The 5 Steps to Creating a Powerful Decision Making Process

11 January, 2013

As business leaders we make decisions all day long.  Many of these decisions are procedural based in terms of what actions are required to resolve customer relations issues or coaching an employee on actions to be taken.
There are some decisions that have larger implications on the business. These types of decisions, such as expansion plans, product development, marketing, financing, are long term business decisions. These decisions can be daunting and create anxiety as many businesses do not following a logical path or a process, when making these decisions. Not following a decision making process can have disastrous results on the business.
However there is a process that can be built into the structure of our business to allow us to make powerful and effective decisions easily.

We call this process evidence based decision making.
Step #1 – Define the objectives and information needs

In other words know your outcome. What do we want to know to run the business effectively? Do we want to have a weekly report showing, revenue, gross margin, cash flow, inventory and receivables? Do you want to see sales revenue reports with gross margin details within 24 hours of the sale? Do you want to see all quotes issued everyday or once a week to allow for effective forecasting?
Based on what we want then we ask what we need to know. In our example we will need information on revenue, cost of sales, receivables, cash in the bank, inventory transactions, etc to get our outcome.
Clearly define the requirement. Outline how the reports need to be or do the stake holders have the ability to create their own reports?
We need to define who needs this information. Sales managers, service Managers, CFO, and CEO. The distribution of financial performance information, such as costs of inventory, costs of sales, gross margins must be kept to certain individuals. Do salespeople need to see product gross margins?

Step #2 – Collecting data

Do we have the processes in place to collect the data we need? How do we collect this data? This can be very critical step as sales people need to be selling, service people need to servicing and not filing out reports. Reviewing the data collection process effective can create procedural efficiencies. Collecting data does not necessarily require a complete overhaul of technology. Technology can be a very effective method to gather information effectively with minimal intrusion to the people doing the work. In some cases it can be a minor addition in a process that will collect effective data.

Step #3 – Analyzing Data

Now that we have determine what data we want collected and how we will collect the data, we need to determine how we want to manipulate this data to give us the information we want. Do we allow individuals to create their own reports based on the data collected? Do we generate certain reports on a regular basis for distribution?

Step #4 – Presenting Information

How will reports look? Can we do things to simplify the reports so people do not have to “figure it out” for themselves? Do we want the reports to be one page with a summary of the important data and then allow decision makers to review details on their own, or provide detailed information as a supplement to the summary report?

Step #5 – Making Evidence Based Decisions

Information is useless without action. How do we make sure that our data or evidence is always used to make the best decisions? Many times there is a temptation to make decisions based on the “last person talked to” or “exception based” decisions. Salespeople usually remember the last time they lost on order on price and it can quickly expand to “all orders were lost on price”, “we have a pricing problem”. Evidence based decision making can support or strike down “situational decisions” based on emotion.
Creating the culture of action based on real evidence avoids paralysis by analysis. Gathering what you need to decide and move forward is how successful business leaders avoid the knowing – doing gap. The knowledge – doing gap is created when the data collected is not effective, or believed; so no action is taken.

The role of Information technology

Steps 2, 3 and 4 (collecting, analyzing and presenting data) are affected by the existing information technology infrastructure (the use of computers, business software, data collection methods) all need to be reviewed as well as the processes and individuals involved. Do you want to run the business with a spreadsheet? Would investment in a business software program or data entry program create efficiencies? Investments can be made over a period of time or in the big bang theory depending upon the need and the ability to implement changes or new technology.
Evidence based Decision making is a must in this economy. By using these steps you can create a powerful environment where decisions are quickly made based on real data, to maximize executive efficiency and business flexibility.
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