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4 decision-making models to apply in your business

February 16, 2022 by MindManager Blog

By: Emily Finlay

Your job requires you to make dozens of key decisions every day. Some of these decisions might involve only you, but others require input from additional members of your team.

No matter what the situation is, the right decision-making model can help you and your team better understand and analyze a situation better so you can make the best choice in terms of how to address or resolve it.

Decision-making models are processes intended to break down a problem you’re facing, help you and your team identify possible solutions, and guide you to the most effective outcome.

For example, if your team is trying to determine which project management method would work best for your next assignment, you could use a decision-making model to evaluate potential techniques and pick the best one.

Just as there are many ways to approach a challenge, there are also many types of decision-making models. In this article, we’ll take a closer look at four types of decision-making model you can apply to business decisions in order to make choices that lead to better outcomes.

1. The rational model

When the stakes of a decision’s outcome are high, the rational model can be an effective way to work through your options.

This model uses a series of steps focused around data, logic, and analysis (rather than personal opinion or intuition). These steps are designed to help you understand the challenge, define the factors that influence your decision, and compare solutions to find the right one.

For example, if you need to cut back on your department’s spending to meet a new budget, for you could use the rational model to determine which areas make the most sense to trim back on, whether it’s your technology budget, team outings, or making staff reductions.

Steps for following the rational model include:

  • Define the problem and desired result. What challenge are you are trying to solve? What result do you want to achieve by making a decision?
  • Identify the factors involved in your decision. Determine what specific details you’ll need to consider. For example, are there budget areas you can trim down on that will have little impact on your team, or will you need make vital cuts that may significantly impact morale, which you’ll have to prepare for?
  • List your potential solutions. Use the information from the first two steps to identify potential solutions to your challenge, and loop in relevant team members to help you narrow down your list to the most viable options.
  • Assess the potential impact of each decision. Vet your potential solutions by thinking about the impact and/or consequences they may have, whether it’s on an individual employee, a team, or the company as a whole. Your ideal solution should have minimal negative impact while still achieving your desired result.
  • Make and implement your decision. Using the results from your analysis, determine which option you believe to be the correct one. You may need to loop in key stakeholders and/or executives for approval, but once everyone has signed off, implement your decision and monitor the results.

The rational model isn’t one of the quickest decision-making models out there, so be sure you have enough time to work with before opting to use this model.

2. The intuitive model

Rather than relying on an in-depth analysis, the intuitive model uses pattern recognition to identify the option that will yield the best results. It uses your past experiences with similar goals or challenges to guide you to the right choice.

For example, if you need to assign a task with a short deadline to an employee, you would identify which employee performed best on similar assignments in the past to make your decision.

The intuitive model supports your gut decisions by helping you understand why you’ve chosen a specific solution and what you can expect from your decision based on similar scenarios.

In a survey by Lumen, 89% of managers said they had sometimes used intuition to make decisions, while 59% said they often relied on intuition.

Steps for following the intuitive model include:

  • Define the problem. Determine what challenge you need to overcome and/or problem you need to solve with your final decision.
  • Identify similar past situations. Take a moment to think about any similar previous experiences you’ve encountered, and what choices or decisions you made—or what factors you used to make them—to resolve the issues.
  • Recognize potential biases. Decision-making can be prone to certain biases , such as authority, confirmation, and framing. To ensure your decision is free from certain tendencies or inclinations, solicit feedback from others you trust, and take a moment to reflect on past decisions and how they turned out before you move forward.
  • Choose the best solution. Equipped with the information you’ve gathered, make the decision that is most likely to lead to your desired outcome.
  • Implement your decision. If your decision had to be made quickly and/or you were not able to involve your team, let them know what you decided (and why) before implementing the changes.

Unlike the rational model, this process can be completed quickly, making it a good choice to use when you need to make a fast decision.

3. The recognition-primed model

The recognition-primed model works similarly to the intuitive model. Rather than just going with the solution that feels best, however, this technique adds an extra step.

Once you’ve identified a solution based on your past experience, you then run a mental simulation of this decision.

The more experience you have with the particular challenge you’re facing, the easier it is to use this model.

In addition to helping you identify the most important parts of the problem, this past experience can prompt you to look for options that are more likely to resolve the challenge .

For example, you can use this model to decide if you can take on a project with a tight deadline. By thinking through the times your team completed projects with similar time constraints, you can determine if you’re capable of meeting these new demands.

Then, you can run a simulation of how you expect the project to go to identify any potential challenges or roadblocks before they occur, which can help make the process smoother and enable you to meet your deadline.

Steps for following the recognition-primed model include:

  • Define the problem. As always, you need to know what you need to achieve or resolve before you can determine the right solution.
  • Identify similar situations. Think through previous situations that are relevant to the current challenge. How did they turn out? What unforeseen issues did you run into? You can also review information from past scenarios and the data behind the outcomes, if you have the time.
  • Map out multiple solutions. Based on how these past situations unfolded, come up with a few potential solution options.
  • Run a mental simulation for each solution. For each option, identify the potential results, impact, and complications/challenges that are likely to occur, eliminating any that won’t work or making necessary adjustments.
  • Decide on and implement your solution. Time to see how your solution works in reality! If you weren’t able to involve your team in the process, explain your decision to them and why you made it.

4. The creative decision model

You may not have the real-world experience needed for the last two models. If that be the case, the creative decision model may be a better option.

With this model, you don’t create solutions based on past experiences. Instead, you come up with imaginative ideas and new ways of dealing with a situation, or you decide to try a solution you may have thought of previously but haven’t yet tried.

For example, if you want your team to be number one in sales revenue next month, you could offer incentives to your employees for hitting certain targets, or work with marketing to come up with an exclusive promotional deal.

Steps for following the creative decision model include:

  • Define the problem. Since this is an unfamiliar challenge, make sure you’re very clear on the result you want to achieve. Meet with your team to fully outline the problem, and consider consulting with more experienced colleagues to better understand the challenge you’re up against..
  • Consider all factors. Do your research to understand every possible factor that might impact this challenge and any potential solution. See if you can identify similar situations that your coworkers may have encountered, what decision was made, and what the result was.
  • Identify a viable solution. Decide which decision is the best one for this particular situation.
  • Implement your decision. Once your solution is in effect, monitor the outcome to measure how well your idea performed and inform future decisions.

Create better decision-making models with MindManager

MindManager® can be an extremely useful tool for creating decision-making models in your workplace.

It’s an easy-to-use productivity and collaboration solution that enables you to map out every step of the decision-making process visually so you can better understand what factors must be considered in making a choice.

You can create decision-making models in MindManager in several ways:

  • Use a mind map to identify the factors you need to consider when making your decision and to understand how each one might affect the desired outcome. Similar templates include radial maps, right maps, and concept maps.
  • Develop an idea map to keep track of potential solutions that you brainstorm with your team. Similar templates include onion diagrams, funnel diagrams, and matrix diagrams.
  • Create a flowchart to simulate your solution and visualize how it will work in practice. Similar templates include timelines and Kanban boards.

MindManager’s co-edit feature allows multiple people to work on the same diagram simultaneously, allowing you to evaluate all options collaboratively to make quicker decisions.

Creating a visual map of your decision-making process also provides you with a digital template that you can use as a model in the future.

Create better decision-making models with MindManager. Access your free 30-day trial today!

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6 Decision-Making Models for Leadership [Full List]

author Ranee profile image

Researchers at Cornell University estimate that the average adult makes 35,000 remotely conscious decisions each day. As your level of responsibility increases, so do the number of choices you have to make. 

It's not surprising that good decision-making skills are essential when working in a leadership role.

Making a decision isn't easy, especially in business. It's important to consider the pros and cons of both the implementation and outcome. Therefore, a better understanding of decision-making models can help you make more informed decisions. 

In this article, we highlight   6 decision-making models , describe the advantages and disadvantages of each, and offer insight and examples of when to use them.

What is a Decision-Making Model?

A decision-making model is a standard process or structure that provides professionals with guidelines they can follow to help them make the best choice and, at the same time, make the decision-making process more manageable.

6 Types of Models for Decision-Making

Below are 6 different decision-making models in business you can use, and they work best in varying situations, let’s check them out.

1. Rational Model

Using a sequence of logical steps to help make a decision, the rational model leverages data, logic, and analysis to identify the problem, brainstorm possible solutions, and select the most viable option after careful evaluation.

Identify the Problem:   Think about the central problem that you plan to address.

Determine the Decision Criteria:   Define what information is relevant in making decisions. 

Weigh the Decision Criteria:   Decide the importance of decision criteria based on your priorities regarding the final decision. 

List Potential Options:   Now you can list all of the possible options to solve the problem and arrange them by likelihood of success, feasibility, etc.

Choose the Best Option:   Take your time evaluating the options, considering the potential outcome for each. Once you’ve chosen the best one, commit to implementing it. 

The rational model is very   effective when working with a team   and there is time for multiple meetings and brainstorming sessions. 

You'll be able to come up with various solutions and the pros and cons of each. Since the rational model requires careful evaluation, there is   less risk and uncertainty with the final decision outcome .

Disadvantages

To start, the rational decision-making model is often   time-consuming and costly , so it's usually not used in more minor decisions but rather for more significant decisions that could have considerable impacts. 

Another thing to remember is that if you lack any essential information, the rational model might not be that useful. 

When to Use the Rational Model

As mentioned above, the rational model works best when making complex decisions. 

Before implementing the rational model, ensure you have all relevant information accessible and time scheduled with your team to work through the steps. For example, suppose your company is trying to an   effective meeting productivity tool , then the rational model is a great way to decide by going through the cost, pros, and cons of the various programs you are comparing.

2. Intuitive Model

There are times when you have to go with your gut instincts. Believe it or not, when you go with your instincts, this is another decision-making model in management that you are following, known as the intuitive model. It's often less structured than the other decision-making models on our list but just as helpful depending on the situation. 

The intuitive model relies on past training, experience, and knowledge to arrive at a final decision without conscious reasoning. Although it might seem like the intuitive model is a gamble, the decision-maker usually makes their final decision by scanning the situation for patterns based on what has worked in the past, sometimes without even realizing it.

The intuitive model is a great option   when making a decision with limited time or resources , as long as the decision-makers are familiar with and experienced in the topic. 

Disadvantages 

If your team is unfamiliar with the task or has little experience, they might not be able to come up with a solution intuitively. It would be best to collaborate with more experienced coworkers in this situation.

When to Use the Intuitive Model

The intuitive model is best suited for knowledgable professionals who have experience making similar decisions. They can refer back to what has worked or hasn't and create a more informed decision based on their experience and intuition. Since many managers must make numerous decisions in their day-to-day work life, even with time constraints and challenging circumstances, they often rely on their professional experience to make decisions using this model.

3. Vroom-Yetton Model

Victor Vroom designed the Vroom-Yetton model with the premise that the best solution to a problem depends on the context. 

Following the Vroom-Yetton model, decision-makers use a decision tree containing seven yes or no questions, such as "is there sufficient information for a leader to make a good decision on their own?" The results from these questions then help determine which decision-making process to go with from the five aspects   described by the Vroom-Yetton model , which include Autocratic (A1), Autocratic (A2), Consultative (C1), Consultative (C2), and Collaborative (G2).

The Vroom-Yetton model is   very flexible and accessible   for employees at all levels of management. In addition, since organizational psychologists created it, its methodological process is more accessible to follow than some other models and doesn't take very long to complete; in some cases, it only takes a few minutes.

Keep in mind that the questions used in the Vroom-Yetton model may not be specific enough for your situation. There is also a lack of consideration around personal factors when filling it out. 

When to Use the Vroom-Yetton Model

The Vroom-Yetton model is helpful for managers and leaders trying to figure out if they should be making the decision themselves or if it would be beneficial to include team participation and the extent of how much the team should be involved.

4. Recognition Primed Model

Like the intuitive model, the recognition primed model relies on experience when making decisions, but it goes further. First, the decision-maker would analyze the problem to see if they can recognize patterns based on similar situations they've experienced. Using that information, they would then create a list of possible solutions and then run each scenario through their minds to develop the best course of action. 

The recognition primed model is an excellent option if you have limited resources and need to quickly come to a final decision.

The recognition primed model requires a lot of experience and knowledge. It also requires detailed records of past projects unless the decision-maker has an excellent memory. 

When to Use the Recognition-Primed Model

If you have successfully solved similar problems in the past, the recognition-primed model is a great decision-making model to use. Since there is a bit more to it than the intuitive model, many leaders who use this model like to map out their thoughts on paper and take detailed notes, and it is also helpful to refer back to when making future decisions.

5. Bounded Rationality Model

Sometimes, you have to go with a "good enough" solution to get the job done. We are often "bounded" by time constraints, limited available information, and cognitive limitations as humans. This is the idea behind the bounded rationality model: doing the best with what you have available rather than overanalyzing every alternative solution. 

The most significant advantage of the bounded rationality model is that it allows teams to make quick decisions without putting much time or thought into it. But, of course, you will need to be open to shifting gears as things change and are able to think on your toes.

Since there is less time and strategy dedicated to this decision-making model, there is the risk that things won't work out, wasting valuable resources. 

When to Use the Bounded Rationality Model

The bounded rationality model is best suited for decisions that won't have a significant impact or consequences if things don't work out. For example, deciding what to order for lunch.

6. Creative Model

The creative decision-making model is usually applied when the decision-maker has to develop original ideas to create an innovative solution to a problem. Unlike the other models in this list, the creative decision-making model doesn't allow team members to rely on their experience since they must find a new, unique solution to their current problem. 

One advantage to the creative model is that even if a team is inexperienced in their tasks, they can still apply this model when making a decision. The creative model also encourages collaboration and can strengthen team building.

The downside of this model is that it consumes a lot of time and resources and requires extensive brainstorming and meetings. On top of that, there is no past proof that the final decision will work until you try it. Additionally, success depends on the decision maker's creativity and availability to conceive fresh ideas.

When to Use the Creative Model

The best time to use the creative model is when the solution to the problem is not obvious. For example, in the early days of social media marketing, companies had to develop innovative social media campaigns without a blueprint for success. Even today, the most successful campaigns are ones that are unique and stand out from competitors.

As humans, we make thousands of decisions every day, both at work and in our personal lives. When you work in a leadership role with increased responsibilities, your decisions shape the workplace and impact multiple lives. 

Fortunately, understanding the different decision-making models in business and when to implement them can help make the decision-making process much easier. We hope this list of the six standard decision-making models enables you to make decisions confidently.

business model decision making

Ranee has worked in the SaaS industry for nearly ten years. She loves working with, learning from, and helping develop effective leaders and is willing to share her thoughts through words. Outside of work, you can find her dancing, hiking in the mountains, or reading in a cafe.

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The Role of Decision Modeling in Business Decision Management

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The Definitive Guide to Business Decision-Making

By Kate Eby | August 24, 2018

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Making decisions — both large and small — is critical to the success of a business. Decisions come from the need to solve a problem or the need for a potential opportunity. Gathering the right amount of information and input from key stakeholders is essential for making informed decisions. Following one of the few accepted processes to collect intel and objectively weigh the pros and cons of the data can help steer you away from making unsound decisions. In this article, you’ll learn about popular decision-making processes and how to apply them to your own business.

What Is the Decision-Making Process?

The decision-making process involves identifying a goal, getting the relevant and necessary information, and weighing the alternatives in order to make a decision. The concept sounds simple, yet many people overlook some of the critical stages and risks that occur when making decisions. Wherever possible, it’s important to make the best decisions under the circumstances.

There are at least four strong benefits to making good decisions:

1. Good decisions last longer. You will rarely need to revisit a decision that was made using a well thought out process, and it can sometimes last the entire lifespan of an organization.

2. Good decisions weigh internal and external factors. A decision-maker should consider a company holistically. A sound decision won’t have one part of the business succeed at the expense of another. Both internal and external factors can affect the decision and the company's road map.

3. Good decisions eliminate conflicts of interest. With transparency and stakeholder buy-in during the decision-making process, questions or concerns after the fact become far less likely. The benefits of this process keep the organization on track and focused, and reduce churn.

4. Good decisions actually work better overall. Good decisions actually get the decision-maker, department, and company closer to their goal, and solve the initial problem.

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What Is the Decision Making Process Model?

