The mark of any good manager is being able to make the right decision at the right time, even when circumstances aren’t exactly ideal. Regardless of sector and industry, it’s an important element of any management role, one that has the potential to impact employees and the direction a company might take going forward.
Big or small, decisions have the power to alter things at both a micro and a macro level. Whether it’s the snacks served at a meeting or a change in company culture, management has a lot to weigh up when it’s crunch time.
The good news is there are several different decision-making models that managers can employ when needed. Here, we’ll explore some of the most prevalent theories, including their pros and cons, to see which could be the correct approach for your management style.
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– The importance of decision making in business
– How to improve decision-making skills in business
– The different decision-making models
– Effective decision-making examples in the workplace
– Bias and errors in decision making
– Business intelligence and decision making
The importance of decision making in business
Decision making sounds like a relatively simple idea. After all, everyone has to make them at numerous points in their lives. But many managers often disregard just how important the process really is.
In a business context, a formal process lets businesses make more informed, considered decisions that set specific actions in motion. Doing so provides a handful of benefits too, which help to underpin just how important decision making in business really is. These benefits include:
Greater time and money management: A manager who takes a long time to decide can have a knock-on effect on their team. When they’re kept in the dark about a decision, it takes them longer to get in the mindset needed to act on that decision. Conversely, quick decisions are a lot more conducive to more efficient teams, and the more efficient a team is, the more time and money they can save in the long term.
More confident, committed employees: When employees know that decisions are being made with logic, reason and their best interests in mind, they’re more likely to be committed to the goals your organisation is aiming at. An indecisive leader, on the other hand, could well be met with a lack of trust, less empowered staff and drops in motivation.
More effective delegation: All good leaders delegate. And when you think about it, the act of delegating is decision making in action. Through proper decision making, you’ll be able to delegate more effectively and let your staff know what needs to be done and when with greater confidence.
Fewer mistakes: When you’re more decisive as a leader, it sets out a clear path that your team can then follow. When they’re clear on what needs to be accomplished, shoring up mistakes becomes a lot easier. Confusing direction and a lack of confidence in your own decisions, however, could leave your team unsure of what they’re supposed to be doing – and that’s when mistakes can start slipping through the cracks.
How to improve decision-making skills in business
It’s no secret that decision-making can take up a good chunk of your day. And when the hours and minutes are against you, it can lead to rushed, hasty choices – especially if you have to make several of them over the course of a single day.
This is decision fatigue in action. The mental cloudiness that can accumulate often means impulsive actions rather than considered, informed decisions. To avoid this, give these effective strategies for improving your decision making a try.
Make fewer decisions: The cumulative effect decisions have on us can be exhausting. Try minimising that tiredness by reducing the number of decisions you have to make throughout the day. Streamlining our choices leaves us with more mental energy to place on bigger, more important choices.
Delegate decisions to others: We can reduce the number of decisions to make by delegating them to employees in the same way we can delegate tasks to them. Asking others to take care of decisions not only frees you up, but it allows employees to feel empowered and engaged by their work.
Make decisions in the morning: In the afternoon, that post-lunch feeling can make us feel tired and sluggish. In the evening, risky and hasty decisions are more likely to happen. The morning, however, can lead to accurate, well-thought-out decisions. If you’ve a big decision that needs all your attention, try taking care of it in the AM.
Give yourself deadlines: Over the course of a project, there’s bound to be a few last-minute decisions that don’t get the attention they deserve. To combat this, try creating mini deadlines. Doing so allows you to act earlier than you normally would, replacing impulsive, eleventh-hour decisions with smart, well-informed choices long before the project’s end is in sight.
The different decision-making models
Before we get into any specifics, it’s worth asking “what are decision models?” Essentially, a decision-making model is a method that allows an individual or a team to make decisions that benefit a company as a whole.
The methodology varies from model to model, but each model’s goal is the same: to let you or your team analyse and then overcome challenges. Because of their differing approaches, the sheer amount of decision-making models means they’re incredibly useful for people with different learning styles.
To help you find a model to suit your management style, let’s take a look at some of the most popular decision-making models below.
Effective decision-making examples in the workplace
While specific examples of decision making in the workplace will vary from sector to sector, the following are certain scenarios that involve differing degrees of decision making that individuals and teams may have to consider on a daily basis:
– Leading brainstorming sessions for new product names
– Conducting analyses of business proposals to select the best approach (such as choosing an advertising agency to lead a campaign)
– Getting input from staff in order to make important business decisions regarding its future
– Identifying ways to save costs across multiple business areas
– Weighing up the leadership potential of different team members for promotion
– Researching possible legal or logistical ramifications concerning new company policy
THE RATIONAL DECISION-MAKING MODEL
Often cited as the classical approach, the rational model of decision-making is the most commonly used method, and typically consists of the following steps:
– Identification of the problem or opportunity
– Gathering and organisation of relevant information
– Analysing the situation
– Developing a range of options
– Evaluating and assigning a value to each option
– Selecting the option you feel is the best
– Acting decisively on that option
The pros of the rational model
The rational model allows for an objective approach that’s based on scientifically obtained data to reach informed decisions. This reduces the chance of errors and assumptions. It also helps to minimise the manager’s emotions which might have resulted in poor judgments in the past.
