We are constantly making choices to fulfill our needs and wants. The economy has diversified creating even more options for consumers. This further complicates the decision-making process. A decision refers to a course of action taken to guarantee a return on investment whether at a personal or professional level. Here are the Business Decisions and Good Examples.
Business owners are in the same predicament. The playing field is highly competitive and congested. As a result, organizations have to be ingenious to thrive in this harsh business environment. The choices they make can no longer be “average”; they now have to be extremely “strategic” to eliminate competition. Let’s review some of the choices that business owners have to make on a routine basis.
Levels in Decision Making
Organizations make decisions at three levels within their structures. These levels are explained below:
Strategic Decision Level
These decisions are meant to give the organization a competitive advantage in its industry. They are long-term and have a material impact on the organization. They are made by business owners and company directors. These decisions give a vision about the future and it brings change. Strategic decisions are a “blueprint” for organizational development. The information required to make these decisions include forecasts, investment ratios, revenues, and expenditures, among others.
Tactical Decision Level
These decisions provide the methodology for the execution of the “blueprint”. This refers to the corporate strategy issued by the business owners and company directors. The aim is to transform strategic decisions into actionable steps and results. These decisions describe how organizational resources will be used effectively and efficiently to implement the strategic plan. They have a high level of certainty and incorporate more details on achieving goals. They are mid-term decisions made by Senior or C-level management. The information required to make these decisions include analytical reports, productivity reports, variables, forecasts among others.
Operational Decision Level
These are short-term decisions whose focus is on routine and sequenced tasks. These decisions define policies and procedures for carrying out transactional activities. They are made by mid and low-level managers, officers, and supervisors. The information required to make these decisions include techniques, tasks, activities, qualitative controls, quantitative controls, schedules, inventory, among others.
Styles in Decision Making
These decision-makers consider the emotions of employees and other stakeholders. The solutions they come up with are sensitive to the needs of other people in the organization. This style evaluates the impact of the decision on the people and encourages consensus in the process. For instance, a school teacher will consider the interests of their students before making a decision.
These decision-makers are risk-takers who see the bigger picture and not what is happening presently. They are futuristic in thinking and their interest is in the long-term results. They are extremely creative when developing solutions. For instance, risk managers require this ability to make accurate assessments of potential challenges or dangers in a business environment.
These decision-makers are extremely decisive and fast in developing solutions even for abrupt challenges. They are very rational and logical when making a decision. They rely on their own understanding or knowledge of the problem and accept advice selectively. For instance, emergency workers need this ability since their job requires them to think on their feet and act very fast to save lives.
These decision-makers rely on facts and documentary evidence concerning a situation or problem. They evaluate this information critically to establish the best possible alternative in resolving a problem. This requires a lot of time and resources in decision-making order due to the amount of research involved. For instance, forensic specialists will only make conclusions after considering all the evidence in a particular case.
Decision Making Process
This is the problem statement stage. The problem needs to be fully understood and explained. Establish whether the problem has just developed or if it has been existing. Investigate the reasons for the existence and magnitude of the problem. For instance, an organization could be experiencing high staff turnover. You will want to know the reasons and exit rates. Is it due to poor working conditions? Is it prevalent in one department or all? How long after they are recruited do they resign? Answers to these questions will guide you on the course of action to take.
Possible solutions should be known and listed in order of priority. The solutions can be developed through research. In addition, assistance from the field can be obtained concerning the problem statement. For instance, to curb high staff turnover the organization will need to implement incentive programs. They may also need to change their recruitment strategy. Incentive programs may include compensation, benefits, and rewards. Recruitment strategies may include the use of external rather than internal sources during sourcing.
Analyze each of the alternatives given to resolve the problem. Establish the impact of each solution developed. This involves identifying its characteristics, pros and cons, resources required, and duration, just to mention a few. You need to have a complete understanding and preparedness for this huge commitment. For instance, with incentive programs for employees, the organization may consider annual bonuses, medical covers, and flexible working hours, among others. Each must be understood with corresponding implications.
This is the final selection stage after reviewing all the alternatives based on their pros and cons. The criteria used to settle on one alternative may include accessibility, affordability, and ease in execution, among others. These factors (and many others) influence the decision-making process at the micro and macro levels in the organization. For instance, in the above benefits case, there were three options namely bonuses, covers, or flexibility. The organization may choose bonuses only. This is because it’s a one-off annual undertaking and it’s easy to manage as opposed to daily and monthly commitments.