Following a formal process with specific steps can help businesses make more informed decisions (see more benefits to using a formal process ) and propel it forward. In fact, using a decision-making process tailored to the business world reaps enormous benefits that include the following:

  • Less Second-Guessing: If you follow a formal business decision-making process, you can demonstrate you've already considered various other options.
  • Translatable and Sharable Decisions and Progress: You can share the processes and steps upward to top management and the C suite, as well as downward into the ranks of those who'll be involved in executing the decision.
  • Guide or Roadmap: Capturing the decision-making process in writing can be useful to show stakeholders an explanation of the steps and strategy behind it, as well as provide backup details.

The late Harvard business professor and author J. Richard Hackman wrote many books about effective business leadership, teamwork, and decision-making, including Leading Teams: Setting the Stage for Great Performances . Empowering teams to make their own decisions and following the processes that work for them, Hackman explains in his book, results in cohesion and strength. But in making strong decisions, he adds, “Teams taking in too much data to make decisions can result in an overload trap , which can result in a team metaphorically drowning in data.” Therefore, it’s critical to be strategic at every step of the process.

What Is the First Step in Any Decision-Making Process?

The most important first step in any process is to clearly define that a decision needs to be made. It may sound obvious, but many organizations focused on moving fast may actually overlook this step. Outline this goal decision as specifically as possible. Include why this decision is critical for your business goals or for internal objectives. You need to be able to support why you initially selected the goal necessitating a decision.

A decision or goal can't be made in a vacuum. In fact, it’s a waste of time and resources unless it aligns to a business need. Therefore, the first step in any decision-making progress is to ensure that your decision truly needs to be made in the first place and that it reflects a larger goal of the company.

How to Improve the Decision-Making Process

It’s critical to build evaluation into the process. Ensure that at least one of the steps includes evaluation and revisiting the process and its outcome, especially for future use. Additionally, get sign-off from all stakeholders in advance (even for the steps in the process) and keep them in the loop. Capture metrics along the way that show successes, failures, the comparative benefits of options you’ve considered, and research into what competitors have done, to help support your responses and keep the process moving smoothly.

Types of Traditional Processes in Business Decision-Making

Before we examine the various stepped plans in decision-making, we will explore a few specific types of decision-making. There are also several different actual processes that can be used in decision-making that involve a number of steps. The most popular and well-used processes have five, six, seven, or eight steps.

The number of steps will vary, of course, if you break down tasks that could be contained in a single step into additional steps. Regardless of the process you choose, evaluation is the last step, and smart companies will take the time to do this. Over time, organizations using this evaluation step can gain critical efficiencies in time and focus. It also helps ensure institutional learning for the overall health and strength of the company. All of the processes described in the following sections are in use today.

What Is the Five-Step Process in Decision-Making?

Many organizations follow the five-step process when making decisions. As you compare the following processes with the varying numbers of steps, you’ll see that some, like this one, combine activities, while others list them as separate steps. Here are the five steps in this process:

  • Identify the end goal.
  • Gather all your information needed to inform your decision.
  • Evaluate all the risks and consequences.
  • Make the decision and execute it.
  • Evaluate the decision after the fact.

What Is the Six-Step Process in Decision-Making?

The six-step process focuses more on up-front research and information-gathering. This method front-loads the process with data that can make the rest of the process run smoothly. Here are the six steps in this process:

  • Gather all the necessary information, and identify all the alternatives (without selecting one yet).
  • Compare all these alternatives against the relevant criteria.
  • Make the decision.
  • Execute the decision.

What Is the Seven-Step Process in Decision-Making?

The seven-step decision-making process seems to have the most adherents in the current business climate. The following flow chart shows how the process works, how each step leads to the next one, and so on.

Here are the seven steps in this process:

  • Identify the end goal, and the need for the decision.
  • Gather all the relevant information.
  • Identify various viable alternatives. You don’t need to identify absolutely every possible alternative — only the ones that realistically could work for this situation.
  • Compare all the evidence of all the alternatives, and list the pros and cons.
  • Choose the decision.

Below is a downloadable decision-making checklist that you can use in your business decision-making.

Business Decision Making Checklist Template

Download Decision Making Checklist

Excel | Word | PDF

What Is the Eight-Step Process in Decision-Making?

The eight-step process involves gathering data, as well as identifying key criteria. There is usually a full brainstorming session in order to cast the net wide when considering options. Here are the eight steps:

  • Gather all relevant information.
  • Decide what your criteria will be for judging all the alternatives.
  • Have a full brainstorming session to assess each option.
  • Compare all the alternatives, and list the pros and cons.

What Is the Ethical Decision-Making Process?

The ethical decision-making process is a process that stipulates that any and all decisions must include evaluating and selecting options that are consistent with ethical concerns. This means making the most ethical choices, regardless of the impact to the bottom line. Ethical decision-making also means eliminating any options that are not consistent with ethical values from the beginning.

According to the University of California San Diego , which cites the Josephson Institute of Ethics , ethical decision-making involves the 3 Cs:

  • Commitment: Never wavering from choosing or doing the ethical thing, whether it costs more or not.
  • Consciousness: Infusing your team and project members with enough awareness to own the ability to act ethically every day with moral certainty.
  • Competency: The ongoing process of evaluating information as you go and weighing options that allow you to continually make the right ethical decisions. As conditions in the world change, having a strong competency to evaluate these changes is mission-critical to staying the course in being ethical.

How to Make a Decision Using the Analytic Hierarchy Process

The analytic hierarchy process ensures that you are using specific criteria and rating those criteria, instead of simply comparing alternatives you've used in the past. The process involves creating an actual hierarchy of sub-issues, which you then evaluate and examine. Then, you measure these sub-issues against each other and assign each a relative value on the hierarchy. In short, alternative solutions are examined, and then weighed against each other.

While some businesses use the analytic hierarchy process, it is often used in academic or policy-related scenarios. In this method, a decision is made with the most important issues considered or weighted more heavily, and higher on the hierarchy, than others.

What Is the Rational Decision-Making Process?

As its name implies, rational decision-making relies strictly on data, measurable steps, and calculated values. This process focuses on minimizing costs and maximizing benefits to the organization. To use this process effectively, it’s critical to factor in personal biases of those involved and solve for them. The five-step process is usually used in rational decision-making.

As opposed to ethical decision making, there's no subjective judgement about criteria and steps to reach a decision in rational decision-making. However, it's possible the same decision could be reached using both processes.

What Is the Managerial Decision-Making Process?

The phrase managerial decision-making process is similar to and sometimes used interchangeably with the more general term business decision-making . But in fact, managers may have more decisions per day, including those affecting employees, beyond the typical business decisions that need to be made in an organization. Managerial decision-making often follows the five-step process.

According to the educational group Management Study Guide, there are three main types of managerial decisions:

  • Strategic: These kinds of decisions are typically made rarely. Not all levels of an organization are or need to be involved as the decision is being considered and decided. Examples of strategic managerial decisions include resource and investment, expansion or downsizing, mergers or acquisitions, investments, etc. These can take significant amounts of time and should not be rushed.
  • Operational: These decisions also take time to be fully explored and made. Higher level ones may involve only the C-suite and/or directors, and can include decisions affecting output, company-wide policies, and culture. Lower-level decisions of this type affect daily operations, so are often handled by upper and middle management.
  • Managerial: These are made by managers at every relevant level, from middle managers to the executive suite. They may cover issues like allocation of resources, the decisions to phase out or revise current products, the creation and introduction of new products, and the like. Every manager in an organization needs to be aligned and often involved in decisions at this level.

What Are the Best Practices in Any Business Decision-Making Process?

If you’re using a team to make a decision, it’s important to have the number of people involved. Hackman’s recommendation is to have about five people on a decision-making team. More than seven members, he writes, makes your decision-making group lose effectiveness.

Sometimes individuals need to make the decision, or perhaps just two C-level executives appoint themselves to make a decision. But Hackman’s study shows that overall, teams make 75 percent better decisions than individuals.

It’s also imperative to identify and fill the correct roles in your decision-making team. Otherwise you are guaranteeing frustration and churn. The Harvard Business Review suggests using the RAPID methodology (recommend, agree, perform, input, and decide). This option provides a high-level way to capture the flow of the step-by-step processes.

As a first step, send your team members out to do research and ask them to answer these questions:

  • What are the most important goals for the decision?
  • What are the top realistic choices?

Audit and combine the results with the team to collectively agree on the top choices or identify gaps. Be sure to communicate and build in time for feedback and questions all along your process. This ensures buy-in all through the process. Sometimes using a decision-making matrix can also help your team identify and weigh options.

Eisenhower Box Decision Matrix Template

Read “Make Up Your Mind: Free Downloadable Decision Matrix Templates” to earn more about using decision-making matrices.

5 Potential Pitfalls to Avoid when Using a Formal Decision-Making Process

Before embarking on a decision-making process, it’s useful to keep some potential pitfalls in mind. Following a process is important, but avoid following the process “out the window.” Here are five potential issues that could arise when using a formal decision-making process:

  • Proceeding without Enough Information, or Relying on a Single Source: If you’re going to follow a formal process, you’ll need data. Document each step and get buy-in from your colleagues. Information is power, and gathering information from relevant but diverse sources is critical to being strategic.
  • Gathering Too Much Information: Too much or irrelevant information can be overwhelming and confusing, and can lead decision makers astray from the issue that needs the decision, as well as how best to arrive at it.
  • Placing Too Much Confidence in an Option that May Cause Bad Results: Try to identify a valid option or options as you hone in on a process and  decision. Gather enough data throughout the process so you can play out scenarios for each option.
  • Solving for the Wrong Problem: Front-loading research can be critical if you don't understand what's causing the issue. For example, if your production output has been slipping, don't assume that you need more staff, or more factory hours, or any one thing, unless and until you can identify the true reason for the slowdown.
  • Being Too Rigid with or Wedded to the Process: It’s possible to follow a decision-making process so strictly that the organic nature of a business, staff, and their needs are sidelined or ignored. Even when you are strategically and confidently following a business decision-making process, you and your team need to have the ability to pivot if needed.

Examples of Decision-Making Processes Successes

In a sense, a company’s entire history is a reflection of making decisions. Some of the top companies in the world have turned a failure into a success by focusing on the last crucial step in all decision-making processes: evaluating the decision after the fact.

One example of this is Coca-Cola in 1985. Business and leadership expert John Addison writes that the company decided to address the changing soda marketplace by launching “new Coke.” Unfortunately, the rebrand failed miserably within three months, which forced the company to reintroduce the original Coca-Cola. The big takeaway: Reversing direction isn’t a sign of failure; rather, it’s evidence of a leader’s commitment to keeping the company’s health a top priority. What’s more, it shows how important it is to revisit and evaluate decisions.

Companies often use data to try a pilot or program, and if it doesn’t work, they might revisit the decision and change course. In other cases, large companies are constantly assessing data to find actionable paths. These three companies found success by making decisions based on data and stakeholder reviews:

  • According to Harvard Business Review , Google created a people analytics department to help the company make HR decisions using data, including deciding if managers make a difference in their teams’ performance. The department used performance reviews and employee surveys to answer this question. The company learned that a laser focus on performance did not indicate the best or happiest teams; instead, managers with strong people skills had the best-performing groups — as well as employees who were happier and stayed longer at the company.
  • When Amazon was still a startup, its data gatherers noticed that customers who bought a certain book or CD or DVD also were more inclined to buy another product. Perhaps these related products were by the same author or artist, or maybe the movies starred the same actors or had similar subject matter. Or, maybe they were just hot titles the customer wanted. Editors at this time had been taking on the role of “trusted adviser,” making recommendations based on purchases through emails and other human-created collateral, but the company thought that an automated tool could augment what the human editors could suggest. Ultimately, Amazon decided to use that data to create its first, rudimentary personalization tool. By presenting customers with products that other customers also bought, the company realized a significant spike in sales.
  • Southwest Airlines famously studied its customer data to determine the perks and upgrades that would appeal to its regular flyers. Offering those perks and upgrades resulted in a boost in ridership and fierce loyalty among its customers.

These are examples of successes that relied on strong decision making, but of course, not all decisions succeed. Continually assessing and revisiting decisions is a sign of a mature company; otherwise, decisions could result in public failure. In the next section, we’ll look at some examples of failed decision making.

Examples of Decision-Making Process Failures

The failure of companies to adapt, change, or compete effectively probably can’t be tied to one bad decision or process failure. Still, in not rigorously gathering data, weighing options, and evaluating decisions, organizations can doom themselves. Here are some examples of companies that failed to use, or learn from, their decision-making processes:

  • Blockbuster and Borders: Both of these once-successful brick-and-mortar companies   used data to reaffirm their own preconceptions instead of evaluating data objectively. Instead of adapting to the challenges and opportunities of the internet, their web properties and physical locations ultimately failed.
  • Kodak: For decades this company was synonymous with photography in all its forms. But it didn’t fearlessly look at the changing landscape of digital photography. Even when it acquired Ofoto, it failed to maximize and monetize the opportunity. The company arrived late and quietly to the online photo gallery space with Kodak Gallery, which was subsequently acquired by Shutterfly.
  • Newspapers: It’s hard to see a whole industry collapse because of bad decision-making and denial, but this is what began to happen in the late 1990s to newspapers. While some organizations, like the New York Times and Washington Post, have adapted to digital media, most city newspapers are struggling. Clinging to old business models never helped any business make strong, forward-looking decisions.

Team Building Exercises to Improve Decision-Making

If you’re ready to get your team energized to focus on making its decision, team-building exercises are a great place to start. These exercises help team members get to know and understand each other, which helps them get on the same page more quickly and ultimately improve their decisions. Here are some resources that can help you find the right team-building exercises for your decision-making group:

  • Activities recommended by business experts
  • More top activities recommended by business leaders
  • Top team-building questions
  • Top 20 team-building activities

The Decision-Making Processes in Non-Business Fields

In non-business fields, decision-making can involve more or fewer factors, with different kinds of weight assigned to each step. Here is a quick overview of some other types of decision-making processes:

  • Consumer Decision-Making Processes: It’s important for marketers to recognize the steps consumers typically use to make a purchase decision. They include the following:
  • Identify need. (I need a new winter coat.)
  • Gather research and information. (What are the newest styles and warmest types of winter coats?)
  • Evaluate the research. (So do I really need a new winter coat, or can I layer up with what I already have? If I need a new one, which one is best for my needs?)
  • Buy the item.
  • Evaluate the decision. (Was this winter coat a good decision? Am I happy I made it, and would I recommend this coat to other people, or buy it again for myself?)
  • Military and Governmental Decision-Making Processes: For those in the military and other types of government roles, decision-making can be a matter of life and death. Therefore, the protocol for making military operations decisions is detailed and strict. 
  • Education Decision-Making Processes: Many schools and school districts embrace shared decision-making , a process that involves members of the community, parents, students and former students, teachers, and anyone else invested in the success of a school or district. 

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5 decision-making models to try if you’re stuck

Beware of the biases that can lead to bad decisions

Browse topics

Crystal ball

Decisions, decisions. By some estimates, we make 35,000 conscious choices daily.

That number might even be inching upward thanks to the rise of flatter organizational structures , which decentralize decision-making. Instead of top leaders making every call, employees at all levels have the power to make more decisions, and they are more likely to happen collaboratively.

All of this means good decision-making skills are more important than ever. However, making high-quality decisions, and making them efficiently, isn’t easy. If your team struggles to decide even where to order lunch, you know this firsthand.

But what if you had a toolkit to help you make better and faster decisions? And we're not talking about a Magic 8-Ball and a coin to flip. These tools are called decision-making models. Several models have been identified, but none of them is foolproof. You'll want to draw on different models in different situations.

Besides becoming familiar with decision-making models, you should also get to know the biases that can lead you to make bad decisions. If you've decided you're ready to dive in, let's get started.

Decision-Making Models

Rational decision-making model.

Do you need to make a complex, high-stakes choice? Are you making this decision with other people? Are there strong emotions around the different options? And do you have the time for serious thought and research?

Then you’ll probably want to consider using the rational decision-making model . It has six steps:

  • Define the problem
  • Identify the criteria you will use to judge possible solutions
  • Decide how important each criterion is
  • Generate a list of possible alternatives
  • Evaluate those alternatives
  • Determine the best solution

(Some sources identify additional steps, such as testing your solution before fully implementing it.)

The rational model counteracts a lot of the factors – like faulty assumptions – that can lead us to bad decisions. It can minimize risk and uncertainty. This model is also one you can use on your own or as part of a team.

