Being able to make good decisions is one factor that makes a good manager great. There are five steps you can take to make decisions and improve the quality of those decisions. This lesson will walk you through the steps.
Think of something you did today. Where did you eat lunch? What did you wear? Everything we do requires a decision.
Sometimes we make those decisions consciously, and at other times we seem to make decisions almost without thinking by relying on our instincts. However, in business, using a rational decision-making process can help us make better decisions with more rigor and better analysis.Making good business decisions takes more than just luck and gut feel. It is one of the most critical skills a manager or business owner can have.
By understanding the process of making decisions, managers can achieve more consistency and higher levels of performance in their companies. The five-step decision-making process can help guide you through the process of making good decisions and reviewing possible options for your business.
Clarify the Question
The first step in the decision-making process is to clarify the question. Make sure you understand what you are trying to accomplish and the desired end result. Determine the objective or goal of the decision in this first step.
Let’s look at the steps in action: you own a small chain of laundromats and are trying to decide whether to add dry cleaning services to your business. The question is: what is my end goal for adding dry cleaning services to my business? You may also ask yourself, am I trying to grow revenue and, if so, by how much? Am I trying to improve customer service? Will that improve my rate of customer retention? Clarifying the question is an important first step in making a good decision.
The second step in the decision-making process is where you gather information and options. Gathering information is vital to understanding the factors that will affect your business, such as the availability and costs of equipment and how any changes will affect personnel.
In this step you develop potential options based on the information you have gathered.Continuing with our example, you would use this phase to gather details about the cost of adding dry cleaning equipment, the type of training your staff will need, and what building and plumbing adjustments would need to be made in your laundromats. You’d also look at different dry cleaning equipment and techniques to help you understand what is available and which set-up would be best for your facilities. Based on this information, you would develop several options for purchasing the equipment.Purchasing new equipment may be one option, while leasing the equipment might be a second option. A third option may be to buy used equipment from a dry cleaner that is going out of business. You also need to decide between a small dry cleaning operation or industrial-sized dry cleaning equipment.
Evaluate the Options
The third step in the decision-making process is to evaluate the options. Having gathered the data, you can start analyzing the options and determining the pros and cons for each possibility. During this phase, you consider your company’s needs and limitations as well as the possibilities associated with each option. You then narrow down the options by eliminating the choices that clearly will not work for your company or whose disadvantages outweigh the advantages.As you consider the options, you evaluate the differences between small machines and large-scale dry cleaning operations.
Because your laundromats are mid-to-large sized, you have room to add several industrial-sized machines that will allow you to increase your income by 22% in the first year. This will more than compensate for the additional equipment and payroll costs.
Act on the Final Decision
In the fourth step of the decision-making process, you act on the final decision. Usually, this is the most important phase in making a decision.
Up to this point, you’ve just been gathering information and analyzing your business situation. During the fourth step, you finalize your plans and move forward with your decision. You take action and, as with all decisions, introduce some level of change.Having determined the dry cleaning machines you want, you order the equipment, coordinate the necessary plumbing and facility changes, and tell your employees about the new dry cleaning service the company will be providing. You also start planning the marketing campaign, ensuring that current and potential customers are aware of your new service. There are many details that still need coordinating, and it may take many months, possibly even more than a year, to fully implement your decision.
Review the Results
The fifth step in the decision-making process is where you review the results.
This step may come days, weeks or months after a decision has been implemented, depending on the size and scope of the decision you have made. It may also require you to review and adjust your plans to achieve the best results.For example, after three months of offering dry cleaning, you realize more people are coming in for dry cleaning than laundromat services. In fact, in some of your laundromats, the dry cleaning revenue doubles what you are making from the washers and dryers. You realize it’s time to make a decision – should you expand your dry cleaning service and shrink the washer and dryer section of your laundromats? To determine what you should do, you return to step one and work your way through the five-step decision-making process to make another good decision.
The ability to make good decisions is one of the most critical attributes of a good manager or business owner.
By following the five-step decision-making process, you can improve your success and see more consistent results in your business operations. The five steps involved in making a decision include the following:
- Clarify the question
- Gather information and options
- Evaluate the options
- Act on the final decision
- Review the results
Using these steps will help guide you through making difficult, important decisions.