What are the Principles of Business Decision Making?

Business decisions are the most crucial part of any business or organization. Businesses run on SMART goals and strategic decision making for operational or everyday tasks. Similarly, the higher the spot on the business hierarchy, the more expectations to make quick and perfect decisions for its betterment.

Moreover, SMART is a mnemonic acronym for:

Business decisions that are based on knowledge and sound-reasoning lead the company towards prosperity. In contrast, the business decisions thatare flawed or without proper information can cause the demise of a successful business. Therefore, every organization realizes the importance of making the right choice. Business decision making is adorned with certain principles, however. After explaining the importance of business decision-making, we will provide the elements which make the decision-making process best and most suitable.

Business Decision

Importance of Business Decision Making:

Since we know that business decision making is important for any company, here are the factors facilitated by the process of business decision making:

Goals/Objectives Achievement:

Best decision making leads to the achievement of goals and objectives in time and budget simultaneously.

Business decision evaluation

Similarly, the research of the best possible alternatives, proper utilization of resources, and employee satisfaction help achieve any organization’s goals and objectives. Therefore, a good business decision-maker realizes the importance of aligning goals with the organization’s resources, time, and budget.

Proper Resources Utilization:

What are the resources of an organization?

  • Man
  • Money
  • Material
  • Machines
  • Market
  • Information
  • Method

Hence, the decision to use all these resources perfectly and in the best possible manner is important. However, avoiding wasting these resources and cutting the minimum cost expense is the main resource utilization aspect.

Whatever a manager does, he does through making decisions.

P.F. Drucker

Employees Satisfaction:

Another important factor, similarly, is employee satisfaction through business decision making. Motivating employees in their jobs is an effort-taking task.

employee satisfaction

Therefore, choosing the most appropriate method to influence and inspire the company’s operational force is necessary. When employees are motivated, they give their best and benefit the organization when required.

Selecting the Best Alternative:

In the corporate world, employers and employees often compare different alternatives and find the best one that complements the organization’s goals, causes, and objectives. Therefore, decision making is important to pick the most suitable option financially, operationally, statistically, and functionally.

Supporting Innovation:

Rational decision making leads to innovation, most importantly.

rational decision making

Moreover, it leads to new ideas, new products, new methods that ultimately benefit the organization. Innovation, meanwhile, gives a competitive advantage to the company.

Increasing Efficiency:

Proper allocation of resources comes in handy to the organization, increasing efficiency, for instance. Decision-making aids in minimizing the cost and maximizing the output. Therefore it leads to increased efficiency.

Tackling Problems:

In addition to making the company’s best decisions, success lies in tackling problems in the best way. Decision making certainly, helps in this process. Companies often face problems; geographical, market-related, marketing-related, operational, functional, for example. The need is to overcome such hurdles in time with minimizing the consequences born.

Growth of the company:

All the factors mentioned above, in conclusion, result in growth of the organization.

growth of a company by good decision making

Therefore, business decision making is the backbone of any organization.

Principles of Business Decision Making:

Any organization demands a decision from a manager or higher authority. There are two aspects; however, they should keep in mind which directly influence the decision-making process:

It is not about making the right choice, it is about making a choice and making it right.

J.R. Rim

Below are, meanwhile, the principles that help in making the right decision for any organization:

Problem Identification:

To make the right decision, the managers must first identify the exact problems the company is facing. Most importantly, they should be able to categorize the problem into the right group. There are a few types of problems; programmed and non-programmed, for instance.

problem identification

Programmed problems are the ones which may occur repeatedly in the company for example:

  • Shipment issue
  • Raw material issue
  • Employees replacement issue

Since these issues occur frequently, therefore decisions the managers should make for these must have a continuing effect.

Non-programmed problems are the ones which may occur in emergency or one time. For instance:

  • Market crash
  • Industry convergence

Since these issues are one time occurring, the decision made for these must be detailed, keeping in view the unique circumstances and different requirements of the problems.