However, it's not the best model to use when you're under time constraints or in a fast-changing situation. It's also important to remember that you won't always have all the information you need to use this model. And, even if you do, going through the full process isn't efficient or necessary for some decisions.

Bounded rationality decision-making model

And that sets us up to talk about the bounded rationality model. You may have also heard this model called " satisficing ." Instead of rigorously seeking the best possible decision, you're just looking for a "good enough" decision.

You can use bounded rationality when you don't have enough time or information to follow the full rational decision-making model. Sometimes it's better to have a good enough decision sooner vs. a "perfect" decision that's delayed. And it burns a lot less mental energy and other resources.

To help you deal with all the information you have to process and all the decisions you have to make in a day, your brain likes to take shortcuts.

Vroom-Yetton Decision-Making Model

There's no one ideal process for making decisions. Instead, the best process to use will change based on your situation.

That's the idea behind the Vroom-Yetton decision model (sometimes known as Vroom-Yetton-Jago ). The first part of this model uses seven yes-or-no questions. Here's an example: "Is team commitment to the decision important?"

Your answers to the questions then guide you toward one of five decision-making processes to use. Options range from making the decision based on what you know now without consulting your team to reaching a group consensus with your team.

The flexibility of the Vroom-Yetton model is one of its strengths. Anyone at any level can use it, and it can work even if you're in an unfamiliar situation. However, it doesn't consider personal factors for the decision-maker, the questions may not be precise enough for some situations and it may not work as well for larger groups.

Intuitive decision-making model

You might be surprised to learn that even when you make a decision intuitively or instinctively, you're still following a decision-making model. Intuitive decisions can happen almost instantly. But that doesn't mean they just pop into your head. Your brain is actually doing lightning-fast pattern recognition . It's quickly reviewing everything you've learned from similar past situations to help you make a decision in your current situation.

Researchers have found that an intuitive decision-making model yields good results when you're dealing with areas where you have a lot of expertise or experience. But going with your gut is less effective and efficient when you're in an unfamiliar circumstance, like a new job. This is because you don’t have enough experience to quickly recognize patterns yet.

An interesting side note here: Sometimes a decision that we think is rational and logical is actually a lot more intuitive. If you've considered additional options only to go back to your initial choice, you may have been following the retrospective decision-making model .  

Recognition-primed decision-making model

The recognition-primed model has a lot in common with the intuitive model. Here's how it works:

  • The decision-maker recognizes a pattern in available information.
  • They then pick a course of action and run through that "action script" in their mind.
  • If the action script seems like it will work, the decision-maker moves forward. If it doesn't seem like it will work, the decision-maker either tweaks the script or ditches it and starts over with a new script.

Like the intuitive model, the recognition-primed model works best in situations where you can draw on deep experience or expertise. In those cases, it's an especially handy model to use when you're under time pressure.

Common decision-making biases

Now that you know a variety of decision-making models, deciding should be a snap, right? Well, not quite. To help you deal with all the information you have to process and all the decisions you have to make in a day, your brain likes to take shortcuts. Sometimes those shortcuts are helpful. But sometimes they can lead to really lousy choices.

Be alert for these common mental biases any time you make a decision. Even just knowing that they exist and that you are vulnerable to them can help you make better decisions.

Confirmation bias

Confirmation bias means paying attention to evidence that confirms your beliefs – and ignoring anything that doesn't. Let's say you're helping choose someone to fill a new position at your organization. The process is down to the two finalists. Based on their resumes, you prefer Candidate B over Candidate A. But you're keeping an open mind.

Or are you? During their interviews, confirmation bias could cause you to pay attention to anything that shows Candidate B is an amazing fit for the role, while ignoring possible red flags. Meanwhile, during Candidate A's interview, you gloss over answers that point to them as the better choice, while seizing on any information that could be a bad sign.

Confirmation bias causes us to seek out information that supports our existing views. But it also encourages us to interpret information in a way that proves we're right. Thanks to confirmation bias, two people with different beliefs could draw different conclusions from the same set of statistics. 

To outsmart your confirmation bias, seek out people and information sources that challenge your opinions, even if you're already sure that "all the evidence" supports what you want to do. You might be surprised that things aren't so cut and dried.

Availability heuristic

The availability heuristic leads us to make decisions based on how easily something comes to mind. For example, if your friend just went through a long flight delay with an airline, the availability heuristic could cause you to avoid that airline for your upcoming business trip – even though it actually has a better on-time record than the carrier you ultimately choose. Because you can quickly recall your friend's experience, you overestimate how likely future flight delays are with that airline.

The availability heuristic can really trip us up because our thoughts feel like reality. But you will make better decisions when you can pause, second-guess yourself, and see if there really is information that supports your perceptions.

Survivorship bias

The survivorship bias causes us to make decisions based only on examples of success – all while assuming that we have the full story.

A common example of the survivorship bias is using other organizations' success stories to decide what your organization should do. Sure, Company A may have succeeded wildly by using a particular strategy, and everyone is singing their praises. But what we hear less about is that Companies B, C and D used the same strategy and now they're out of business.

To avoid survivorship bias, train yourself to be more skeptical. Before making a decision based on success stories, ask yourself whether those stories are taking only the "survivors" into account .

Confirmation bias causes us to seek out information that supports our existing views.

Anchoring bias

Anchoring bias causes us to use an initial piece of information to make subsequent judgments. For example, the initial price offer sets the course in a negotiation . But even being exposed to an arbitrary and random cognitive anchor can affect your choice. In one study , participants spun a roulette-style wheel and then were asked to guess the percentage of U.N. countries that are in Africa. Those who got a high number on their spin guessed higher percentages.

The anchoring bias is another good reason to slow down your decision-making process when possible. By being aware of how vulnerable humans are to this bias, you have a better chance of recognizing when you need additional information.

Halo Effect

We all know the power of first impressions, but we often overlook just how powerful they can be. We think we're hiring a contractor because he's intelligent and organized. However, we might just be assuming all of that because he's tall or has a firm handshake.

That's the halo effect in action. It works in reverse, too. If someone spills wine on you at a networking event, you're probably going to put less stock in the opinions they share later.

Stay vigilant to your brain's efforts to save labor with the halo effect. When you're making a decision, ask yourself whether you are basing it on a first impression. What additional evidence do you have for believing or doubting that impression?

Need more decision-making tools?

Before we wrap up, we want to leave you with a few more resources that can help you make decisions with others.

  • We love using the DACI framework for creating urgency and accountability with group decisions, no matter which decision-making model you're using.
  • If you find that your group decision-making is getting off track, we've got some tips for getting things moving again .
  • You can also use Confluence's decision template to improve communication around decision-making with your team.

You may also like

Daci: decision documentation template.

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8 Steps in the Decision-Making Process

Business team meeting to discuss an important decision

  • 04 Feb 2020

Strong decision-making skills are essential for newly appointed and seasoned managers alike. The ability to navigate complex challenges and develop a plan can not only lead to more effective team management but drive key organizational change initiatives and objectives.

Despite decision-making’s importance in business, a recent survey by McKinsey shows that just 20 percent of professionals believe their organizations excel at it. Survey respondents noted that, on average, they spend 37 percent of their time making decisions, but more than half of it’s used ineffectively.

For managers, it’s critical to ensure effective decisions are made for their organizations’ success. Every managerial decision must be accompanied by research and data , collaboration, and alternative solutions.

Few managers, however, reap the benefits of making more thoughtful choices due to undeveloped decision-making models.

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Why Is Making Decisions Important?

According to Harvard Business School Professor Leonard Schlesinger, who’s featured in the online course Management Essentials , most managers view decision-making as a single event, rather than a process. This can lead to managers overestimating their abilities to influence outcomes and closing themselves off from alternative perspectives and diverse ways of thinking.

“The reality is, it’s very rare to find a single point in time where ‘a decision of significance’ is made and things go forward from there,” Schlesinger says. “Embedded in this work is the notion that what we’re really talking about is a process. The role of the manager in managing that process is actually quite straightforward, yet, at the same time, extraordinarily complex.”

If you want to further your business knowledge and be more effective in your role, it’s critical to become a strong decision-maker. Here are eight steps in the decision-making process you can employ to become a better manager and have greater influence in your organization.

Steps in the Decision-Making Process

1. frame the decision.

Pinpointing the issue is the first step to initiating the decision-making process. Ensure the problem is carefully analyzed, clearly defined, and everyone involved in the outcome agrees on what needs to be solved. This process will give your team peace of mind that each key decision is based on extensive research and collaboration.

Schlesinger says this initial action can be challenging for managers because an ill-formed question can result in a process that produces the wrong decision.

“The real issue for a manager at the start is to make sure they are actively working to shape the question they’re trying to address and the decision they’re trying to have made,” Schlesinger says. “That’s not a trivial task.”

2. Structure Your Team

Managers must assemble the right people to navigate the decision-making process.

“The issue of who’s going to be involved in helping you to make that decision is one of the most central issues you face,” Schlesinger says. “The primary issue being the membership of the collection of individuals or group that you’re bringing together to make that decision.”

As you build your team, Schlesinger advises mapping the technical, political, and cultural underpinnings of the decision that needs to be made and gathering colleagues with an array of skills and experience levels to help you make an informed decision. .

“You want some newcomers who are going to provide a different point of view and perspective on the issue you’re dealing with,” he says. “At the same time, you want people who have profound knowledge and deep experience with the problem.”

It’s key to assign decision tasks to colleagues and invite perspectives that uncover blindspots or roadblocks. Schlesinger notes that attempting to arrive at the “right answer” without a team that will ultimately support and execute it is a “recipe for failure.”

3. Consider the Timeframe

This act of mapping the issue’s intricacies should involve taking the decision’s urgency into account. Business problems with significant implications sometimes allow for lengthier decision-making processes, whereas other challenges call for more accelerated timelines.

“As a manager, you need to shape the decision-making process in terms of both of those dimensions: The criticality of what it is you’re trying to decide and, more importantly, how quickly it needs to get decided given the urgency,” Schlesinger says. “The final question is, how much time you’re going to provide yourself and the group to invest in both problem diagnosis and decisions.”

4. Establish Your Approach

In the early stages of the decision-making process, it’s critical to set ground rules and assign roles to team members. Doing so can help ensure everyone understands how they contribute to problem-solving and agrees on how a solution will be reached.

“It’s really important to get clarity upfront around the roles people are going to play and the ways in which decisions are going to get made,” Schlesinger says. “Often, managers leave that to chance, so people self-assign themselves to roles in ways that you don’t necessarily want, and the decision-making process defers to consensus, which is likely to lead to a lower evaluation of the problem and a less creative solution.”

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5. Encourage Discussion and Debate

One of the issues of leading a group that defaults to consensus is that it can shut out contrarian points of view and deter inventive problem-solving. Because of this potential pitfall, Schlesinger notes, you should designate roles that focus on poking holes in arguments and fostering debate.

“What we’re talking about is establishing a process of devil’s advocacy, either in an individual or a subgroup role,” he says. “That’s much more likely to lead to a deeper critical evaluation and generate a substantial number of alternatives.”

Schlesinger adds that this action can take time and potentially disrupt group harmony, so it’s vital for managers to guide the inner workings of the process from the outset to ensure effective collaboration and guarantee more quality decisions will be made.

“What we need to do is establish norms in the group that enable us to be open to a broader array of data and decision-making processes,” he says. “If that doesn’t happen upfront, but in the process without a conversation, it’s generally a source of consternation and some measure of frustration.”

Related: 3 Group Decision-Making Techniques for Success

6. Navigate Group Dynamics

In addition to creating a dynamic in which candor and debate are encouraged, there are other challenges you need to navigate as you manage your team throughout the decision-making process.

One is ensuring the size of the group is appropriate for the problem and allows for an efficient workflow.

“In getting all the people together that have relevant data and represent various political and cultural constituencies, each incremental member adds to the complexity of the decision-making process and the amount of time it takes to get a decision made and implemented,” Schlesinger says.

Another task, he notes, is identifying which parts of the process can be completed without face-to-face interaction.

“There’s no question that pieces of the decision-making process can be deferred to paper, email, or some app,” Schlesinger says. “But, at the end of the day, given that so much of decision-making requires high-quality human interaction, you need to defer some part of the process for ill-structured and difficult tasks to a face-to-face meeting.”

7. Ensure the Pieces Are in Place for Implementation

Throughout your team’s efforts to arrive at a decision, you must ensure you facilitate a process that encompasses:

  • Shared goals that were presented upfront
  • Alternative options that have been given rigorous thought and fair consideration
  • Sound methods for exploring decisions’ consequences

According to Schlesinger, these components profoundly influence the quality of the solution that’s ultimately identified and the types of decisions that’ll be made in the future.

“In the general manager’s job, the quality of the decision is only one part of the equation,” he says. “All of this is oriented toward trying to make sure that once a decision is made, we have the right groupings and the right support to implement.”

8. Achieve Closure and Alignment

Achieving closure in the decision-making process requires arriving at a solution that sufficiently aligns members of your group and garners enough support to implement it.

As with the other phases of decision-making, clear communication ensures your team understands and commits to the plan.

In a video interview for the online course Management Essentials , Harvard Business School Dean Nitin Nohria says it’s essential to explain the rationale behind the decision to your employees.

“If it’s a decision that you have to make, say, ‘I know there were some of you who thought differently, but let me tell you why we went this way,’” Nohria says. “This is so the people on the other side feel heard and recognize the concerns they raised are things you’ve tried to incorporate into the decision and, as implementation proceeds, if those concerns become real, then they’ll be attended to.”

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How to Improve Your Decision-Making

An in-depth understanding of the decision-making process is vital for all managers. Whether you’re an aspiring manager aiming to move up at your organization or a seasoned executive who wants to boost your job performance, honing your approach to decision-making can improve your managerial skills and equip you with the tools to advance your career.

Do you want to become a more effective decision-maker? Explore Management Essentials —one of our online leadership and management courses —to learn how you can influence the context and environment in which decisions get made.

This article was update on July 15, 2022. It was originally published on February 4, 2020.

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How to Make Great Decisions, Quickly

  • Martin G. Moore

business model decision making

It’s a skill that will set you apart.

As a new leader, learning to make good decisions without hesitation and procrastination is a capability that can set you apart from your peers. While others vacillate on tricky choices, your team could be hitting deadlines and producing the type of results that deliver true value. That’s something that will get you — and them — noticed. Here are a few of a great decision:

  • Great decisions are shaped by consideration of many different viewpoints. This doesn’t mean you should seek out everyone’s opinion. The right people with the relevant expertise need to clearly articulate their views to help you broaden your perspective and make the best choice.
  • Great decisions are made as close as possible to the action. Remember that the most powerful people at your company are rarely on the ground doing the hands-on work. Seek input and guidance from team members who are closest to the action.
  • Great decisions address the root cause, not just the symptoms. Although you may need to urgently address the symptoms, once this is done you should always develop a plan to fix the root cause, or else the problem is likely to repeat itself.
  • Great decisions balance short-term and long-term value. Finding the right balance between short-term and long-term risks and considerations is key to unlocking true value.
  • Great decisions are timely. If you consider all of the elements listed above, then it’s simply a matter of addressing each one with a heightened sense of urgency.

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Like many young leaders, early in my career, I thought a great decision was one that attracted widespread approval. When my colleagues smiled and nodded their collective heads, it reinforced (in my mind, at least) that I was an excellent decision maker.

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  • MM Martin G. Moore is the founder of Your CEO Mentor and author of No Bullsh!t Leadership and host of the No Bullsh!t Leadership podcast. His purpose is to improve the quality of leaders globally through practical, real world leadership content. For more information, please visit, www.martingmoore.com.

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Untangling your organization’s decision making

It’s the best and worst of times for decision makers. Swelling stockpiles of data, advanced analytics, and intelligent algorithms are providing organizations with powerful new inputs and methods for making all manner of decisions. Corporate leaders also are much more aware today than they were 20 years ago of the cognitive biases—anchoring, loss aversion, confirmation bias, and many more—that undermine decision making without our knowing it. Some have already created formal processes —checklists, devil’s advocates, competing analytic teams, and the like—to shake up the debate and create healthier decision-making dynamics.