It is now time to put into action the selected alternative and reduce, if not eliminate the problem. This is done by following rules and regulations related to that specific course of action. For instance, upon selection of annual bonuses as a staff incentive, the organization has to put policies and procedures in place. These may include budgetary allocation, extra income generation, and guidelines, among others.
Monitor and review the success and failures of the implemented action. This can be done through assessment and discussions with individuals, teams, and stakeholders. If it is successful, the program will continue. If it is failing, the program needs to be adjusted or stopped to give way for better mitigation. For instance, the bonuses may be in force for a long time yet the staff turnover problem is reoccurring. More investigation will need to be conducted to establish the reasons.
Examples of Business Decisions
This is the purchase or acquisition of financial products to increase the monetary value of an organization. Financial products differ from the goods and services that form the core business of an organization. Financial products are independent and external from the organization. They include government bonds, mutual funds, and corporate shares, among others. Organizations have to select which investment is lucrative to improve financial security.
Organizations make decisions on how they are going to remain profitable and ensure long-term sustainability in their industry. They identify and implement income-generating projects. They develop new products and services to remain relevant to consumers. They locate and establish markets for their products and services. These are some decisions that have to be made about profitability.
Organizations not only have to think about how to increase revenue but also its proper utilization. Without an appropriate budget, revenues can disappear into thin air! Teams can be working hard to generate revenue but once it reflects on the financial statements, one cannot account for its distribution. There are two types of expenditure, that is, capital and revenue expenditure. The former refers to long-term payments such as vehicles, buildings, equipment, and machinery. The latter refers to short-term payments such as payroll, utilities, and taxes. Organizations need to prioritize between expenses and luxuries.
Human resources are an integral part of any organization. Without people, business operations cannot be done. The organization has to conduct job evaluations and job analyses on a routine basis. Job evaluations determine the worth or relevance of a particular role in the corporate strategy. Job analysis describes the particular role in terms of duties and responsibilities. It is positioning a role on the organizational structure. These are decisions that are extremely critical in business operations.
This refers to the wellness and well-being of the employees in the organization. The decisions related to this include rewards, benefits, compensation, safety, and health, among others. Organizations have to invest in their human resource. This will reduce high staff turnover and enjoy internal stability that is essential for continued corporate growth. As a result, they have to make appropriate choices concerning programs to be adopted or eliminated so that employee motivation and morale are maintained.
These are decisions relating to statutory laws and regulatory compliance. All business entities are subjected to this by the government of the day. The activities undertaken by the organization have to comply with existing legislation that is either general or industry-specific. These decisions are normally pre-determined and non-debatable. They are set guidelines that have to be followed. However, when faced with disputes the organization has the option of using courts to resolve the situation. They can have discussions with legal experts to determine the best course of action.
Organizations have to select the best policies and procedures to govern the employees and operations. This is influenced by their sector and industry. Statutory laws also influence the types of rules and regulations adopted by the organization. These policies and procedures will influence the success levels of the organization, hence the need to properly and carefully select and compile them.
This refers to the physical structures and facilities needed in the organization. These ensure a smooth flow of operations and create a conducive environment for the employees to work in. They include buildings, roads, water systems, sanitation systems, parking spaces, dining areas, and entertainment areas, among others. Organizations need to plan the maintenance and expansion of infrastructure as the workforce grows and business expands. They also need to identify and implement the appropriate office plans to adopt in the organization for maximum productivity. These are all decisions they have to make at some point.
Most organizations use information technology systems and equipment at their premises for various functions. These include departmental software, biometric systems, computers, security surveillance, and networks, among others. They have to make choices on the most cost-effective option without compromising quality and output levels.
These are factors that hurt the profitability and reputation of the organization. They include financial, compliance, and operational risks, among others. Organizations have to assess all risk areas and decide the level they can accommodate a certain risk while in pursuit of new business.
Appropriate decisions determine the continued existence of any business. These decisions are made at different levels in the corporate structure and various decision-making styles can be used by leaders. Many factors influence the profitability of a business. Decision-makers must remain strategic in selecting alternatives for their organizations at any given time. Any lapse in judgment can easily affect the stability of the organization and lead to its closure. The steps highlighted in the decision-making process can assist business owners to come up with the best solutions for their organizations and preserve them in the harsh business environment.
Frequently Asked Questions
- What are the decision-making levels in an organization?
There are three levels namely strategic, tactical and operational decisions
- What are the styles used in decision-making?
There are four styles namely conceptual, directive, analytical and behavioral
- What is the difference between Investment and revenue?
An investment is income obtained from external sources external to the organization such as financial products while revenue is income received from internal activities of the organization such as sellers of goods and services