This means that, due to the step-by-step methodology, decision-makers are better equipped to deal with difficult problems in complex environments.
The cons of the rational model
The process is sometimes constrained by insufficient information, which creates problems if a manager has to consider, and then evaluate, any alternatives they need to reach a decision.
Time limitations can also be an issue. Since there’s a lot of information needed, the necessary time for observation, collection and analysis is also essential. In a fast-paced business environment where time is crucial, the rational model is somewhat limited.
It’s also an approach that tends to err on the side of caution. By limiting decision-making based on what’s only available, you may not be able to take the risks that can be necessary for success.
Which companies use the rational model?
Larger innovation companies in Sweden, such as Volvo and Ericsson, adhere to the rational model, using structured processes to manage their processes, often collaborating with a huge amount of people, all with differing expertise.
THE INTUITIVE DECISION-MAKING MODEL
Compared to the objective judgments of the rational model, the intuitive decision-making model is much less structured and opts for more subjective opinions – though it’s not simply based on gut feelings. Rather, it takes into consideration the following:
– Pattern recognition – seeing patterns in events and information, and using them to figure out a course of action
– Similarity recognition – seeing similarities in previous situations and recognising the cause and effect of a given situation
– Salience – understanding the importance of information and the way it can affect personal judgment
The pros of the intuitive model
Compared to the rational model, intuitive decision-making allows for quick decisions to be reached, while a degree of gut feeling means managers can eliminate counter-intuitive ideas when drawing conclusions.
Since it takes into account the person’s emotions, it ensures that positive feelings are used to their advantage, leveraging them as a way to motivate them through the process.
As opposed to the structure of the rational model, which progresses through steps, the intuitive model opts to see everything as a bigger picture. As a result, intuition can help managers to integrate pieces of isolated data, facts and figures into a cohesive vision of what needs to be done.
The cons of the intuitive model
The intuitive model leans heavily on a person’s experience and judgment. As a result, emotions and insufficient experience may end up clouding judgment and make for poor, impulsive decisions.
Which companies use the intuitive model?
Intuition and its model of thinking can’t really be quantified in any measurable way. Nevertheless, gut instinct has its fair share of proponents, none more so than perhaps Malcolm Gladwell, the author and public speaker who has written at length on the idea.
When we think of leaders who trusted their instincts, we think of people like Henry Ford or Bill Allen, the CEO of Boeing in the 1950s, who bet $16 million in order to achieve civilian air travel as we know it today. We can even see it in the present, with people like Uber CEO Travis Kalanick, a controversial figure who has stuck to his guns despite heavy resistance to charging customers more for the service.
THE RECOGNITION PRIMED DECISION-MAKING MODEL
A combination of the two models above, the primed model of decision-making begins when a manager quickly assesses a situation, compares it to past situations, recognises patterns and creates a mental ‘action script’ which runs through the scenario up until its conclusion.
This then leads to two options:
– The decision-maker finds no flaw in their scenario and sets about their chosen course of action as outlined by the script they devised.
– The decision-maker encounters a problem in their action script. They then start over with a different script, repeating the process until a scenario successfully plays out.
An experienced decision-maker will have more developed recognition patterns, with more past scenarios to draw from to form their action script. Less experienced decision-makers, meanwhile, may look more towards troubleshooting the mental scenarios instead.
The pros of the recognition primed model
Since rational and intuitive reasoning is used, it provides a degree of mental simulation from your predictions. From here, you can prevent problems should they arise because they’ve been played out mentally beforehand.
The cons of the recognition primed model
Inexperienced managers may opt for this model when one of the other two models would be more appropriate in certain situations, such as for non-critical decisions.
The trial-and-error approach makes it relatively time-consuming. If time is of the essence, a manager may pick the first course of action, which may be unsatisfactory.
Which companies use the recognition primed model?
Along with a variety of different business sectors, the model is highly effective for leaders affiliated with firefighters, search and rescue units, and other emergency services.
THE NORMATIVE DECISION-MAKING MODEL
Also known as the Vroom Yetton decision-making model after its creators, Victor Vroom and Philip Yetton, the normative model helps leaders and managers to decide the degree to which their team should participate in the decision-making process.