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Now for the bad news. In many large global companies, growing organizational complexity, anchored in strong product, functional, and regional axes, has clouded accountabilities. That means leaders are less able to delegate decisions cleanly, and the number of decision makers has risen. The reduced cost of communications brought on by the digital age has compounded matters by bringing more people into the flow via email, Slack, and internal knowledge-sharing platforms, without clarifying decision-making authority. The result is too many meetings and email threads with too little high-quality dialogue as executives ricochet between boredom and disengagement, paralysis, and anxiety (Exhibit 1). All this is a recipe for poor decisions: 72 percent of senior-executive respondents to a  McKinsey survey said they thought bad strategic decisions either were about as frequent as good ones or were the prevailing norm in their organization.

The ultimate solution for many organizations looking to untangle their decision making is to become flatter and more agile, with decision authority and accountability going hand in hand. High-flying technology companies such as Google and Spotify are frequently the poster children for this approach, but it has also been adapted by more traditional ones such as ING (for more, see our recent McKinsey Quarterly interview “ ING’s agile transformation ”). As we’ve described elsewhere , agile organization models get decision making into the right hands, are faster in reacting to (or anticipating) shifts in the business environment, and often become magnets for top talent, who prefer working at companies with fewer layers of management and greater empowerment.

As we’ve worked with organizations seeking to become more agile, we’ve found that it’s possible to accelerate the improvement of decision making through the simple steps of categorizing the type of decision that’s being made and tailoring your approach accordingly. In our work, we’ve observed four types of decisions (Exhibit 2):

  • Big-bet decisions. These infrequent and high-risk decisions have the potential to shape the future of the company.
  • Cross-cutting decisions. In these frequent and high-risk decisions, a series of small, interconnected decisions are made by different groups as part of a collaborative, end-to-end decision process.
  • Delegated decisions. These frequent and low-risk decisions are effectively handled by an individual or working team, with limited input from others.
  • Ad hoc decisions. The organization’s infrequent, low-stakes decisions are deliberately ignored in this article, in order to sharpen our focus on the other three areas, where organizational ambiguity is most likely to undermine decision-making effectiveness.

These decision categories often get overlooked, in our experience, because organizational complexity, murky accountabilities, and information overload have conspired to create messy decision-making processes in many companies. In this article, we’ll describe how to vary your decision-making methods according to the circumstances. We’ll also offer some tools that individuals can use to pinpoint problems in the moment and to take corrective action that should improve both the decision in question and, over time, the organization’s decision-making norms.

Before we begin, we should emphasize that even though the examples we describe focus on enterprise-level decisions, the application of this framework will depend on the reader’s perspective and location in the organization. For example, what might be a delegated decision for the enterprise as a whole could be a big-bet decision for an individual business unit. Regardless, any fundamental change in decision-making culture needs to involve the senior leaders in the organization or business unit. The top team will decide what decisions are big bets, where to appoint process leaders for cross-cutting decisions, and to whom to delegate. Senior executives also serve the critical functions of role-modeling a culture of collaboration and of making sure junior leaders take ownership of the delegated decisions.

Bet-the-company decisions—from major acquisitions to game-changing capital investments—are inherently the most risky. Efforts to mitigate the impact of cognitive biases on decision making have, rightly, often focused on big bets. And that’s not the only special attention big bets need. In our experience, steps such as these are invaluable for big bets:

  • Appoint an executive sponsor. Each initiative should have a sponsor, who will work with a project lead to frame the important decisions for senior leaders to weigh in on—starting with a clear, one-sentence problem statement.
  • Break things down, and connect them up. Large, complex decisions often have multiple parts; you should explicitly break them down into bite-size chunks, with decision meetings at each stage. Big bets also frequently have interdependencies with other decisions. To avoid unintended consequences, step back to connect the dots.
  • Deploy a standard decision-making approach. The most important way to get big-bet decisions right is to have the right kind of interaction and discussion, including quality debate, competing scenarios, and devil’s advocates. Critical requirements are to create a clear agenda that focuses on debating the solution (instead of endlessly elaborating the problem), to require robust prework, and to assemble the right people, with diverse perspectives.
  • Move faster without losing commitment. Fast-but-good decision making also requires bringing the available facts to the table and committing to the outcome of the decision. Executives have to get comfortable living with imperfect data and being clear about what “good enough” looks like. Then, once a decision is made, they have to be willing to commit to it and take a gamble, even if they were opposed during the debate. Make sure, at the conclusion of every meeting, that it is clear who will communicate the decision and who owns the actions to begin carrying it out.

An example of a company that does much of this really well is a semiconductor company that believes so much in the importance of getting big bets right that it built a whole management system around decision making. The company never has more than one person accountable for decisions, and it has a standard set of facts that need to be brought into any meeting where a decision is to be made (such as a problem statement, recommendation, net present value, risks, and alternatives). If this information isn’t provided, then a discussion is not even entertained. The CEO leads by example, and to date, the company has a very good track record of investment performance and industry-changing moves.

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It’s also important to develop tracking and feedback mechanisms to judge the success of decisions and, as needed, to course correct for both the decision and the decision-making process. One technique a regional energy provider uses is to create a one-page self-evaluation tool that allows each member of the team to assess how effectively decisions are being made and how well the team is adhering to its norms. Members of key decision-making bodies complete such evaluations at regular intervals (after every fifth or tenth meeting). Decision makers also agree, before leaving a meeting where a decision has been made, how they will track project success, and they set a follow-up date to review progress against expectations.

Big-bet decisions often are easy to recognize, but not always (Exhibit 3). Sometimes a series of decisions that might appear small in isolation represent a big bet when taken as a whole. A global technology company we know missed several opportunities that it could have seized through big-bet investments, because it was making technology-development decisions independently across each of its product lines, which reduced its ability to recognize far-reaching shifts in the industry. The solution can be as simple as a mechanism for periodically categorizing important decisions that are being made across the organization, looking for patterns, and then deciding whether it’s worthwhile to convene a big-bet-style process with executive sponsorship. None of this is possible, though, if companies aren’t in the habit of isolating major bets and paying them special attention.

Cross-cutting decisions

Far more frequent than big-bet decisions are cross-cutting ones—think pricing, sales, and operations planning processes or new-product launches—that demand input from a wide range of constituents. Collaborative efforts such as these are not actually single-point decisions, but instead comprise a series of decisions made over time by different groups as part of an end-to-end process. The challenge is not the decisions themselves but rather the choreography needed to bring multiple parties together to provide the right input, at the right time, without breeding bureaucracy that slows down the process and can diminish the decision quality. This is why the common advice to focus on “who has the decision” (or, “the D”) isn’t the right starting point; you should worry more about where the key points of collaboration and coordination are.

It’s easy to err by having too little or too much choreography. For an example of the former, consider the global pension fund that found itself in a major cash crunch because of uncoordinated decision making and limited transparency across its various business units. A perfect storm erupted when different business units’ decisions simultaneously increased the demand for cash while reducing its supply. In contrast, a specialty-chemicals company experienced the pain of excess choreography when it opened membership on each of its six governance committees to all senior leaders without clarifying the actual decision makers. All participants felt they had a right (and the need) to express an opinion on everything, even where they had little knowledge or expertise. The purpose of the meetings morphed into information sharing and unstructured debate, which stymied productive action (Exhibit 4).

Whichever end of the spectrum a company is on with cross-cutting decisions, the solution is likely to be similar: defining roles and decision rights along each step of the process. That’s what the specialty-chemicals company did. Similarly, the pension fund identified its CFO as the key decision maker in a host of cash-focused decisions, and then it mapped out the decision rights and steps in each of the contributing processes. For most companies seeking enhanced coordination, priorities include:

  • Map out the decision-making process, and then pressure-test it. Identify decisions that involve a cross-cutting group of leaders, and work with the stakeholders of each to agree on what the main steps in the process entail. Lay out a simple, plain-English playbook for the process to define the calendar, cadence, handoffs, and decisions. Too often, companies find themselves building complex process diagrams that are rarely read or used beyond the team that created them. Keep it simple.
  • Run water through the pipes. Then work through a set of real-life scenarios to pressure-test the system in collaboration with the people who will be running the process. We call this process “running water through the pipes,” because the first several times you do it, you will find where the “leaks” are. Then you can improve the process, train people to work within (and, when necessary, around) it, and confront, when the stakes are relatively low, leadership tensions or stresses in organizational dynamics.
  • Establish governance and decision-making bodies. Limit the number of decision-making bodies, and clarify for each its mandate, standing membership, roles (decision makers or critical “informers”), decision-making protocols, key points of collaboration, and standing agenda. Emphasize to the members that committees are not meetings but decision-making bodies, and they can make decisions outside of their standard meeting times. Encourage them to be flexible about when and where they make decisions, and to focus always on accelerating action.
  • Create shared objectives, metrics, and collaboration targets. These will help the persons involved feel responsible not just for their individual contributions in the process, but also for the process’s overall effectiveness. Team members should be encouraged to regularly seek improvements in the underlying process that is giving rise to their decisions.

Getting effective at cross-cutting decision making can be a great way to tackle other organizational problems, such as siloed working (Exhibit 5). Take, for example, a global finance company with a matrix of operations across markets and regions that struggled with cross-business-unit decision making. Product launches often cannibalized the products of other market groups. When the revenue shifts associated with one such decision caught the attention of senior management, company leaders formalized a new council for senior executives to come together and make several types of cross-cutting decisions, which yielded significant benefits.

Delegated decisions

Delegated decisions are far narrower in scope than big-bet decisions or cross-cutting ones. They are frequent and relatively routine elements of day-to-day management, typically in areas such as hiring, marketing, and purchasing. The value at stake for delegated decisions is in the multiplier effect they can have because of the frequency of their occurrence across the organization. Placing the responsibility for these decisions in the hands of those closest to the work typically delivers faster, better, and more efficiently executed decisions, while also enhancing engagement and accountability at all levels of the organization.

In today’s world, there is the added complexity that many decisions (or parts of them) can be “delegated” to smart algorithms enabled by artificial intelligence. Identifying the parts of your decisions that can be entrusted to intelligent machines will speed up decisions and create greater consistency and transparency, but it requires setting clear thresholds for when those systems should escalate to a person, as well as being clear with people about how to leverage the tools effectively.

A case study in combating bias

A case study in combating bias

It’s essential to establish clarity around roles and responsibilities in order to craft a smooth-running system of delegated decision making (Exhibit 6). A renewable-energy company we know took this task seriously when undergoing a major reorganization that streamlined its senior management and drove decisions further down in the organization. The company developed a 30-minute “role card” conversation for each manager to have with his or her direct reports. As part of this conversation, managers explicitly laid out the decision rights and accountability metrics for each direct report. This approach allowed the company’s leaders to decentralize their decision making while also ensuring that accountability and transparency were in place. Such role clarity enables easier navigation, speeds up decision making, and makes it more customer focused. Companies may find it useful to take some of the following steps to reorganize decision-making power and establish transparency in their organization:

  • Delegate more decisions . To start delegating decisions today, make a list of the top 20 regularly occurring decisions. Take the first decision and ask three questions: (1) Is this a reversible decision? (2) Does one of my direct reports have the capability to make this decision? (3) Can I hold that person accountable for making the decision? If the answer to these questions is yes, then delegate the decision. Continue down your list of decisions until you are only making decisions for which there is one shot to get it right and you alone possess the capabilities or accountability. The role-modeling of senior leaders is invaluable, but they may be reluctant. Reassure them (and yourself) by creating transparency through good performance dashboards, scorecards, and key performance indicators (KPIs), and by linking metrics back to individual performance reviews.
  • Avoid overlap of decision rights. Doubling up decision responsibility across management levels or dimensions of the reporting matrix only leads to confusion and stalemates. Employees perform better when they have explicit authority and receive the necessary training to tackle problems on their own. Although it may feel awkward, leaders should be explicit with their teams about when decisions are being fully delegated and when the leaders want input but need to maintain final decision rights.
  • Establish a clear escalation path. Set thresholds for decisions that require approval (for example, spending above a certain amount), and lay out a specific protocol for the rare occasion when a decision must be kicked up the ladder. This helps mitigate risk and keeps things moving briskly.
  • Don’t let people abdicate. One of the key challenges in delegating decisions is actually getting people to take ownership of the decisions. People will often succumb to escalating decisions to avoid personal risk; leaders need to play a strong role in encouraging personal ownership, even (and especially) when a bad call is made.

This last point deserves elaboration: although greater efficiency comes with delegated decision making, companies can never completely eliminate mistakes, and it’s inevitable that a decision here or there will end badly. What executives must avoid in this situation is succumbing to the temptation to yank back control (Exhibit 7). One CEO at a Fortune 100 company learned this lesson the hard way. For many years, her company had worked under a decentralized decision-making framework where business-unit leaders could sign off on many large and small deals, including M&A. Financial underperformance and the looming risk of going out of business during a severe market downturn led the CEO to pull back control and centralize virtually all decision making. The result was better cost control at the expense of swift decision making. After several big M&A deals came and went because the organization was too slow to act, the CEO decided she had to decentralize decisions again. This time, she reinforced the decentralized system with greater leadership accountability and transparency.

Instead of pulling back decision power after a slipup, hold people accountable for the decision, and coach them to avoid repeating the misstep. Similarly, in all but the rarest of cases, leaders should resist weighing in on a decision kicked up to them during a logjam. From the start, senior leaders should collectively agree on escalation protocols and stick with them to create consistency throughout the organization. This means, when necessary, that leaders must vigilantly reinforce the structure by sending decisions back with clear guidance on where the leader expects the decision to be made and by whom. If signs of congestion or dysfunction appear, leaders should reexamine the decision-making structure to make sure alignment, processes, and accountability are optimally arranged.

None of this is rocket science. Indeed, the first decision-making step Peter Drucker advanced in “ The effective decision ,” a 1967 Harvard Business Review article, was “classifying the problem.” Yet we’re struck, again and again, by how few large organizations have simple systems in place to make sure decisions are categorized so that they can be made by the right people in the right way at the right time. Interestingly, Drucker’s classification system focused on how generic or exceptional the problem was, as opposed to questions about the decision’s magnitude, potential for delegation, or cross-cutting nature. That’s not because Drucker was blind to these issues; in other writing, he strongly advocated decentralizing and delegating decision making to the degree possible. We’d argue, though, that today’s organizational complexity and rapid-fire digital communications have created considerably more ambiguity about decision-making authority than was prevalent 50 years ago. Organizations haven’t kept up. That’s why the path to better decision making need not be long and complicated. It’s simply a matter of untangling the crossed web of accountability, one decision at a time.

Aaron De Smet  is a senior partner in McKinsey’s Houston office, Gerald Lackey is an expert in the Washington, DC, office, and Leigh Weiss is a senior expert in the Boston office.

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Breaking down the 5 decision-making models

Decisions, decisions, decisions: 5 decision-making models.

Making effective decisions is a critical leadership quality . However, settling on the best course of action is often easier said than done. When instinct and reasoning alone aren't enough to pinpoint the best decision out of your available options, it can often be helpful to utilize a decision-making model.

A decision-making model works by walking you through the decision-making process — and there are several such models available for you to choose from.

To help you improve your problem-solving abilities and make better decisions, let's take a look at five proven decision-making models and when you should use them.

Defining decision-making models

Decision-making models are frameworks designed to help you analyze possible solutions to a problem so that you can make the best possible decision. Because different decision-making models take different approaches to this goal, it's important to match the model with your unique situation and leadership style.

Given that only 20% of team members say that their organization excels at decision-making, most organizations and team leaders have a lot of room to improve in this area. If you want to improve your decision-making approach, mastering the five decision-making models is a great place to start.

The 5 main decision-making models

There are five main decision-making models designed to help leaders analyze relevant information and make optimal decisions.

Once again, each of these models takes a unique approach to decision-making, so it is important to choose the model that will work best for you and your unique situation. With that said, let's take an in-depth look at each model and the situations where each one is most applicable.

