Decision Making Quality Affects Business Success
Informed Business Decisions Help Select Right Alternatives Better
Aug 15, 2009
It is information and decisions that determine the success of businesses. Decisions on product lines determine whether the business will operate in an intensely competitive market, for example. Decisions on the shop floor affect product quality and whether customers find it acceptable or otherwise. Decisions on the employee front can determine whether there is a committed or aggrieved group to support business operations.
Decision Process and Information Systems
In this article, the focus is on the decision making process. Information support for business decisions is examined in a separate article on Management Information Systems while Knowledge Management looks at how accumulated knowledge is used for decisions.
Even supposedly rational business decisions are usually affected by the decision maker's personal traits, affecting its quality. Many decision makers might also not be aware of the ways decisions are made, and how these can be improved. It is these issues that form the focus of this article.
The Decision Making Process
The process of making decisions has several dimensions.
- There is a psychological dimension of being affected by the needs, preferences and values of the individual who makes decisions
- Many people are able to make decisions in a logical manner by considering all relevant issues and arriving at a rational decision
- Then there are the day-to-day routine decision-making as when you decide to cross the road when the Walk signal turns green
Many kinds of biases typically affect decisions. The persons making them might not even be clearly aware of these biases. Wishful thinking, selective search for supporting evidence and inertia that prevents new ways of thinking are just a few examples of the kinds of biases that can lead to deciding poorly.
There are also different styles of decision making.
- Some people consider the pros and cons of alternative decisions
- Others might select the first one that seems likely to work
- Yet others might look for some kind of supernatural guidance
- A few might even decide by tossing a coin
There are also those who prefer to leave decision making to others and just carry out the given decisions.
Business Decisions
A great deal of literature is available on business decision making. Because of their impact on business success, business decision-making has become an important issue of business management.
Business decisions are complicated by many uncertainties. Economic conditions can change, competitors can retaliate in different ways and technology developments can turn sound decisions into poor ones. Decisions might also have to be made on the basis of ambiguous or incomplete information.
In such a context, experienced managers might turn to the age-old practice of deciding by intuition. Intuitive decisions can often turn out to be good decisions because past experiences might influence them in less obvious ways.
On the other hand, tools have been developed to make the decision-making process transparent and to handle uncertainty, and even to cope with competitor responses.
- Graphic tools like decision trees and influence diagrams can clarify the issues involved
- Probability distributions can provide some idea of the risk posed by uncertainties
- Using game theory, decisions that consider likely competitor responses can be developed
Using the tools requires training and conscious effort as they do not usually represent the way people think. The tools do bring the issues involved in decision-making up front (instead of being tacit assumptions never clearly expressed), and generally lead to better decisions.
The quality of business decision making can significantly affect a business's success. Decisions based on relevant information, made in a structured manner, have much better chances of leading to successful outcomes. Modern management information systems can provide timely information to business managers. A careful look at the decision-making practices of managers can help further improve the process.
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