Top 5 Best Decision Making Tools & Techniques
How to make your decisions faster and better? What are the best available decision making tools & techniques? How to choose those which are the best fit according to your current situation?
Business leaders make hundreds of decisions every day, many of which influence the success of the business as a whole.
ImportantThat’s why one of the top skills sought after for managers is the ability to make efficient, informed, and effective business decisions.
One thing almost everyone has in common is that we all want to make good decisions.
WarningThere are many different tools and techniques that are used by managers to help them choose among the alternatives and make the right decision.
Decision making tools help you to map out all the possible alternatives to your decision, its cost, as well as chances of success or failure.
Whether you manage a small team or are at the head of a large corporation, your success and the success of your company eventually depend on you making the right decisions — and learning from the wrong decisions.
A whole range of factors need to be put into consideration before using a specific tool.
There are instances where you will find that combining several of these techniques would be the ideal situation.
Which of these decision-making tools and techniques will enhance your own effectiveness as a manager or leader? Let’s find out!
This article is a guide for decision-making tools and techniques. I’ve outlined decision-making tools and techniques that will help you weigh your options whatever the situation you have to encounter.
SWOT analysis can help you identify the forces that influence a strategy, action, or initiative. This information can then be used to guide you in the right direction and support your business decisions.
SWOT stands for strengths, weaknesses, opportunities and threats, which is exactly what this planning tool assesses.
SWOT analysis helps you identify the internal strengths and weaknesses of your organization that give you an advantage over others of your kind, and reminds you to look for external opportunities and threats at the same time.
SWOT analysis is particularly helpful with strategic planning and decision making.
ImportantIt helps an organization identify its objectives and determine which environmental and non-environmental factors are favorable to that success.
To get the full picture, it’s essential to take multiple viewpoints into account. Taking a collaborative approach can offer deeper insight into potential opportunities and threats you may not have been able to identify alone.
SWOT can help managers take advantage of company strengths and implement strategies to reduce weaknesses or turn them into strengths.
Assessing external threats and opportunities can aid in the strategic decision-making process, as it allows managers to plan for things like the presence of new competitors or the impact of new government regulations.
In a few words, SWOT is an important management application that helps any organization to assess its current situation.
WarningLimitations of the SWOT analysis have also been noted, chief among them that the list weighs heavily on perception rather than actual assessment of strengths and weaknesses.
When you are dealing with multiple choices and variables, a decision matrix can bring clarity to the disarray.
A decision matrix is similar to a pros/cons list, but it allows you to place a level of importance on each factor.
That way, you can more accurately weigh the different options against each other. With this tool, you will critically analyze all the available options or alternatives of a particular decision.
This allows you to look at all the options and the factors that affect each.
ImportantYou can use comparative analysis so that you can find the best option to help you in decision making. This is one of the most critical tools for most organizations as it will help reveal the best strategy and decision to take.
When using the matrix, create a table with all the options in the first column and all the factors that affect the decision in the first row. Next, score each option and weigh which factors are of more importance. A final score is then tallied to reveal which option is the best.
This analysis technique is somewhat like a cost/benefit analysis, except it’s not limited to cost.
Typical examples of criteria might be cost/price, level of quality, customer/client satisfaction, or high returns. Multiple criteria decision analysis enables leaders to weigh up different criteria.
The main advantage of the decision matrix is that subjective opinions about one alternative versus another can be made more objective.
WarningHowever, the weight assigned to each option are not based on any quantitative measurements. In fact the entire decision matrix can create the impression of being scientific, even though it requires no quantitative measurements of anything at all.
The principle is named after economist Vilfredo Pareto, who found that an 80/20 distribution occurs regularly in the world.
The Pareto Principle helps in identifying changes that will be the most effective for your business.
In other words, 20% of factors frequently contribute to 80% of the organization’s growth. This allows managers to dedicate their energy and resources on what will actually move the needle for their business.
This technique is useful when many decisions need to be made. It is also common when organizations have to make huge decisions.
ImportantThis helps prioritize which ones should be made first by determining which decisions will have the greatest overall impact.
In the example above, the Pareto chart supports taking the decision to remove broken links. Spelling errors are an issue also as well as missing title tags. The rest can be postponed.