1) Rational decision-making model

The rational decision-making model involves identifying the criteria that will have the biggest impact on your decision's outcome and then evaluating possible alternatives against those criteria. The steps of the rational decision-making model are:

  • Step #1) Define the problem: You'll want to start by identifying the issue you are trying to solve or the goal you are trying to achieve with your decision.
  • Step #2) Define criteria: The next step is to define the criteria you are looking for in your decision. For instance, if you are deciding on a new car, you might be looking for criteria such as space, fuel efficiency, and safety.
  • Step #3) Weight your criteria: If all of the criteria you define are equally important to you, then you can skip this step. If some factors are more important, you will want to assign a numerical value to your criteria based on how important each factor is.
  • Step #4) Generate alternatives: Having defined and weighted the criteria you are looking for, it's time to brainstorm ideas and develop a few alternatives that meet your criteria.
  • Step #5) Evaluate your alternatives: For each possible solution you come up with, you should evaluate it against your criteria, giving extra consideration to the criteria you weighted more heavily.
  • Step #6) Choose the best alternative: After evaluating all possible alternatives, select the option that best matches your weighted criteria.
  • Step #7) Implement the decision: The next to last step in the rational decision-making model is simply putting your decision into practice.
  • Step #8) Evaluate your results: It's essential to evaluate your results anytime you make a decision. Looking at your decision from a retrospective point of view can help you decide if you should use the same decision-making process in the future.

When to use this model

The rational decision-making model is best employed when you have numerous options to consider and plenty of time to evaluate them. One example of a scenario where this model might prove useful is choosing a new hire from a pool of candidates.

2) Bounded rationality decision-making model

Sometimes, taking action quickly and choosing a "good enough" option is better than getting bogged down in searching for the best possible solution. The bounded rationality decision-making model dictates that you should limit your options to a manageable set and then choose the first option that meets your criteria rather than conducting an exhaustive analysis of each one. Going with the first option that meets your minimum threshold of requirements is a process known as "satisficing." While this may not be the best process for every decision, a willingness to satisfice can prove valuable when time constraints limit you.

The bounded rationality decision-making model is best employed when time is of the essence. It's the best model to use when inaction is more costly than not making the best decision. For example, suppose your company has encountered an issue causing extended downtime. In that case, you may want to use the bounded rationality decision-making model to quickly identify the first acceptable solution since every minute wasted is costly.

3) Vroom-Yetton decision-making model

The Vroom-Yetton decision-making model presents seven "yes or no" questions for a decision-maker to answer followed by five decision-making styles for them to choose from. It's the most complex decision-making model on our list, requiring decision-makers to utilize a decision tree to arrive at the right decision-making style based on their answers to the model's questions.

Check out this helpful resource for a complete breakdown of the Vroom-Yetton decision-making model and a copy of the decision tree template you will need to use.

The Vroom-Yetton decision-making model was specifically designed for collaborative decision-making and is best employed when you involve multiple team members in the decision-making process. In fact, one of the main objectives of this model is to determine how much weight should be given to the input from a leader's subordinates.

4) Intuitive decision-making model

Have you ever heard that it's often best to go with your gut? While making decisions based only on instinct may not seem like the best idea to those who prefer a more careful and logical approach, there are plenty of instances where going with your gut is the best way forward.

For example, if you don't have much information to consider, instinct may be the only tool for finding the best solution that you have available. Likewise, trusting your instinct can often yield the best results in cases where you are already deeply experienced with the matter at hand since nothing hones instinct better than experience.

The intuitive decision-making model probably shouldn't be the first model you turn to when you need to make a decision, but there are instances where it can be useful. We've mentioned a couple already, including cases where there isn't enough information for you to make a more informed decision and instances where your own experience is more reliable than the available information.

The intuitive decision-making model can also be useful in cases where you don't have a lot of time and need to make a decision quickly.

5) The recognition primed model

The recognition primed model is similar to the intuitive decision-making model in that it relies heavily on the decision-maker's experience and instinct. However, the recognition primed model is a little more structured than intuitive decision-making and includes the following steps:

  • Step #1) Analyze available information to identify possible solutions: The first step in the recognition primed model is to brainstorm possible solutions based on your available information.
  • Step #2) Run scenarios through your head: For each possible solution, run the scenario through your head and see how it plays out.
  • Step #3) Make a decision: The recognition primed model dictates that the solution that leads to the best possible outcome when you visualize it in your mind is the solution that you should choose.

Like the intuitive decision-making model, the recognition primed model works best in instances where:

  • You don't have a lot of information available.
  • You trust your instinct and experience.
  • Time constraints are a factor.

With that said, using this model effectively does require a certain degree of creativity and imagination since you will have to visualize the outcome of each possible solution.

A note on decision-making biases

Anytime you are faced with an important decision, it is essential not to let biases get in your way. Biases might be rooted in prior experiences, but that doesn't inherently mean that they are grounded in facts. In many cases, avoiding biases is also key to making an ethical decision since biases can sometimes cause you to mistreat certain people and their ideas.

Understanding the different biases

Preventing biases from getting in the way of your decision-making skills starts with identifying the types of biases you need to be aware of, including:

  • Confirmation bias: Confirmation bias entails favoring or focusing on information that confirms your pre-existing beliefs and ignoring information that runs counter to those beliefs. While it's important to trust your own experience and beliefs, you don't want to subconsciously favor information just because it aligns with what you already believe to be true.
  • Availability bias: Information that is easily accessible in your memory often gets undue weight, and this is known as availability bias. One example of availability bias is overestimating the likelihood of an event just because you can remember a similar event happening to you in the past.
  • Survivorship bias: Survivorship bias entails focusing only on the solutions that have generated success in the past. While it's important to consider past results, ignoring possible solutions just because they are unproven will place unnecessary constraints on your decision-making process.
  • Anchoring bias: Anchoring bias is the tendency to "anchor" yourself to the first piece of information you learn. Information should not get extra weight just because you have known about it for longer, and new information can be equally important to consider.
  • Halo effect: The halo effect occurs when positive experiences with or impressions of one aspect of a possible solution cause you to view the entire solution positively. Rather than being blinded by the positives, seek out and consider the negatives as well.

Define your decision-making process with Range

A lot goes into making good decisions, and the decision-making models we've covered in this article can serve as excellent tools for helping you find the best possible solution to any challenge.

No matter which model you go with, communication, collaboration, and organization are key to making good decisions.

With Range, leaders and team members alike are able to effortlessly organize their ideas, communicate back and forth, share important information, and make collaborative decisions. If you want to get started using powerful team management software to organize your decision-making process, sign up for Range today.

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LOGO ANALYTICS FOR DECISIONS

The Decision-Making Model Explained (In Plain Terms)

Any form of the systematic decision-making process is better enhanced with data . But making sense of big data or even small data analysis when venturing into a decision-making process might be easier said than done. With so many decision-making models at our disposal, certain circumstances deem specific models more appropriate. What is the decision-making model in the first place, and which should we apply to our situation?

The decision-making model is a process utilized to achieve a reasonable outcome when facing a choice. There are multiple types of decision-making models, and each is suited best for a specific scenario.

Let’s take a look at a basic decision-making process and some of the most well-known decision-making models to best resolve which model suits each scenario for the best results. We’ll start by looking at a rudimentary decision-making process that finds application in multiple industries and scenarios.

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A Basic Decision-Making Process

The decision-making process begins when you understand there is a choice to be made and ends with making that choice. Upon completion, a new cycle of review or acceptance may occur to follow the decision-making process, but the truth is that once that decision is chosen, the process ends. For this reason, we’ve made some inferences based upon the standard accepted model.

This basic decision-making process is based on a 7 step process identified by the  University of Massachusetts  and other institutions. However, we’ve innovated it to suit a more direct decision-making agenda. Let’s take a look at this original research:

  • Identify The Decision or Choice
  • Gather Historical Data
  • Gather Recent Data
  • Weigh All Evidence
  • Identify Alternatives
  • Review Implications of Alternatives
  • Make An Informed Decision

Decision-Making Model

A Brief Description of Each Decision-Making Process Stage

Understanding each of our decision-making processes’ necessary steps ensures that you’re on the right track and won’t stray too far from an efficient process. As mentioned, this process is based on a process taught in universities across the United States. The necessary innovations have been made to identify the more classically based description with a more modern approach to decision making and its related processes.

●     Identify The Decision or Choice

The first requirement to any decision-making model is to identify the decision that requires investigation. Try looking at the decision from multiple perspectives. Understand how this decision can be interpreted, and you’re partway to having an informed choice.

The identification stage of decision-making typically finds tremendous success when a group is involved. Often when a single decision-maker is faced with decision identification, there is a much greater chance for overall misunderstanding. Due to this inherent danger, it becomes clear that a group or team is beneficial for the proper identification and understanding of the initial decision and its subject matter.

●      Gather Historical Data

Any decision must be investigated and studied if an informed choice is to be the outcome. The investigation and research must begin with the oldest available information first. It builds a history of data, allowing for a much greater understanding of relevant information’s historical significance. 

●      Gather Recent Data

●     weigh all evidence.

Gathering information is one thing, organizing it is another, and understanding it is something else altogether. But once you’ve gathered and organized all of your data, you need to make sense of it. It is the stage where weighing the evidence is vital to proceeding through the decision-making process. Due to the impact this particular stage has upon the decision-making model, this stage is often the one where the most time is spent. It is the data interpretation stage.

Similar to our first stage of decision identification, weighing a collective of evidence is best accomplished by a group instead of an individual. It is this stage that finds visual data presentation beneficial in the data’s interpretation.

To more easily assess your decision validity, please use one or a combination of the types of analytics shared in this article .

●     Identify Alternatives

With all the evidence gathered, one must next identify all possible decisions. That is to say, and one must identify the choices the decision is presenting. From those seemingly not acceptable to those that appear at face value to be the best solution, this stage intends to characterize all possible alternatives. If, for nothing else, to eliminate the choices one-by-one to find an acceptable outcome.

Much like a doctor weighs their choices when discussing treatment options with a patient, you too must identify the possible choices your decision-making has available to you.

●     Review Implications of Alternatives

Like the  Southern New Hampshire University , many universities tend to include taking action and reviewing the results as integral parts of the decision-making process. Although this may be true for many situations, it stands to reason that reviewing possible implications of decision alternatives makes sense to attempt before choice execution. How can reviewing a choice (after the fact) be a part of the initial process?

And without further to-do, we introduce the next stage in the basic decision-making model to prevent a choice that ends in an unsuitable outcome. Let’s try to review any possible implications of the alternatives before execution. It allows a more conservative and lower-risk approach to the classical decision-making model.

●     Make An Informed Decision

The final and obvious stage of the primary decision-making model is the final informed choice making. After careful analysis and consideration, it is the decision that stands the test of time and proves worthy of selection.

13 Reasons Why Data is Important in Decision-Making

This multi-step basic process of decision-making is but a straightforward model of many available models and processes. Now let’s review some of the most commonly applied decision-making models to gain an even greater understanding of the decision-making process.

The next point of discussion is the 5 decision-making models, how they work, group vs. singular decision-making, and some additional insights. But, before digging into that, let me add below some of the top related and interesting articles that can add to what you’re learning from this one. If any of the titles picks your interest, please click and open in a new tab, so you can check them out later. Enjoy!

The Role of Data Analytics at The Senior Management Level

The Role of Data Analytics at The Senior Management Level

From small and medium-sized businesses to Fortune 500 conglomerates, the success of a modern business is now increasingly tied to how the company implements its data infrastructure and data-based decision-making. According

The Decision-Making Model Explained (In Plain Terms)

Any form of the systematic decision-making process is better enhanced with data. But making sense of big data or even small data analysis when venturing into a decision-making process might

13 Reasons Why Data Is Important in Decision Making

13 Reasons Why Data Is Important in Decision Making

Data is important in decision making process, and that is the new golden rule in the business world. Businesses are always trying to find the balance of cutting costs while

5 Perspective Decision-Making Models

According to  Wikipedia , there are five basic decision-making model types:

Economic Rationality Model

Social model, simon’s bounded rationality model, neurocognitive model, incrementalism model.

This model is assumptive. The assumptions are as follows.

  • The decision rationality depends on the end justifying the means.
  • A complete and consistent system exists for a final choice available amongst alternatives.
  • Probability calculations are used without fear or judgment.
  • No limits are placed on computational analysis for the determination of the most suitable alternative.

The model for social determination of decision-making leans heavily on the emotional state of the decision-maker. This model’s basis is the idea that people are inherently a collection of emotions and instincts and that both of these drive us subconsciously to make most of our decisions.

Herbert Simon developed an innovative approach to the classical economic rationality model of decision making. In Herbert’s interpretation, the approach was based on modern business management practices and a very corporate decision-making approach. Here are the essential points:

  • A manager gravitates toward a satisfactory result. Not a liability-based, but a profit-oriented, ‘good enough’ mentality is utilized.
  • The manager recognizes that their perception of the world is simplified. They know they exist within a microcosm of reality.
  • The manager may rush to a conclusion by selecting only the acceptable choice rather than maximizing the possible outcome with a review of all alternative scenarios.
  • Choices selected by the manager are completed with the understanding that reality is void, and thus a simple rule may find application to the decision-making process. This willful lack of more in-depth analysis is a reflection of the void with which we all exist.

The techniques and general ‘feel’ of Simon’s model are somewhat dark, and it wouldn’t be wrong to make this assumption. However, the model allows for much faster decision-making and less strain upon those who make decisions. It is, perhaps, a ‘quick cheat’ sort of philosophy to decision-making.

The neurocognitive model describes the brain’s ability to evaluate multiple possibilities and determine the best solution. The model is focused on the cognitive process-oriented interpretation of the human brain’s ability to understand itself fundamentally, nature, and the decisions it makes.

Perhaps, the neurocognitive model is a more general model referring to a view from a neuroscience perspective. This observance maintains that subsequent models that fit within the neurocognitive model’s criteria yet stand independently from it as individual perspective models. 

Take the recognition-primed decision model of rapid decision making.  Gary A. Klein  explains, in his interpretation of the classical model of decision making, how traditional models don’t take into account operational settings found in current scenarios.

The concept behind a recognition-oriented decision-making model is that a person or, I suppose, an AI could use the recognition patterns of memory to ascertain the best possible choice. If combined with an incrementalist methodology, a potentially conservative yet effective model begins to present itself.

The simplicity of the incremental model of decision-making is in the form it takes. What the incremental model does is break down the decision-making process into further smaller steps. Each of these steps maintains three primary stages: identification, development, and selection. ( source )

Is Singular Decision-Making More Or Less Effective That Group Decision Making

There is often debate as to the effectiveness of a single person deciding on a group of people.  One could argue that a decision based solely on a singular person’s perspective is placing more responsibility upon an individual when a group should make the decision best. However, the outcome’s weight often defines our interpretation of whether or not an individual should be singularly burdened with such an endeavor.

Depending on the weight of the decision’s outcome and the individual’s or individual’s knowledge of the subject matter, a single person or group may deem the subject’s best decision-maker.

Decision-Making Model

When it comes to computer data analysis, you can apply the same thought process, but it depends on the task’s physical requirements. For example, blockchain technology works best with multiples computers chained together in a symbolic matrix of decision making. Is a program, after all, not a programmed decision? The parameters and pathway are laid out for the application to follow, much like a decision-making model is laid out for a person or group to make an informed decision. 

Want to watch a great video on decision-making? Take a look at this  video from TEDx Talks about three steps to better decision making with Matthew Confer .

When group decision-making is applied to management or business, the fundamental differences between individual decision-makers and the group are apparent. Again determined by the individual situation, groups offer to do away with a singular person’s possible misdirection. However, an individual may deem a more cost-effective decision-maker due to a group’s potential for disagreement. For these reasons, each individual decision must adhere to a specific set of criteria to determine whether a singular or group mentality is the best decision-making process.

Furthermore, any group decision-making process must include each individual of the group, and these individuals must understand the group’s fundamental methodologies.

One will inevitably determine a single decision maker’s overall effectiveness versus a group of decision-makers on a case-by-case basis. For general purposes, one cannot be systematically removed from contending with the other.

Further Methodologies For The Decision Making Process

Group decision making using an additive consistency model.

In this model typically employed by group decision-makers, expert information or data is added only in its relative fundamental case. Take a decision requiring scientific knowledge. For example, an environmental assessment requirement to rezoning land for a specific type of manufacturing. In this example, individual scientists contributing data to the decision-making model’s research data collection phase may not have all the answers about the example environmental impacts of the decision. With this possibility, the scientist would only contribute relevant data they know to be accurate and not data that could be speculation. In this sense, the only data or relevant information entered into the decision-making process is consistent with known facts and lacks speculative inconsistencies.

Adaptive (Humble) Decision Making Model

The issue with classical decision-making models is that the idea was for the decision-maker to have comprehensive knowledge about a particular subject. In our modern civilization, we are faced with information overload. It would be nearly impossible for an average human to glean enough knowledge in a subject to be a master of the knowledge of that subject’s grand design.