Supported by Evidence:

When solving the problem, the decision-maker must look for evidence simultaneously. Decisions made in haste and without proper investigation do not often bring positive results. They can, in fact, bring more issues.

results of business decision

Therefore, for effective business decision-making, the maker must have enough documentation to prove that the organization’s decision is right.

Organization Hierarchy:

If the organization’s hierarchy is rigid and centralized, top authorities will only make the decision. Therefore, it may be late or not according to the exact organizational situation. Hence the organizational hierarchy needs to be considered when making a decision. When the organizational structure is flexible and decentralized, the decision-making authority will be close to making a decision in time. The authority, familiarised with the organizational situation, will make a more effective and feasible decision.

Policies and Objective of the Organization:

Similarly, the authority must know the policies and objectives of the organization. The decision must be complementing the rules and regulations of the company in addition to the mission of the company.

discussing business decisions

Involvement of the Concerned People:

While making a business decision, the manager must take opinions from the people directly involved. Similarly, the manager should be all ears to their problems and suggestions. In this way, the employees will feel important and give true, honest opinions to resolve the problem. The authority will empower the employees in this way. Subsequently, the manager may come up with the best possible decision options to choose from.

Study of the Alternatives:

The manager should do a detailed analysis of all the alternatives before making a wise and right business decision. Similarly, involving the concerned people in the decision-making process can pave the way to assigning them different alternatives. In this way, the employees will analyze the alternatives individually and express what they found. And in conclusion, the manager can identify which alternative fits right to the objective and organizational scenario.

An effective way to analyze alternatives, therefore, is using the pros and cons method. Research the advantages and disadvantages of the option keeping in view all the details and merits.

Sufficient Time:

Since time and decision complement each other, therefore, all the business decisions should not be delayed.

time management

The manager must give enough time to evaluate all the ideas and possibilities before making a decision. Hence the manager must avoid two scenarios: delay and haste decisions. Both are not good for the cause of any organization. In fact, decide in advance of the scheduled dates but after critical evaluation and execution of the process.

Consider the Impact of the Decision:

All the operations in any organization are interlinked. Therefore it is necessary to evaluate the impacts of the decisions beforehand. The manager and concerned employees must consider all the effects of the decision. In this way, the operations will coordinate and ensure the smooth running of the business.

In the same vain, they should take into account all the risks and devise plans in accordance. This way they can tackle any mishaps in time.

Market Situation Analysis:

Similarly, they should take into consideration the market situation. That is whether the decision is right in the long-run, too, or not. This way, the authorities can make an updated decision according to the market’s latest trends and behaviors. The decisions a company make influence their reputation in the market.

Effective mode of Communication:

Firstly make the right decision and secondly devise an effective mode of communication of that decision. Adopt the proper channel for communicating the decision because this is a key aspect in implementing the decision. If the employees or the concerned authorities are not entirely familiar with the decision’s context, this can be problematic. Similarly, this can lead to the wrong implementation. Also, some people can ignore the importance of implementing the decision in time, leading to worse consequences.

Read Now: Inspiration for Your Business Idea Creation Process

Conclusion:

Business decision making is crucial for any business and the authorities, therefore, must take the correct path.

A decision making is a conscious choice among alternative courses of actions.

Philip Kotler

The importance of decision making can not be denied. Because it can help in goal achievement, proper resource utilization, and employee satisfaction. Besides, it can lead to selecting the best alternative, supporting innovation, increasing efficiency, tackling problems. In the same vein, it leads to the growth of the company.

After decision making and implementation, monitor it, and take feedback from the employees on whether it was right. Certainly, this gives experience to the decision-maker for making more right and secure decisions in the future. In conclusion, do not make the right decision but make it right.

What are the principles of business decision making?

1. Problem identification
2. Supported by evidence
3. Organization hierarchy
4. Policies and objectives of the organization
5. Involvement of the concerned people
6. Study of the alternatives
7. Sufficient time
8. Consider the impact of the decision
9. Market situation analysis
10. Effective mode of communication

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Aleena N. Amjad

Senior Assistant, an editor and a prolific writer with an eloquent writing style. She can express her thoughts, arguments, and ideas very clearly.

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