Whether it’s an ethical dilemma or deciding on a first house, everyone has been paralyzed by an important decision at some point in their lives. These are often the times when we opt for a more formal decision-making process: listing pros and cons, asking the advice of mentors, and comparing our dilemma to past circumstances are all common things to do when faced with an important decision to make. In business, having an effective decision-making process is essential in order to manage your time wisely. A good decision-making process will help you work smarter, not harder—so if you feel like you’re spinning your wheels, read on for some tips on how to make an effective business decision.
There have been many decision-making models over the years, differentiating between the types of decisions we make and developing systems for making optimal decisions. A common distinction is between:
- rational (logical) decision-making
- and intuitive, or “gut feeling” decision making.
Both of these can be valid ways to make decisions in business, but when your money is on the line, rational decision making is ideal.
Another key distinction is between:
- and non-programmed decisions.
Programmed decisions are those that happen almost automatically; those small daily decisions that become habits, or routines. Non-programmed decisions are choices that we don’t face every day, that force us to actively evaluate our options and weigh the consequences of each possible action.
Types of Decisions to Make
In business, there are often three types of decisions companies make: strategic, tactical, and organizational:
- Strategic decisions are the complex, top-level decisions that answer the question, “What are we going to do?” In larger businesses, these would be the decisions made by company CEOs or top-level managers. For example, deciding whether or not your business should seek more funding is a strategic decision.
- Tactical decisions are the mid-level decisions that answer the question, “How are we going to do it?” These decisions are most often made by mid-level managers in a large organization. In the case of funding, finding a source of funding or evaluating different loan options would be a tactical decision.
- Operational decisions are the day to day decisions, or routine actions, that the business takes in order to support the tactical plan. These are often made by lower-level managers. For example, having a routine way of paying off a loan would be an operational decision.
How to Make a Decision
If you’re used to making only tactical or operational decisions as an employee, it can be intimidating to suddenly be required to balance all three types of decisions as a sole proprietor or a freelancer. Effective decision-making means doing them in the right order.
- Make Strategic Decisions First:
People who aren’t used to strategic decision making may not spend enough time on them, making intuitive strategic decisions quickly and then agonizing over tactical decisions based on poorly thought out strategy. Making a strategic business plan can help ensure that your tactical and operational decisions make sense as a whole, so that you aren’t wasting your time. When you’re making higher-level, strategic decisions, use a rational process that weighs the pros and cons, considers alternatives, and compares numbers before you decide on a single course of action.
- Make Tactical Decisions Next:
After you’ve made strategic decisions, you’ll then make tactical decisions about how to implement them. These are the types of actions that need to be scheduled over a series of months, based on your earnings projections or market research. It can be easy to fall into the trap of making tactical decisions based on other people’s ideas of what your business should be doing; having a solid strategic basis for them will help you carve your own path.
- Make Operational Decisions Last:
Decisions like what to fill your daily schedule with should come last, after you’ve decided on a more general course of action. It can be easy to make the mistake of making a schedule first, if your employer has been the one scheduling your time, but if you don’t have clear higher-level goals, your schedule will be full of busywork. However, don’t underestimate the importance of small decisions! Although you make them last, these are the small, day-to-day actions that build the foundation of the general direction you’re working towards.
A few More Tips for Your Effective Decision-Making Process
- Remember that, no matter how rational your approach, there will inevitably be information you haven’t considered yet. It can be easy to get stuck in the strategic planning stages if you are hesitant to take on some level of risk—but the risk is a key part of doing business!
- An awareness of how your programmed (automatic) decisions are affecting your non-programmed (complex) decisions can be hugely beneficial when you’re charting your course. Your life habits will tend to mingle with your operational decisions and affect the way you conduct business. If you’re having trouble following a schedule, keep a time diary for a week to figure out what you’re spending your time doing, then step back and make a more general, tactical decision about time management.
- Intuitive and programmed decision making isn’t always bad; after all, humans are hardwired to make these types of decisions every day. Using a pen-and-paper, rational process for every decision we make would be an ineffective use of time, particularly in familiar situations. But an awareness of when you’re doing each type of decision making can help prevent you from making big decisions you didn’t intend to make that result from a series of programmed decisions you didn’t realize you were making.
One of the most important truths about decision making is this: making no decision often means that one will be made for you. Inaction over time is a decision with serious consequences, and sometimes making a less than ideal decision is better than making no decision at all. So don’t fear being decisive! If you make a mistake, you’ll learn from your decisions and make better ones next time.