Similarly, if a person embraces an incrementalist methodology to decision-making, that person may lose the perspective of the subject’s overall perspective. When we focus too intensely on a particular tree, we may lose sight of the forest, metaphorically speaking.

The adaptive decision-making model bridges the gap between a purely microcosmic and macroscopic view. This relatively new form of decision-making is, in truth, another rendition of a classical decision-making model formerly used by doctors. ( source )

The adaptive strategy concept is to take a broad approach and then whittle it down to a selective goal. In the doctor’s case, this may have played out by a doctor saying, ‘Okay your symptoms look like X so we will test for X to rule it out. If that isn’t it, we will test for Y.’ This general approach uses available data to point in the right direction and specialized data to hone down the results. 

3 Tips For Decision Making For All Models

Any person who acts as a decision-maker is faced with a variety of unusual and common decision-making scenarios. From a parent to a data analyst, the decisions we make and face every day contribute to our overall success, whether deciding which school is best or analyzing some big data for a company.

When in decision-making roles that affect others (from your kids to staff at work), utilizing standard practices for your decision-making process is critical to success. Here are a few tips from the  Harvard Business School  that can help anyone from managerial roles to make decisions.

  • Frame the issue at hand for ensuring the right questions are asked.
  • Involve your team to help with the aid of multiple points of view.
  • Foster collaboration within your team.

These three steps each come with their tip. For framing the issue at hand, you need to control the perspective views taken by your team. Their views regarding the overall subject matter of the decision-making process influence their ideas and contributions to solving the decision and making a final choice.

Involving a team has its benefits. First, it keeps the leader from isolation. Second, it allows for other perspectives and ideas contribution. And third, the group can help by providing multiple points of view that may prove invaluable to solving a specific problem. Two heads are better than one.

To achieve the highest level of success with your team, you want to foster a sense of collaboration from the beginning of the decision-making process. In doing so, you ensure that the entire group is contributing members to the best of their ability and that the group’s effectiveness is unsurpassed overall.

Highly Recommended Article: This is How Data Science Improves Business Efficiency   

We’ve defined what a decision-making process is. We have discussed the basics of a fundamental decision-making process. And by now, you ought to find yourself well-armed with knowledge of the significant types of decision-making models that we have at our disposal. The real decision now is how best to implement these models into your daily life and work.

  • Featured image by  Gerd Altmann  from  Pixabay
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Emidio Amadebai

As an IT Engineer, who is passionate about learning and sharing. I have worked and learned quite a bit from Data Engineers, Data Analysts, Business Analysts, and Key Decision Makers almost for the past 5 years. Interested in learning more about Data Science and How to leverage it for better decision-making in my business and hopefully help you do the same in yours.

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business model decision making

business model decision making

13 Decision Making Techniques and Tools for Business

Updated on: 5 January 2023

In life, we make decisions everyday. And in the context of running a business, decision-making gets even more serious in nature, as the resulting outcome would affect a whole organization, its performance, its direction or its employees.

Following are visual decision making techniques that you can use during different stages of decision-making. Each technique is provided with an editable template that you can click and customize online during your decision making process.

Decision Making Steps and Decision Making Techniques

The decision-making process helps business managers find solutions to problems by exploring the different options available and selecting the best alternative out of them.

These decision-making techniques will help you accelerate the process by simplifying each step of the decision-making process.

Explore the Situation and Gather Information

Before you make a decision, you need to examine the situation or the issue that requires you to make a decision in the first place. See who is affected, what caused it, and how you should approach it.

Stakeholder Analysis

Using a stakeholder analysis you can see who you should involve in the decision-making process.

You might have to rely on other stakeholders for their input in making the decision, in which case it’s better to conduct a stakeholder analysis to identify who you should get help from.

Stakeholder Analysis Template

Vroom-Yetton Jago Decision Model

The Vroom-Yetton Jago decision-making model is another tool you can use to determine whether you should involve others in the decision-making process or you should do it alone.

There are situations where the leader is required to be the sole decision-maker while in some situations the involvement of the groups is necessary.

The Vroom-Yetton Jago model helps identify the best management style you need to use during various situations. Learn how you can apply the model in your decision-making process here .

Vroom-Yetton Jago Decision Model

Root Cause Analysis

Now you know who to involve in the decision-making, it’s time to understand the situation you are dealing with. Two tools that can help you with this are the fishbone diagram and the 5 whys analysis.

Both of these tools help in getting to the origin of an issue and finding the root cause of things.

  • Fishbone diagram or the cause and effect diagram is great with helping you isolate the root cause of a problem. Here’s how you can use this tool to solve business problems .   

Fishbone Diagram

  • 5 Whys Analysis helps you narrow down the information you have gathered and find the last few causes of your problem by asking ‘why’ 5 times.

5 Whys Analysis Template

Find Effective Alternatives

Once you have an idea about the situation or the issue, it is easier to generate alternative approaches to finding a solution. You can use the following decision-making tools to explore your options individually or in groups.  

Mind map is a powerful tool that helps you capture thoughts in your head or ideas thrown around during a group brainstorming session. You can also use it to categorize your options and further examine them by analyzing different related elements.

Decision Making Mind Map

Six Thinking Hats

Six thinking hats is another useful technique that provides direction to decision-making and group thinking.

It helps look at the situation you are analyzing from a range of perspectives and find alternative solutions from everyone involved.

Here’s how to use the six thinking hats technique .

Six Thinking Hats Diagram

Reframing Matrix

The reframing matrix is another tool that helps you look at business problems from a number of viewpoints.

It takes into consideration the different perspectives of several people with different experiences. This allows generating multiple creative solutions for the problem at hand.

You can use the 4 Ps approach when using the reframing matrix. When brainstorming solutions, look at the problem from these perspectives,

  • Product perspective: Is there anything wrong with your product or service? With its quality or the estimated price? Does it fulfill the needs of the customers?
  • Planning perspective: Is there anything wrong with your product plans, sales plans or marketing plans?
  • People Perspective: Who are the people affected by the problem? What do they think?
  • Potential Perspective: How can you increase the potential sales and marketing results? How can you boost productivity?  

Reframing Matrix

Affinity Diagrams

Now that you have gathered a lot of information about the situation, you can use an affinity diagram to organize them into categories.

By doing so you and your team can quickly identify patterns or themes that will help analyze the situation easily.

Affinity Diagram Example

Analyze Your Options

Now that you have come up with a number of different alternatives, it’s time to evaluate the desirability and the feasibility of the different options along with the risks that might be involved.

This is a simple tool that you can use to evaluate the pluses, minuses and implications or the Interesting things involved with your options. By comparing these aspects of each alternative option, you can decide which one is the best.

PMI Chart - decision making techniques

Risk Analysis

Most decisions you have to take involve risks, that’s why you need to assess the risks involved with them before you go ahead. This way you can take precautions.

Check out our post on Risk Management Techniques to get an idea about the types of tools you can use to evaluate the risks associated with your decisions.  

Force Field Analysis

Force field analysis is another powerful decision-making technique that helps identify and analyze the forces for and against change or the implementation of a proposed solution.

Check out our article on Change Management Tools to learn how to use the force field analysis along with other tools used to facilitate change management.  

Force Field Analysis

SWOT analysis

SWOT analysis is used to analyze the internal factors such as strengths and weaknesses and external factors such as opportunities and threats affecting an organization.

You can use this decision-making tool to analyze the strengths, weaknesses, opportunities, and threats related to your alternative options.

SWOT Analysis Template - decision making technique

Select the Best Solution

Even after evaluating the desirability and the feasibility of the options, you might still end up with several good alternatives at hand. While you can apply a combination of them as your solution, this might not be practical all the time.

You can use the following decision-making techniques to decide which is the best option to move forward with.

Decision Trees

Decision trees help visualize the alternative choices and every possible outcome related to them. It allows you to assess the value of outcomes and the possibilities of achieving them. This, in turn, helps make a better decision. Learn about using decision tree s in more detail here .

Decision Tree Diagram

Eisenhower Matrix

When you have different tasks to execute and you can’t decide which one to go ahead with, you can use the Eisenhower matrix to decide what is important and not and what is urgent and not.

It will help you make more productive decisions by eliminating options that do not help you accomplish your goals.

Eisenhower Decision Matrix

Flowcharts are considered to be a proven method for documenting processes, brainstorming, evaluating, and identifying the best alternative possible.

Below is an example of a typical flowchart used in decision-making. This would help us evaluate the consequences of each alternative.

business model decision making

What Other Decision Making Tools Do You Use?

Here we have covered several decision-making tools that you can use during the different stages of decision making. Whether you are doing it alone or with the help of a group of stakeholders, you can rely on these decision-making methods to make well-informed decisions faster.

What other decision-making techniques do you use to solve problems and make business decisions? Do let us know in the comment section below.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

business model decision making

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Hey Amanda! This side is Riddhi Shah and I have just popped in one of your articles and really found it interesting. Running a business is a very difficult thing to do, as it requires the ability to make good decisions and to achieve spot at good rankings in the market. Business analyst are required to engage in as it is the main task that defines the current state of the business. One wrong decision can affect the entire company. Business intelligence tools help to structure the data and reveal important trends. The visual techniques and tools that has been mentioned in the article are very important and efficient. I have had a great time reading this informative article and definitely looking forward to reading more such blog posts from your end.

Hi Riddhi, Glad you found the post resourceful. Appreciate your feedback.

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11.3 Understanding Decision Making

Learning objectives.

  • Define decision making.
  • Understand different types of decisions.

What Is Decision Making?

Decision making refers to making choices among alternative courses of action—which may also include inaction. While it can be argued that management is decision making, half of the decisions made by managers within organizations fail (Ireland & Miller, 2004; Nutt, 2002; Nutt, 1999). Therefore, increasing effectiveness in decision making is an important part of maximizing your effectiveness at work. This chapter will help you understand how to make decisions alone or in a group while avoiding common decision-making traps.

Individuals throughout organizations use the information they gather to make a wide range of decisions. These decisions may affect the lives of others and change the course of an organization. For example, the decisions made by executives and consulting firms for Enron ultimately resulted in a $60 billion loss for investors, thousands of employees without jobs, and the loss of all employee retirement funds. But Sherron Watkins, a former Enron employee and now-famous whistleblower, uncovered the accounting problems and tried to enact change. Similarly, the decisions made by firms to trade in mortgage-backed securities is having negative consequences for the entire U.S. economy. Each of these people made a decision, and each person, as well as others, is now living with the consequences of his or her decisions.

Because many decisions involve an ethical component, one of the most important considerations in management is whether the decisions you are making as an employee or manager are ethical. Here are some basic questions you can ask yourself to assess the ethics of a decision (Blanchard & Peale, 1988).

  • Is this decision fair?
  • Will I feel better or worse about myself after I make this decision?
  • Does this decision break any organizational rules?
  • Does this decision break any laws?
  • How would I feel if this decision was broadcast on the news?

Types of Decisions

Despite the far-reaching nature of the decisions in the previous example, not all decisions have major consequences or even require a lot of thought. For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. You probably do not spend much time on these mundane decisions. These types of straightforward decisions are termed programmed decisions; these are decisions that occur frequently enough that we develop an automated response to them. The automated response we use to make these decisions is called the decision rule . For example, many restaurants face customer complaints as a routine part of doing business. Because this is a recurring problem for restaurants, it may be regarded as a programmed decision. To deal with this problem, the restaurant might have a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. Making strategic, tactical, and operational decisions is an integral part of the planning function in the P-O-L-C (planning-organizing-leading-controlling) model.

However, decisions that are unique and important require conscious thinking, information gathering, and careful consideration of alternatives. These are called nonprogrammed decisions . For example, in 2005, McDonald’s became aware of a need to respond to growing customer concerns regarding foods high in fat and calories. This is a nonprogrammed decision because for several decades, customers of fast-food restaurants were more concerned with the taste and price of the food, rather than the healthiness. In response, McDonald’s decided to offer healthier alternatives, such as substituting apple slices in Happy Meals for French fries and discontinuing the use of trans fats. A crisis situation also constitutes a nonprogrammed decision for companies. For example, the leadership of Nutrorim was facing a tough decision. They had recently introduced a new product, ChargeUp with Lipitrene, an improved version of their popular sports drink powder, ChargeUp. But a phone call came from a state health department to inform them that several cases of gastrointestinal distress had been reported after people consumed the new product. Nutrorim decided to recall ChargeUp with Lipitrene immediately. Two weeks later, it became clear that the gastrointestinal problems were unrelated to ChargeUp with Lipitrene. However, the damage to the brand and to the balance sheets was already done. This unfortunate decision caused Nutrorim to rethink the way decisions were made under pressure so that they now gather information to make informed choices even when time is of the essence (Garvin, 2006).

Figure 11.5

image

To ensure consistency around the globe such as at this St. Petersburg, Russia, location, McDonald’s trains all restaurant managers (over 65,000 so far) at Hamburger University where they take the equivalent of two years of college courses and learn how to make decisions. The curriculum is taught in 28 languages.

Wikimedia Commons – McDonalds in St Petersburg 2004 – CC BY-SA 1.0.

Decision making can also be classified into three categories based on the level at which they occur. Strategic decisions set the course of organization. Tactical decisions are decisions about how things will get done. Finally, operational decisions are decisions that employees make each day to run the organization. For example, remember the restaurant that routinely offers a free dessert when a customer complaint is received. The owner of the restaurant made a strategic decision to have great customer service. The manager of the restaurant implemented the free dessert policy as a way to handle customer complaints, which is a tactical decision. And, the servers at the restaurant are making individual decisions each day evaluating whether each customer complaint received is legitimate to warrant a free dessert.

Figure 11.6 Decisions Commonly Made within Organizations

image

In this chapter, we are going to discuss different decision-making models designed to understand and evaluate the effectiveness of nonprogrammed decisions. We will cover four decision-making approaches starting with the rational decision-making model, moving to the bounded rationality decision-making model, the intuitive decision-making model, and ending with the creative decision-making model.

Making Rational Decisions

The rational decision-making model describes a series of steps that decision makers should consider if their goal is to maximize the quality of their outcomes. In other words, if you want to make sure you make the best choice, going through the formal steps of the rational decision-making model may make sense.

Let’s imagine that your old, clunky car has broken down and you have enough money saved for a substantial down payment on a new car. It is the first major purchase of your life, and you want to make the right choice. The first step, therefore, has already been completed—we know that you want to buy a new car. Next, in step 2, you’ll need to decide which factors are important to you. How many passengers do you want to accommodate? How important is fuel economy to you? Is safety a major concern? You only have a certain amount of money saved, and you don’t want to take on too much debt, so price range is an important factor as well. If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $22,000 on the purchase, and like how it looks, you’ve identified the decision criteria. All of the potential options for purchasing your car will be evaluated against these criteria.

Figure 11.7

11.3

Using the rational decision-making model to make major purchases can help avoid making poor choices.

Lars Plougmann – Headshift business card discussion – CC BY-SA 2.0.

Before we can move too much further, you need to decide how important each factor is to your decision in step 3. If each is equally important, then there is no need to weight them, but if you know that price and gas mileage are key factors, you might weight them heavily and keep the other criteria with medium importance. Step 4 requires you to generate all alternatives about your options. Then, in step 5, you need to use this information to evaluate each alternative against the criteria you have established. You choose the best alternative (step 6) and you go out and buy your new car (step 7).

Of course, the outcome of this decision will be related to the next decision made; that is where the evaluation in step 8 comes in. For example, if you purchase a car but have nothing but problems with it, you are unlikely to consider the same make and model in purchasing another car the next time!

Figure 11.8 Steps in the Rational Decision-Making Model

image

While decision makers can get off track during any of these steps, research shows that limiting the search for alternatives in the fourth step can be the most challenging and lead to failure. In fact, one researcher found that no alternative generation occurred in 85% of the decisions studied (Nutt, 1994). Conversely, successful managers are clear about what they want at the outset of the decision-making process, set objectives for others to respond to, carry out an unrestricted search for solutions, get key people to participate, and avoid using their power to push their perspective (Nutt, 1998).

