The Decision Making Process in 7 Steps

The average human adult makes about 35,000 decisions every single day. Many people believe that every decision is different and how you arrive at the solution depends on the problem. But that is not true. Decision making is an intricate process that helps you to solve problems using logic and a step-by-step approach, whether it’s a personal decision or a business one.

The business decision-making process is a highly effective method of making informed, thought-out decisions, which can help you achieve your business goals. You use some or all the steps in the decision-making process without realising it every day. Following the process correctly can significantly improve your decision-making capabilities and effectiveness.

Here are seven steps involved in decision making:

Step 1: Identify the decision to be made

The first step to finding a solution is identifying the problem at hand. This is arguably the most important step in the process. Consider this example - your marketing strategy has been updated multiple times, but your sales continue to remain low. The easy interpretation would be that low sales are the problem, but you need to go deeper. You need to understand why your sales are low.

Problems arise from multiple sources, but they can be narrowed down to the following sources:

  • New opportunities that make it necessary for you to upgrade your offerings to stay ahead
  • Threats from new competition or new offerings from existing competitors
  • Digression from the existing plan
  • Unpredictable factors affecting the business

Problems are essentially situations or circumstances that are different from the ones you are used to, which must be addressed promptly to avoid losing your competitive edge. If you manage to successfully define the nature of the decision to be made and the problem at hand, it becomes easy to reach your goals. Once you identify the decision to be made, you are primed to carry out the next step accurately.

Step 2: Gather relevant information

To find the right answers, you need to ask the right questions. You might think that your sales team’s inexperience is responsible for your reduced sales, but it could be that your competitor has launched a new, better product than yours.

While diagnosing a problem to arrive at the right conclusion, it is necessary to gather as much information as possible. You will have to take into consideration all the decisions made within the company and outside, as well as the decisions that should have been made but weren’t. Some of the questions that you can ask are:

  • Is there evidence that a problem exists?
  • When and where does the problem appear to originate?
  • Which factors, processes, teams and individuals are associated with the problem or problem area?
  • How urgent and relevant is the problem to your short-term and long-term business goals?

 

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In this step, the most important thing to do is bust assumptions. Doing the same task day in and day out leads to the formation of several biases and assumptions. Make sure you talk to other teams and individuals who don’t have the same biases as you do.

Step 3: Identify alternatives and options

While collecting information, you will realise that there is more than one solution to the problem. At this point, you will have to define criteria that will determine which of these methods is the most effective and best serves your goals.

For example, once you know that your competitor’s new product is the reason for the loss in your sales, there are several options that can help you counter this problem. You could rebrand your existing product, invest in research and development and create a whole new product to level the playing field or reduce the price of your existing product in the hope that it raises the demand for your product.

The criteria that can help you determine a possible alternative are:

  • Costs and financial benefits
  • Quantity benefits
  • Quality benefits
  • Additional resources required — human, physical and monetary
  • The right time considering external factors such as the economic, political and environmental situation of the country
  • Cultural and behavioural acceptance
  • Past experiences with similar solutions
  • Sustainability

Applying these filters to your thought process will help you in identifying alternatives that make the most sense given the problem at hand and provides enough information to make the next step easier to carry out.

Step 4: Weigh all the evidence:

Every alternative you identify will have its pros and cons. The main objective of this step is to ensure that the alternative you eventually choose gives the best possible outcome within a reasonable timeframe and budget. For example, launching your own product is probably the best solution to counter your competition, but the cost and time required for it will be significantly higher than simply offering a drop in your existing product’s price. However, that might diminish the perceived value of your product in the long run.

In this step, you need to try and see what the result will look like once you implement your decision and whether you will be prepared for any additional challenges that might come your way. In doing this, you will realise that some options seem more viable than others. The ability to identify and evaluate the benefits and drawbacks of each alternative is a key skill that successful managers possess.

What would help in this situation would be to list out all options in order of priority. You should also get a second and third opinion on them from people within your team and external stakeholders.

