justify future decisions, only to cause further harm.

Stephens gave the example of a client selling their business to cover the debt and investment they had put into it. They used a small business valuation based on expected performance instead of actual market value. The price was too high, and no one was willing to buy. “I pointed out that those numbers were sunk costs that were irrelevant to both them and the buyers,” Stephens noted.

Another example is extrapolation bias, in which current trends (such as a rise in housing prices) are expected to continue in the same direction – a fallacy Stephens often observes in finance.

Experts’ views on decision-making techniques

Decision-making methods aren’t universally lauded. “I’ll be honest and say that 99 percent of the theoretical management models and tools aren’t actually all that helpful,” admitted Pete McAllister, owner of SEO agency OutreachPete. “It’s all information you know from common sense and still requires further extrapolation … trying to map it out on a higher level is superficial.”

Still, many business leaders find decision-making tools valuable for group analysis. Stephens noted that the SWOT and peer analyses he has conducted at various companies “allow the group to come to a consensus on the current situation.”

Decision-making tools also help everyone understand any underlying assumptions behind recommendations. “These tools have more benefit as communication tools than decision-making tools,” Stephens noted.

Why employee decision-making best practices are crucial

While financial decisions can be weighed objectively, there’s no economic model for morally guided decision-making. Even more problematic, employees acting as decision-making agents may be more likely to act on personal financial incentives instead of what’s best – morally or financially – for the company as a whole.

For these reasons, instituting decision-making best practices can be helpful. Steven Schwartz, co-founder of Whop and a board member at POSH, referred to his company’s decision-making policy as a “pseudo-Kantian framework for decision-making around the office.” The policy has certain imperatives that must underlie all team members’ decisions, including underpromising and overdelivering, pricing transparency, and self-accountability.

“While the solutions these imperatives present are intuitive from a moral perspective, ultimately, I have found that this framework has eliminated individual or monetary bias and malevolent business practices with clients,” Schwartz explained. “This framework allows for team members to think within a certain value system separate from their own and thereby make decisions holistically that benefit both the company and themselves.”

Making the right business decisions 

The right techniques and tools can help you make the best data-driven decisions for your organization. A decision matrix, pros-and-cons list, SWOT analysis, and more can help you sift through crucial data and understand potential outcomes. 

Decision-making tools can also encourage creative thinking, eliminate biases, and help you organize and prioritize your business’s goals. When you weigh all your options and consider each potential outcome, more informed choices emerge that better serve your company.

Sammi Caramela contributed to this article. Source interviews were conducted for a previous version of this article.