The rational decision-making model has important lessons for decision makers. First, when making a decision you may want to make sure that you establish your decision criteria before you search for all alternatives. This would prevent you from liking one option too much and setting your criteria accordingly. For example, let’s say you started browsing for cars before you decided your decision criteria. You may come across a car that you think really reflects your sense of style and make an emotional bond with the car. Then, because of your love for this car, you may say to yourself that the fuel economy of the car and the innovative braking system are the most important criteria. After purchasing it, you may realize that the car is too small for all of your friends to ride in the back seat when you and your brother are sitting in front, which was something you should have thought about! Setting criteria before you search for alternatives may prevent you from making such mistakes. Another advantage of the rational model is that it urges decision makers to generate all alternatives instead of only a few. By generating a large number of alternatives that cover a wide range of possibilities, you are likely to make a more effective decision in which you do not need to sacrifice one criterion for the sake of another.

Despite all its benefits, you may have noticed that this decision-making model involves a number of unrealistic assumptions. It assumes that people understand what decision is to be made, that they know all their available choices, that they have no perceptual biases, and that they want to make optimal decisions. Nobel Prize–winning economist Herbert Simon observed that while the rational decision-making model may be a helpful tool for working through problems, it doesn’t represent how decisions are frequently made within organizations. In fact, Simon argued that it didn’t even come close!

Think about how you make important decisions in your life. Our guess is that you rarely sit down and complete all eight steps in the rational decision-making model. For example, this model proposed that we should search for all possible alternatives before making a decision, but this can be time consuming and individuals are often under time pressure to make decisions. Moreover, even if we had access to all the information, it could be challenging to compare the pros and cons of each alternative and rank them according to our preferences. Anyone who has recently purchased a new laptop computer or cell phone can attest to the challenge of sorting through the different strengths and limitations of each brand, model, and plans offered for support and arriving at the solution that best meets their needs.

In fact, the availability of too much information can lead to analysis paralysis , where more and more time is spent on gathering information and thinking about it, but no decisions actually get made. A senior executive at Hewlett-Packard admits that his company suffered from this spiral of analyzing things for too long to the point where data gathering led to “not making decisions, instead of us making decisions (Zell, et. al., 2007).” Moreover, you may not always be interested in reaching an optimal decision. For example, if you are looking to purchase a house, you may be willing and able to invest a great deal of time and energy to find your dream house, but if you are looking for an apartment to rent for the academic year, you may be willing to take the first one that meets your criteria of being clean, close to campus, and within your price range.

Making “Good Enough” Decisions

The bounded rationality model of decision making recognizes the limitations of our decision-making processes. According to this model, individuals knowingly limit their options to a manageable set and choose the best alternative without conducting an exhaustive search for alternatives. An important part of the bounded rationality approach is the tendency to satisfice , which refers to accepting the first alternative that meets your minimum criteria. For example, many college graduates do not conduct a national or international search for potential job openings; instead, they focus their search on a limited geographic area and tend to accept the first offer in their chosen area, even if it may not be the ideal job situation. Satisficing is similar to rational decision making, but it differs in that rather than choosing the best choice and maximizing the potential outcome, the decision maker saves time and effort by accepting the first alternative that meets the minimum threshold.

Making Intuitive Decisions

The intuitive decision-making model has emerged as an important decision-making model. It refers to arriving at decisions without conscious reasoning. Eighty-nine percent of managers surveyed admitted to using intuition to make decisions at least sometimes, and 59% said they used intuition often (Burke & Miller, 1999). When we recognize that managers often need to make decisions under challenging circumstances with time pressures, constraints, a great deal of uncertainty, highly visible and high-stakes outcomes, and within changing conditions, it makes sense that they would not have the time to formally work through all the steps of the rational decision-making model. Yet when CEOs, financial analysts, and healthcare workers are asked about the critical decisions they make, seldom do they attribute success to luck. To an outside observer, it may seem like they are making guesses as to the course of action to take, but it turns out that they are systematically making decisions using a different model than was earlier suspected. Research on life-or-death decisions made by fire chiefs, pilots, and nurses finds that these experts do not choose among a list of well-thought-out alternatives. They don’t decide between two or three options and choose the best one. Instead, they consider only one option at a time. The intuitive decision-making model argues that, in a given situation, experts making decisions scan the environment for cues to recognize patterns (Breen, 2000; Klein, 2003; Salas & Klein, 2001). Once a pattern is recognized, they can play a potential course of action through to its outcome based on their prior experience. Due to training, experience, and knowledge, these decision makers have an idea of how well a given solution may work. If they run through the mental model and find that the solution will not work, they alter the solution and retest it before setting it into action. If it still is not deemed a workable solution, it is discarded as an option and a new idea is tested until a workable solution is found. Once a viable course of action is identified, the decision maker puts the solution into motion. The key point is that only one choice is considered at a time. Novices are not able to make effective decisions this way because they do not have enough prior experience to draw upon.

Making Creative Decisions

In addition to the rational decision making, bounded rationality models, and intuitive decision making, creative decision making is a vital part of being an effective decision maker. Creativity is the generation of new, imaginative ideas. With the flattening of organizations and intense competition among organizations, individuals and organizations are driven to be creative in decisions ranging from cutting costs to creating new ways of doing business. Please note that, while creativity is the first step in the innovation process, creativity and innovation are not the same thing. Innovation begins with creative ideas, but it also involves realistic planning and follow-through.

The five steps to creative decision making are similar to the previous decision-making models in some keys ways. All of the models include problem identification , which is the step in which the need for problem solving becomes apparent. If you do not recognize that you have a problem, it is impossible to solve it. Immersion is the step in which the decision maker thinks about the problem consciously and gathers information. A key to success in creative decision making is having or acquiring expertise in the area being studied. Then, incubation occurs. During incubation, the individual sets the problem aside and does not think about it for a while. At this time, the brain is actually working on the problem unconsciously. Then comes illumination or the insight moment, when the solution to the problem becomes apparent to the person, usually when it is least expected. This is the “eureka” moment similar to what happened to the ancient Greek inventor Archimedes, who found a solution to the problem he was working on while he was taking a bath. Finally, the verification and application stage happens when the decision maker consciously verifies the feasibility of the solution and implements the decision.

A NASA scientist describes his decision-making process leading to a creative outcome as follows: He had been trying to figure out a better way to de-ice planes to make the process faster and safer. After recognizing the problem, he had immersed himself in the literature to understand all the options, and he worked on the problem for months trying to figure out a solution. It was not until he was sitting outside of a McDonald’s restaurant with his grandchildren that it dawned on him. The golden arches of the “M” of the McDonald’s logo inspired his solution: he would design the de-icer as a series of M’s! 1 This represented the illumination stage. After he tested and verified his creative solution, he was done with that problem except to reflect on the outcome and process.

Figure 11.9 The Creative Decision-Making Process

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How Do You Know If Your Decision-Making Process Is Creative?

Researchers focus on three factors to evaluate the level of creativity in the decision-making process. Fluency refers to the number of ideas a person is able to generate. Flexibility refers to how different the ideas are from one another. If you are able to generate several distinct solutions to a problem, your decision-making process is high on flexibility. Originality refers to an idea’s uniqueness. You might say that Reed Hastings, founder and CEO of Netflix, is a pretty creative person. His decision-making process shows at least two elements of creativity. We do not exactly know how many ideas he had over the course of his career, but his ideas are fairly different from one another. After teaching math in Africa with the Peace Corps, Hastings was accepted at Stanford University, where he earned a master’s degree in computer science. Soon after starting work at a software company, he invented a successful debugging tool, which led to his founding the computer troubleshooting company Pure Software in 1991. After a merger and the subsequent sale of the resulting company in 1997, Hastings founded Netflix, which revolutionized the DVD rental business through online rentals with no late fees. In 2007, Hastings was elected to Microsoft’s board of directors. As you can see, his ideas are high in originality and flexibility (Conlin, 2007).

Figure 11.10 Dimensions of Creativity

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Some experts have proposed that creativity occurs as an interaction among three factors: (1) people’s personality traits (openness to experience, risk taking), (2) their attributes (expertise, imagination, motivation), and (3) the context (encouragement from others, time pressure, and physical structures) (Amabile, 1988; Amabile, et. al., 1996; Ford & Gioia, 2000; Tierney, et. al., 1999; Woodman, et. al., 1993). For example, research shows that individuals who are open to experience, are less conscientious, more self-accepting, and more impulsive, tend to be more creative (Feist, 1998).

There are many techniques available that enhance and improve creativity. Linus Pauling, the Nobel prize winner who popularized the idea that vitamin C could help build the immunity system, said, “The best way to have a good idea is to have a lot of ideas.” One popular way to generate ideas is to use brainstorming. Brainstorming is a group process of generated ideas that follows a set of guidelines that include no criticism of ideas during the brainstorming process, the idea that no suggestion is too crazy, and building on other ideas (piggybacking). Research shows that the quantity of ideas actually leads to better idea quality in the end, so setting high idea quotas where the group must reach a set number of ideas before they are done, is recommended to avoid process loss and to maximize the effectiveness of brainstorming. Another unique aspect of brainstorming is that the more people are included in brainstorming, the better the decision outcome will be because the variety of backgrounds and approaches give the group more to draw from. A variation of brainstorming is wildstorming where the group focuses on ideas that are impossible and then imagines what would need to happen to make them possible (Scott, et. al., 2004).

Ideas for Enhancing Organizational Creativity

We have seen that organizational creativity is vital to organizations. Here are some guidelines for enhancing organizational creativity within teams (Amabile, 1998; Gundry, et. al., 1994; Keith, 2008; Pearsall, et. al., 2008; Thompson, 2003).

Team Composition (Organizing/Leading)

  • Diversify your team to give them more inputs to build on and more opportunities to create functional conflict while avoiding personal conflict.
  • Change group membership to stimulate new ideas and new interaction patterns.
  • Leaderless teams can allow teams freedom to create without trying to please anyone up front.

Team Process (Leading)

  • Engage in brainstorming to generate ideas—remember to set a high goal for the number of ideas the group should come up with, encourage wild ideas, and take brainwriting breaks.
  • Use the nominal group technique in person or electronically to avoid some common group process pitfalls. Consider anonymous feedback as well.
  • Use analogies to envision problems and solutions.

Leadership (Leading)

  • Challenge teams so that they are engaged but not overwhelmed.
  • Let people decide how to achieve goals , rather than telling them what goals to achieve.
  • Support and celebrate creativity even when it leads to a mistake. But set up processes to learn from mistakes as well.
  • Model creative behavior.

Culture (Organizing)

  • Institute organizational memory so that individuals do not spend time on routine tasks.
  • Build a physical space conducive to creativity that is playful and humorous—this is a place where ideas can thrive.
  • Incorporate creative behavior into the performance appraisal process.

And finally, avoiding groupthink can be an important skill to learn (Janis, 1972).

The four different decision-making models—rational, bounded rationality, intuitive, and creative—vary in terms of how experienced or motivated a decision maker is to make a choice. Choosing the right approach will make you more effective at work and improve your ability to carry out all the P-O-L-C functions.

Figure 11.11

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Which decision-making model should I use?

Key Takeaway

Decision making is choosing among alternative courses of action, including inaction. There are different types of decisions, ranging from automatic, programmed decisions to more intensive nonprogrammed decisions. Structured decision-making processes include rational decision making, bounded rationality, intuitive, and creative decision making. Each of these can be useful, depending on the circumstances and the problem that needs to be solved.

  • What do you see as the main difference between a successful and an unsuccessful decision? How much does luck versus skill have to do with it? How much time needs to pass to answer the first question?
  • Research has shown that over half of the decisions made within organizations fail. Does this surprise you? Why or why not?
  • Have you used the rational decision-making model to make a decision? What was the context? How well did the model work?
  • Share an example of a decision where you used satisficing. Were you happy with the outcome? Why or why not? When would you be most likely to engage in satisficing?
  • Do you think intuition is respected as a decision-making style? Do you think it should be? Why or why not?

1 Interview by author Talya Bauer at Ames Research Center, Mountain View, CA, 1990.

Amabile, T. M. (1988). A model of creativity and innovation in organizations. In B. M. Staw & L. L. Cummings (Eds.), Research in Organizational Behavior, 10 123–167 Greenwich, CT: JAI Press.

Amabile, T. M., Conti, R., Coon, H., Lazenby, J., & Herron, M. (1996). Assessing the work environment for creativity. Academy of Management Journal, 39 , 1154–1184.

Amabile, T. M. (1998). How to kill creativity. Harvard Business Review, 76 , 76–87.

Blanchard, K., & Peale, N. V. (1988). The power of ethical management . New York: William Morrow.

Breen, B. (2000, August), “What’s your intuition?” Fast Company , 290.

Burke, L. A., & Miller, M. K. (1999). Taking the mystery out of intuitive decision making. Academy of Management Executive, 13 , 91–98.

Conlin, M. (2007, September 14). Netflix: Recruiting and retaining the best talent. Business Week Online . Retrieved March 1, 2008, from http://www.businessweek.com/managing/content/sep2007/ca20070913_564868.htm?campaign_id=rss_null .

Feist, G. J. (1998). A meta-analysis of personality in scientific and artistic creativity. Personality and Social Psychology Review, 2 , 290–309.

Ford, C. M., & Gioia, D. A. (2000). Factors influencing creativity in the domain of managerial decision making. Journal of Management, 26 , 705–732.

Garvin, D. A. (2006, January). All the wrong moves. Harvard Business Review , 18–23.

Gundry, L. K., Kickul, J. R., & Prather, C. W. (1994). Building the creative organization. Organizational Dynamics , 22 , 22–37.

Ireland, R. D., & Miller, C. C. (2004). Decision making and firm success. Academy of Management Executive, 18 , 8–12.

Janis, I. L. (1972). Victims of groupthink . New York: Houghton Mifflin; Whyte, G. (1991). Decision failures: Why they occur and how to prevent them. Academy of Management Executive, 5 , 23–31.

Keith, N., & Frese, M. (2008). Effectiveness of error management training: A meta-analysis. Journal of Applied Psychology, 93 , 59–69.

Klein, G. (2001). Linking expertise and naturalistic decision making . Mahwah, NJ: Lawrence Erlbaum.

Klein, G. (2003). Intuition at work . New York: Doubleday; Salas, E., &amp.

Nutt, P. C. (1994). Types of organizational decision processes. Administrative Science Quarterly, 29 , 414–550.

Nutt, P. C. (1998). Surprising but true: Half the decisions in organizations fail. Academy of Management Executive, 13 , 75–90.

Nutt, P. C. (2002). Why decisions fail . San Francisco: Berrett-Koehler.

Pearsall, M. J., Ellis, A. P. J., & Evans, J. M. (2008). Unlocking the effects of gender faultlines on team creativity: Is activation the key? Journal of Applied Psychology, 93 , 225–234.

Scott, G., Leritz, L. E., & Mumford, M. D. (2004). The effectiveness of creativity training: A quantitative review. Creativity Research Journal, 16 , 361–388.

Thompson, L. (2003). Improving the creativity of organizational work groups. Academy of Management Executive, 17 , 96–109.

Tierney, P., Farmer, S. M., & Graen, G. B. (1999). An examination of leadership and employee creativity: The relevance of traits and relationships. Personnel Psychology, 52 , 591–620.

Woodman, R. W., Sawyer, J. E., & Griffin, R. W. (1993). Toward a theory of organizational creativity. Academy of Management Review, 18 , 293–321.

Zell, D. M., Glassman, A. M., & Duron, S. A. (2007). Strategic management in turbulent times: The short and glorious history of accelerated decision making at Hewlett-Packard. Organizational Dynamics, 36 , 93–104.

Principles of Management Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

How Companies Make Money

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

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The Bottom Line

Learn to understand a company's profit-making plan

business model decision making

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

business model decision making

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

  • A business model is a company's core strategy for profitably doing business.
  • Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
  • There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
  • The two levers of a business model are pricing and costs.
  • When evaluating a business model as an investor, consider whether the product being offered matches a true need in the market.

Investopedia / Laura Porter

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers a free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business model attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

  • Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
  • Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
  • Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
  • Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
  • Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
  • Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
  • Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

  • Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
  • Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
  • More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

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7 important steps in the decision making process

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The decision making process is a method of gathering information, assessing alternatives, and making a final choice with the goal of making the best decision possible. In this article, we detail the step-by-step process on how to make a good decision and explain different decision making methodologies.

We make decisions every day. Take the bus to work or call a car? Chocolate or vanilla ice cream? Whole milk or two percent?

There's an entire process that goes into making those tiny decisions, and while these are simple, easy choices, how do we end up making more challenging decisions? 

At work, decisions aren't as simple as choosing what kind of milk you want in your latte in the morning. That’s why understanding the decision making process is so important. 