Vroom identified five types of decision-making processes, which increase the amount of team participation as they go on. These processes are as follows:
Decide: The leader makes the decision and solves the problem before announcing their decision to the group. Information from the rest of the team may or may not be gathered.
Consult individually: The leader approaches each team member individually and presents them with the problem. After noting their suggestions, the leader makes the decision – with or without the information provided by their team.
Consult by group: The leader holds a group meeting to present the problem to everyone in attendance. Each team member can pitch suggestions, which the leader then uses at their discretion to reach a decision.
Facilitate: Similar to the previous stage, the leader presents a problem to the team. This time around, however, the decision is reached by a group consensus, rather than just the leader alone.
Delegate: Here, the leader hands over the reins to the team entirely. After providing them with information about the problem, they’re then encouraged to reach a decision by themselves.
The pros of the normative model
Because no single decision-making process fits every scenario, the normative model suits a variety of different approaches, whether you need something autocratic or a more democratic process where others’ opinions are valued and actioned.
Its simplicity works in its favour too, so it can be used by leaders at all levels of a company.
The cons of the normative model
While the normative model certainly has its uses, the approach loses its effectiveness in certain situations. For one, it might not take into account important considerations such as the emotions and working styles of your team – as well as the complexity of the task at hand.
Which companies and businesses use the normative model?
The normative model’s high degree of application means it’s suited to both boardrooms and warehouse operations alike. It’s also especially beneficial when used by managers that thrive on including their team in their duties, and who also want to improve their decision making accordingly.
Bias and errors in decision making
Of course, not every decision you make is going to go your way. Even with the research to support it, cognitive bias means that even the most open-minded and impartial employees can have their judgment clouded and distort their thinking.
Below, you’ll find a selection of the most common biases that often occur in business decision making that you’ll want to watch out for.
Confirmation bias: Ever found yourself looking for information that supports your existing beliefs, even though there is strong data and evidence to the contrary? When you don’t factor in all the relevant information – even if it goes against what you believe – you’ll often find yourself falling afoul of confirmation bias.
Anchoring: It’s easy to latch onto information early on in the decision-making process and then use this to base your final judgement. Instead of jumping to conclusions based on what you’ve identified as “the anchor”, be sure to look at the whole picture before you reach your decision.
Overconfidence bias: An unrealistic view of your decision-making skills can often lead to hasty, instinctive choices. And although acting on a hunch certainly has its own value, those who put too much faith in their own ability often find themselves succumbing to this particular bias.
Halo effect: If you find yourself swayed by someone else’s positive traits, or even their negative traits, then it’s easy to follow or reject their way of thinking when it comes to reaching a decision. These are unfounded beliefs that don’t necessarily translate into sound decision making.
Gambler’s fallacy: When it comes to decision making, outcomes are very uncertain. What might’ve worked for you previously will in all likelihood have little effect on how things will go in the future.
Bandwagon bias: Following the flock just because others have adopted an idea can certainly be tempting, but it reduces your own individual role in making a decision. Remember, just because others are following a particular line, it doesn’t mean you have to as well.
Mere exposure effect: Similar to the Gambler’s fallacy, the mere exposure effect takes place when the decision maker holds a preference for opinions, people or information that they’ve already familiar with.
Hindsight bias: We all know that hindsight is 20/20, but hindsight bias in decision making can be particularly damaging. This bias occurs when you believe that you’ve accurately predicted a decision’s outcome before it was made (even if you didn’t). This makes it hard to look back at outcomes in an objective manner.
Business intelligence and decision making
An increasing phenomenon amongst business leaders, business intelligence refers to processes that group together quantitative and qualitative data in order to make decisions. Rooted in science and engineering, where data analysis is used to improve decision making, business intelligence allows companies to make exact, precise diagnoses. And by identifying these pain points, they’re able to make highly informed, more tactical decisions that help the business as a whole.
Through the collection and aggregation of data, business intelligence lets businesses take actions based on their findings, which helps to manage risk and offers a number of different benefits, including:
Trend forecasting
Business intelligence covers a large swathe of tools. ERP software, one of the many business intelligence tools that are available, has the ability to forecast market trends.
Say your business is growing and it wants to foresee the need to invest in the hiring of employees. Through such software it can, since it already contains information that includes a forecasted increase in sales.
Creation of realistic targets
Market analysis can definitely be beneficial, but when it ignores internal factors, the results won’t be as effective. Business intelligence, on the other hand, lets companies establish efficient targets by presenting reports that weigh up your business’ current context. This lets you reconfigure your goals amidst the current climate of your markets.
Greater use of transparent data
Through its automated systems, business intelligence can greatly reduce the risks of human error and fraud when generating information. When data is reliable, it tends to lend itself to greater credibility. And where decisions are required, the more credible data you have in your hands, the more confidence your team will have in your ability to make the right decisions.
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