 

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Step 5: Evaluate the alternative

Once you have all the details of each possible alternative, it’s time to choose the one that works best towards your business goals. Often you will realise that a combination of two different alternatives is also a possibility. Normally this will be the one at the top of your list. Evaluate the risks of every alternative before finalising it and get a few more perspectives to confirm your hunches and opinions and discover any additional risks or benefits for any of the alternatives.

Launching a new product could be the best way to take on your competition. However, given the huge costs and the extensive period required for the completion of the project, it might be better to cut down the cost of your product till the demand rises and use that period to rebrand it.

Managers need to be skilled in analysing and coming up with different possibilities and evaluating their feasibility in the long run.

Step 6: Implementation

All the first five steps and their learnings culminate into this step. Implementation is the most action-oriented step in the decision-making process. No matter what your evaluation and analysis show, whether your idea will be a success or not depends on its final execution.

Consider that you have concluded that lowering the price of your product is the best solution for your business. In this case, there are a number of different factors to keep in mind as you carry out your plan:

  • The correct time to roll out your plan, considering user behaviour, special occasions and socio-economic stability of your market
  • Acceptance of your decision and buy-ins from all internal stakeholders
  • Communication of the objective and execution plan to everyone involved in the decision-making process
  • Collecting relevant resources for each stage of execution so that you don’t get stuck midway through the implementation
  • Planning a proper rollout of the entire plan and delivering a clear message to your customers to highlight your offering in the best way possible
  • Look out for factors that are beyond your control, such as natural calamities, sudden political or economic instability and other factors that can disrupt your execution plan or force your target audience to change their behaviour

If you have put in enough thought towards the execution, then carrying it out should not be a problem. Don’t overanalyse, be aware of the resources you need, and act without uncertainty.

Step 7: Review the decision

This is one step a lot of organisations miss out on. Execution is not the last step of the process. It is important to evaluate the consequences and feedback of your actions so that you can understand what worked and what didn’t and modify your plan of action. Larger organisations often consolidate their learnings to be shared with the rest of their teams.

Once you’ve implemented your price reduction plan, there are a few questions you need to answer to get your review right.

  • What was the outcome of your plan within the given timeframe? Did it meet the key performance indicators for your decision?
  • Was the decision a success? What did you do right? What additional factors contributed to the success of your decision (for example, the sudden withdrawal of a major competitor and market shareholder)?
  • Was the decision a failure? What were the reasons for the plan going sideways? Was there something you overlooked? Is there a way to turn this around next time?

Challenges to the decision-making process

Knowing the seven steps that can guide your decisions is a major advantage for you. However, there are a few problem areas and variables that are often unavoidable due to their subjective nature. Be prepared for the following challenges to your decision-making process:
 

  1. Too much or too little information: The relevance of the information you find while conducting research is subjective to an extent. Some information that another person might find relevant would be inconsequential from your perspective. On the other hand, there is also the possibility that you might overthink of a reasonably straightforward or irrelevant piece of information.
    Research is a slightly vague term, with no specified quantity of information to be found. Therefore, there is always the risk of having too much or too little information.
     
  2. Misidentifying the problem: Many of the issues you will face in the decision-making process can be identified and corrected at a later stage, except this one. If you misidentify the decision to be made, your entire process, no matter how flawless, will not get you the desired result. Imagine if your sales are low, and instead of analysing the market scenario, you decide to retrain your sales team. Your problem will continue to exist, and you will end up spending time, money and resources for nothing.
     
  3. Overconfidence in execution: While your plan may be thoroughly thought through, it is important to be level-headed and stay open to change and feedback. There is always a high chance your execution won’t deliver the exact same results as expected.

Everyone makes wrong decisions at some point. It’s the only way to learn and evolve. However, decision making is an integral part of a manager’s job. Using this 7-step process and the right professional training can help you make the right decision and deliver positive results.