Definition

decision-making process

Contributor(s): Ed Burns

The decision-making process, in a business context, is a set of steps taken by managers in an enterprise to determine the planned path for business initiatives and to set specific actions in motion. Ideally, business decisions are based on an analysis of objective facts, aided by the use of business intelligence (BI) and analytics tools.

In any business situation there are multiple directions in which to take a strategy or an initiative. The variety of alternatives to weigh -- and the volume of decisions that must be made on an ongoing basis, especially in large organizations -- makes the implementation of an effective decision-making process a crucial element of managing successful business operations.

There are many different decision-making methodologies, but most share at least five steps in common:

  1. Identify a business problem.
  2. Seek information about different possible decisions and their likely effect.
  3. Evaluate the alternatives and choose one of them.
  4. Implement the decision in business operations.
  5. Monitor the situation, gather data about the decision's impact and make changes if necessary.

Data-driven decision making

Traditionally, decisions were made by business managers or corporate executives using their intuitive understanding of the situation at hand. However, intuitive decision-making has several drawbacks. For example, a gut-feel approach makes it hard to justify decisions after the fact and bases enterprise decision-making on the experience and accumulated knowledge of individuals, who can be vulnerable to cognitive biases that lead them to make bad decisions. That's why businesses today typically take more systematic and data-driven approaches to the decision-making process. This allows managers and executives to use techniques such as cost-benefit analysis and predictive modeling to justify their decisions. It also enables lines of business to build process automation protocols that can be applied to new situations as they arise, obviating the need for each one to be handled as a unique decision-making event.

If designed properly, a systematic decision-making model reduces the possibility that the biases and blind spots of individuals will result in sub-optimal decisions. On the other hand, data isn't infallible, which makes observing the business impact of decisions a crucial step in case things go in the wrong direction. The potential for humans to choose the wrong data also highlights the need for monitoring the analytics and decision-making stages, as opposed to blindly going where the data is pointing.

Challenges in the decision-making process

Balancing data-driven and gut-feel approaches to decision-making is a difficult proposition. Managers and executives may be skeptical about relying on data that goes against their intuition in making decisions, or feel that their experience and knowledge is being discounted or ignored completely. As a result, they may push back against the findings of BI and analytics tools during the decision-making process.

Getting everyone on board with business decisions can also be a challenge, particularly if the decision-making process isn't transparent and decisions aren't explained well to affected parties in an organization. That calls for the development of a plan for communicating about decisions internally, plus a change management strategy to deal with the effects of decisions on business operations.

Types of decision-making processes

Even when rules and procedures are set up to make business decision-making more systematic, there sometimes can also still be room for intuition on the part of decision-makers. For example, after gathering data about different alternatives, more than one might seem similarly advantageous, or management might find itself lacking certain information needed to make a decision with full confidence. This is a good use case for incorporating intuitive decision-making into the process.

Consultant Joseph Flahiff on involving workers in decisions

On the other hand, decisions that happen frequently and have clear optimal outcomes benefit from a structured decision-making process. This approach to business problem-solving uses clearly prescribed steps and, usually, data analytics software to evaluate the available options and arrive at a decision. 

Sometimes involving more people in the decision-making process can pay off. This is known as participatory decision-making; in the business world, it involves managers seeking input and feedback on decisions from the workers they oversee. The participatory approach has the potential advantage of generating many ideas for solving a business problem; it also helps to engage employees.

This was last updated in February 2018

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