What are the Principles of Business Decision Making?

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 more expectations to make quick and perfect decisions for the betterment of the organization.

Moreover, SMART is a mnemonic acronym for:

Business decisions that are based on knowledge and sound-reasoning lead the company towards prosperity, while the business decisions which are flawed or without proper information can be the cause of 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 in achieving the goals and objectives of any organization. A good business decision-maker, therefore, realizes the importance of alignment of goals with the resources, time, and budget of the organization.

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. Avoiding wasting of these resources and cutting the expenses to minimum cost, however, is the main aspect of resources utilization.

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 operational force of the company 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 come across comparing different alternatives and finding the best one which complements the goals, causes, and objectives of the organization. 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 increasing efficiency.

Tackling Problems:

In addition to making the best decisions for the company, 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:

For making the right decision, the managers must first of all 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, therefore 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 a 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 decision being made is right for the organization.

Organization Hierarchy:

If the hierarchy of the organization is rigid and centralised, the decision will be only made by top authorities. 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 ore close to making a decision in time. Also, 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 objective 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:

The manager while making a business decision must take opinions from the people directly involved with the issue. 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, make the decision in advance to 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 inter-linked. 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 co-ordinate and ensure 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 a decision which is updated and in accordance to the latest trends and behaviors of the market. 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 the implementation of the decision. If the employees or the concerned authorities are not entirely familiar with the context of the decision this can be problematic. Similarly, this can lead to wrong implementation. Also, some people can ignore the importance of implementing the decision in time and this can lead to worse consequences.

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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 goals achievement, proper resources utilization, and employee satisfaction. Besides, it can lead to selecting the best alternative, supporting innovation, increasing efficiency, tackling problems. In the same vain 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 or not. 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

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.