In any business, defining what cause most issues/benefits could be crucial.
ImportantPareto is one of the simplest methods especially if you need to fix issues and find beneficial opportunities fast.
The Pareto chart helps you define and tackle the issues that have the most impact on your problem. It typically contains both bars and a line graph.
Individual values are represented in descending order by bars, and the cumulative total is represented by the line. The bar chart is the frequency of occurrence, and the line graph shows the cumulative percentage of time issues occur.
Cost-benefit analysis is an effective tool for decision-making because it takes preferences, resources, and informational constraints into account, so managers can make more optimal decisions based on this information.
Cost-benefit analysis weighs the benefits of an input or activity against the costs.
ImportantThis type of analysis helps business leaders determine whether and activity or input is providing the maximum return-on-investment (ROI).
You will take the time to assess all the costs that will be involved in the decision taken and the benefits that the organization will gain from this.
As a result, entrepreneurs will go for the decisions that will have a greater benefit, in terms of the overall net profits in the organization. The sole objective of any company is to make profits, and as such, every decision taken should be towards that direction.
There are some disadvantages with benefit/cost ratio methods. First — it is not so easy to calculate correct amount for benefits and costs. Second — you do not calculate indirect benefits as customer satisfaction.
A cost-benefit analysis is the process used to measure the benefits of a decision or taking action minus the costs associated with taking that action.
WarningCBA involves measurable financial metrics such as revenue earned or costs saved as a result of the decision to pursue a project.
CBA begins with compiling a comprehensive list of all the costs and benefits associated with the project or decision.
Finally, the results of the aggregate costs and benefits are compared quantitatively to determine if the benefits outweigh the costs.
One of the best decision-making tools is called cause-and-effect diagram, also known as fishbone diagram or Ishikawa diagram.
Cause and Effect or Ishikawa Diagram shows the causes of a particular event.
ImportantIt can be used for product design and to check its quality to identify possible factors causing an overall effect. You can group causes into categories to find sources of variation.
They resemble a fish skeleton, with the “ribs” representing the causes of an event and the final outcome appearing at the head of the skeleton.
WarningEach cause or reason for imperfection is a source of variation. Causes are usually grouped into major categories to identify and classify these sources of variation.
This is commonly used with quality issues, and, as a very visual brainstorming tool, can spark many more ideas for cause/effect issues. On the other hand, bigger issues can start to look cluttered, and interrelationships between causes are hard to identify using this method.
The fishbone of the diagram can vary each time. But there are some typical types of bones depending on your business.
For example, in industry or IT, we typically have the Big five M: Machine (technology), Method (process), Material, Man Power and Measurement.
You will brainstorm all the possible causes of the problem.
ImportantAsk “Why does this happen?” As each idea is given, the facilitator writes it as a branch from the appropriate category. Causes can be written in several places if they relate to several categories.
Again ask “Why does this happen?” about each cause. It’s almost like the Five Whys method.
Write sub-causes branching off the causes. Continue to ask “Why?” and generate deeper levels of causes. Layers of branches indicate causal relationships.
There are so many other tools that can be used by organizations to facilitate effective decision making.
Once you’ve determined which techniques best aid in your decision-making, you can’t stop there.
ImportantIt is important to review every decision that you have taken progressively so as to ensure that the company is achieving the set objectives.
Being able to consistently make the right decisions is too important.
WarningIn fact, decision effectiveness is 95% correlated with financial performance, so it is critical for managers to keep track of the decisions they make and how they turn out.
Decision making is broadly random, intuitive or analytical.
In business, an analytical approach can lead to informed decisions which are more likely to provide real business value.
Decision-making is an ongoing process, and the best way to keep up is to use data dashboards.
A formal decision-making process can prevent your company from being guided by fallacy — often the result of gut decisions or a lack of planning.
Today’s leaders are time-starved and under acute pressure to perform. When it comes to decision-making and mobilizing action on the high stakes, there is a choice to be made.
ImportantChoosing the right problem-solving model — the right mindset, approach, tools and skills — will make all the difference.
Let me know in the comments below your favorite decision-making models and tools.