What is the decision making process?

The decision making process is the method of gathering information, assessing alternatives, and, ultimately, making a final choice. 

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The 7 steps of the decision making process

Step 1: identify the decision that needs to be made.

When you're identifying the decision, ask yourself a few questions: 

What is the problem that needs to be solved?

What is the goal you plan to achieve by implementing this decision?

How will you measure success?

These questions are all common goal setting techniques that will ultimately help you come up with possible solutions. When the problem is clearly defined, you then have more information to come up with the best decision to solve the problem.

Step 2: Gather relevant information

​Gathering information related to the decision being made is an important step to making an informed decision. Does your team have any historical data as it relates to this issue? Has anybody attempted to solve this problem before?

It's also important to look for information outside of your team or company. Effective decision making requires information from many different sources. Find external resources, whether it’s doing market research, working with a consultant, or talking with colleagues at a different company who have relevant experience. Gathering information helps your team identify different solutions to your problem.

Step 3: Identify alternative solutions

This step requires you to look for many different solutions for the problem at hand. Finding more than one possible alternative is important when it comes to business decision-making, because different stakeholders may have different needs depending on their role. For example, if a company is looking for a work management tool, the design team may have different needs than a development team. Choosing only one solution right off the bat might not be the right course of action. 

Step 4: Weigh the evidence

This is when you take all of the different solutions you’ve come up with and analyze how they would address your initial problem. Your team begins identifying the pros and cons of each option, and eliminating alternatives from those choices.

There are a few common ways your team can analyze and weigh the evidence of options:

Pros and cons list

SWOT analysis

Decision matrix

Step 5: Choose among the alternatives

The next step is to make your final decision. Consider all of the information you've collected and how this decision may affect each stakeholder. 

Sometimes the right decision is not one of the alternatives, but a blend of a few different alternatives. Effective decision-making involves creative problem solving and thinking out of the box, so don't limit you or your teams to clear-cut options.

One of the key values at Asana is to reject false tradeoffs. Choosing just one decision can mean losing benefits in others. If you can, try and find options that go beyond just the alternatives presented.

Step 6: Take action

Once the final decision maker gives the green light, it's time to put the solution into action. Take the time to create an implementation plan so that your team is on the same page for next steps. Then it’s time to put your plan into action and monitor progress to determine whether or not this decision was a good one. 

Step 7: Review your decision and its impact (both good and bad)

Once you’ve made a decision, you can monitor the success metrics you outlined in step 1. This is how you determine whether or not this solution meets your team's criteria of success.

Here are a few questions to consider when reviewing your decision:

Did it solve the problem your team identified in step 1? 

Did this decision impact your team in a positive or negative way?

Which stakeholders benefited from this decision? Which stakeholders were impacted negatively?

If this solution was not the best alternative, your team might benefit from using an iterative form of project management. This enables your team to quickly adapt to changes, and make the best decisions with the resources they have. 

Types of decision making models

While most decision making models revolve around the same seven steps, here are a few different methodologies to help you make a good decision.

​Rational decision making models

This type of decision making model is the most common type that you'll see. It's logical and sequential. The seven steps listed above are an example of the rational decision making model. 

When your decision has a big impact on your team and you need to maximize outcomes, this is the type of decision making process you should use. It requires you to consider a wide range of viewpoints with little bias so you can make the best decision possible. 

Intuitive decision making models

This type of decision making model is dictated not by information or data, but by gut instincts. This form of decision making requires previous experience and pattern recognition to form strong instincts.

This type of decision making is often made by decision makers who have a lot of experience with similar kinds of problems. They have already had proven success with the solution they're looking to implement. 

Creative decision making model

The creative decision making model involves collecting information and insights about a problem and coming up with potential ideas for a solution, similar to the rational decision making model. 

The difference here is that instead of identifying the pros and cons of each alternative, the decision maker enters a period in which they try not to actively think about the solution at all. The goal is to have their subconscious take over and lead them to the right decision, similar to the intuitive decision making model. 

This situation is best used in an iterative process so that teams can test their solutions and adapt as things change.

Track key decisions with a work management tool

Tracking key decisions can be challenging when not documented correctly. Learn more about how a work management tool like Asana can help your team track key decisions, collaborate with teammates, and stay on top of progress all in one place.

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Decision-Making Models

By Judith Stein

A decision-making model describes the method a team will use to make decisions. The most important factor in successful decision-making is that every team member is clear about how a particular decision will be made. Who will be making the decision? How will team members be involved? By when? Knowing these things allows team members to be fully informed participants in discussions - "Will we be giving input to the team leader so he can make the decision?" or "Will we need to discuss this topic and come to agreement during this meeting?"

Knowing how a particular decision will be made can also help a team plan their meeting agendas more effectively and lead to more collaborative team process. Most importantly, understanding how decisions will be made helps to build support for the final decision and active commitment to that decision's implementation. Because effective teams work towards the fullest participation of each member, teams often use some version of a consensus decision-making model. When used appropriately, this model of decision-making can maximize the quality of a team's decisions. (See more on consensus decisions  below .)

There are a number of possible models for decision-making; each of these models may be appropriate for particular types of decisions. From least participatory to most, some examples of decision-making models include:

Team leader decides and informs the team

Team leader gathers input from team then decides, consensus decisions, consensus with a fallback, team leader sets constraints and delegates decisions to team members.

Some teams might also use a "majority rules" voting method for some decisions. While this method is familiar to most of us, on important decisions it can leave some team members feeling like they have "lost." Majority vote can be an effective decision-making model for low-impact decisions, but it will be less effective in values-laden decisions or decisions where active buy-in is crucial. At a minimum, it would be important to have thoughtful and inclusive discussion prior to any major "majority rules" decision-making.

More on consensus

Now that we know that consensus decision-making is not necessarily unanimous support for a particular decision, it is important to define just what consensus decision-making is . Consensus is achieved when everyone on the team has had ample opportunity to have his or her ideas considered and can fully support the team's decision. Consensus decisions mean that the entire team has come to agreement on a course of action, even if individuals might have a different preference. Consensus decisions often lead to completely new solutions that the team arrives at in the course of its discussion.

In the course of the discussion leading to consensus, individual team members may change their ideas (based on new information or perspectives from their team) or they may decide to defer their individual feelings or needs to those of the team. The key point is that this process is deliberate and fully voluntary on the part of the team member. Positive reasons why individuals modify their positions to support a team's decision include:

  • Agreement with most parts of the proposed decision
  • A decision to let go of a non-crucial element of their point of view in order to strengthen team alignment on the topic
  • Understanding that the final decision does not compromise their values
  • An assessment that the final decision has the best chance for successful implementation because so many members of the team support it

Reaching consensus can take time, although consensus-based decision-making gets easier with practice. Teams using a consensus-based decision-making model will need to develop good meeting practices to make sure that every individual has an opportunity to participate in the decision-making process. The ability to define the decision topic clearly, and the ability to build agreements and sensitivity to the team's process will all help successful decision-making by consensus.

It is important that the team pay attention to group process so that no team member changes his or her mind because they fear repercussions for disagreement, or they are somehow "bullied" by the team (through hostile remarks or "friendly teasing") into changing their views.

Team members can check for consensus by seeing if each member of the team can agree to the following four statements:

  • I've heard your positions.
  • I believe you've heard my position.
  • The decision does not compromise my values.
  • I can fully support the proposed decision and its implementation.

In good consensus decision-making, every member of the team must feel that they have been listened to and that their ideas have been given a fair assessment.

This article is adapted, in part, from materials from Interaction Associates , LLC, Mastering Meetings.

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What Is Data-Driven Decision-Making (DDDM)?

Learn more about what data-driven decision-making is, its application across different industries, and careers that use DDDM.

[Featured Image] A group of marketers practice data-driven decision making during a business meeting.

When companies face an important decision, relying on the insights data provides rather than experience and intuition alone enables those in charge to make informed decisions that lead to better outcomes. Doing so allows you to reduce risk, develop specific, targeted business strategies, and identify areas for improvement, whether that be further developing a product or coming up with something entirely new to fill a void in the market.

Organizations today have more access to unprecedented, massive amounts of data. However, effectively utilizing this information requires access to quality data, skilled individuals who know how to turn the information into actionable insights, and employees who feel encouraged to make data-driven decisions.

What is data-driven decision-making?

It’s a process of using data to make informed decisions. Often, proper implementation of the data-driven decision-making process ultimately leads to improvement both financially and in terms of the overall operational efficiency of a business.

Access to data alone isn’t enough. This process has several steps that you must follow to make the data usable. Not only do you need to clean and organize the data, which takes up a significant amount of time, but you also must ensure that the data you are analyzing is relevant to the problem you’re trying to solve. By using data-driven decision-making, your business or organization has the validation it needs to put a plan into place with confidence that it will succeed.

Applications for DDDM

Data-driven decision-making has applications across all industries. The growing volume of data collection comes with an increasing need for professionals like data analysts and data scientists. Check out a few examples of how you can apply data-driven decision-making in different industries.

Businesses can benefit from data-driven decision-making in several valuable ways. You can use data to better understand your customers' needs, helping to improve retention and satisfaction and developing marketing campaigns that reach your target audience. Data-driven decision-making also helps your organization’s bottom line by identifying opportunities to minimize costs and optimize profits. 

Health care

Data-driven decision-making in health care enables providers to optimize patient care in terms of treatment and overall experience. Using data in health care makes it possible for hospitals to find ways to reduce costs, and as a result, patients receive more affordable treatment. When it comes to treatment, access to data helps health care specialists more accurately identify diseases and improve preventative care for populations at risk from chronic conditions.

In education, teachers can use data-driven decision-making to improve student learning outcomes and develop lesson plans that will work best for students based on their current proficiencies and how they prefer to learn. You can effectively improve the performance of students by using data to identify the specific areas where they struggle and then implement strategies that address those individual weaknesses.

Pros and cons of data-driven decision-making

Data-driven decision-making is beneficial for businesses, helping you improve outcomes by developing strategies based on facts and concrete details. However, using data correctly leads to better results. If you are working with unreliable data, you could potentially end up with misleading results. Additionally, it’s possible that you end up focusing your attention on the wrong metrics or merely using the data to try to confirm an opinion you already have rather than looking at what the data truly suggests. 

Who uses data-driven decision-making?

You can pursue a number of different careers where data analysis is part of your responsibilities. Here are several careers where you can anticipate working with data.

Data scientist

Average annual US base salary: $129,750 [ 1 ]

As a data scientist, you take data from several sources, process, analyze, interpret, and then present your findings. This involves developing algorithms using programming skills with programming languages such as Python and R. Other important skills for data science include statistical analysis, machine learning, and data visualization.

Data analyst

Average annual US base salary: $76,983 [ 2 ]

Your work as a data analyst involves collecting data, finding trends within the data, and building reports to present your findings. Although this position is similar to that of a data scientist, with the two sharing some responsibilities, data analysts generally require less advanced programming skills, instead utilizing tools designed for business intelligence and analytics.

Data engineer

Average annual US base salary: $106,832 [ 3 ]

As a data engineer, you build and maintain the infrastructure that enables people, such as data scientists, to utilize the data within the database. In some cases, you may work directly with data scientists to develop data into easier-to-analyze forms. This position requires programming skills and knowledge of database administration and design. 

Digital marketer

Average annual US base salary: $60,460 [ 4 ]

As a digital marketer, you will help your company develop and implement marketing campaigns. This can involve analyzing data to ensure your marketing campaigns target the right audience, monitoring the performance of campaigns, and determining how to adjust campaigns as needed. Along with data analysis, valuable skills in digital marketing include search engine optimization (SEO) and user experience (UX) design. 

How to make decisions using DDDM

The data-driven decision-making process has several key steps to follow:

Understand the problem you are trying to solve. Keeping a particular goal in mind allows you to focus on collecting and analyzing relevant data from suitable sources. 

Organize the data. Before performing analysis, you must ensure you’re using clean, quality data that has undergone analysis to ensure it is complete and accurate. 

Perform the analysis. Once your data is ready, analyze your data using descriptive, diagnostic, predictive, or prescriptive analytics. These help you determine what happened, why it happened, what will happen next, and what actions you should take. 

Develop insights and conclusions. After performing the analysis, you should have answers for the problem you’re trying to solve, and you can now use that information to make data-driven decisions.

Learn more with Coursera.

On Coursera, you can find highly rated courses to learn more about data-driven decision-making and develop skills for relevant DDDM careers. Data-Driven Decision Making Specialization from the University of Buffalo will help you learn more about data analysis and visualization tools you can use, as well as how to improve the data collection process.

You might also consider earning a Google Data Analytics Professional Certificate . By earning this certificate, you might qualify for positions such as data analyst or junior data analyst and learn how to use analytical tools such as R programming. 

Article sources

Glassdoor. “ How much does a data scientist make? , https://www.glassdoor.com/Salaries/data-scientist-salary-SRCH_KO0,14.htm.” Accessed February 26, 2024.

Glassdoor. “ How much does a data analyst make? , https://www.glassdoor.com/Salaries/data-analyst-salary-SRCH_KO0,12.htm.” Accessed February 26, 2024.

Glassdoor. “ How much does a data engineer make? , https://www.glassdoor.com/Salaries/data-engineer-salary-SRCH_KO0,13.htm.” Accessed February 26, 2024.

Glassdoor. “ How much does a digital marketer make? , https://www.glassdoor.com/Salaries/digital-marketer-salary-SRCH_KO0,16.htm.” Accessed February 26, 2024. 

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How To Choose the Right Funding Model for Your Startup

How To Choose the Right Funding Model for Your Startup

Choosing the right funding approach is a critical decision for launching your startup that can shape the trajectory of your business. According to a study by CB Insights, the average seed funding round for startups in the United States is around $2.2 million.

In this article, we will explore various funding models available to startups and provide insights on how to make informed decisions based on your unique needs and goals.

Understanding Types of Startup Funding Models

Bootstrapping.

Bootstrapping involves funding your startup with personal savings, revenue generated by the business, or loans from friends and family. While it offers autonomy and control, it comes with the challenge of limited resources and a potentially slower growth trajectory.

Angel Investors

Angel investors are affluent individuals who provide capital for startups in exchange for ownership equity or convertible debt. This funding model not only brings in financial support but often includes mentorship and industry connections.

Using Security

Some entrepreneurs use security as a means of funding. This can come in multiple forms, including using your property, inventory or other assets as collateral, which can be risky if you cannot repay the finance. Other options include using accounts receivable (or invoice factoring), such as future orders, and borrowing money against these future orders (Source: Proper Finance ).

Venture Capital

Venture capital firms invest larger amounts of money in startups with high growth potential. Venture capital funding is suitable for businesses with scalability, a strong market opportunity, and a capable team. However, it involves giving up a portion of equity and adhering to rigorous growth expectations.

Crowdfunding

Crowdfunding platforms like Kickstarter and Indiegogo allow startups to present their ideas to a global audience and collect small contributions from backers.

Kickstarter alone has facilitated over 500,000 projects, raising more than $6 billion from 18.6 million backers, showcasing the impact of crowdfunding on startup funding.

This model not only provides capital but also serves as a marketing tool, generating buzz and interest around the startup.

Bank Loans and Traditional Lending

Historically, if you need a loan, you would visit your local bank branch and speak to a bank manager. This has changed significantly over the last few decades towards more private institutions which may offer more favourable terms and faster funding.

Through the likes of Funding Circle, MT Finance , Iwoca and Swoop, new businesses are able to access capital much quicker and raise significant amounts, even as much as £500,000 or £1 million. However, note that you may need to be trading for a minimum period of time e.g 6 months or 2 years and have regular revenue.

Factors to Consider When Choosing a Funding Model

  • Stage of Your Startup: The stage of your startup plays a crucial role in determining the most suitable funding model. Bootstrapping might be ideal for early-stage ventures, while later stages may benefit from venture capital to fuel rapid growth.
  • Business Model and Industry: The nature of your business and industry can influence the choice of funding. Some high-growth industries may be more attractive to venture capitalists, such as biotechnology, while other new businesses, such as in consumer goods, may find success through crowdfunding or angel investment.
  • Financial Need: Evaluate the specific financial needs of your startup. Consider factors such as initial capital requirements, operating expenses, and potential expansion plans. This assessment will guide you toward a funding model that aligns with your financial goals.
  • Risk Tolerance: Assess your risk tolerance as an entrepreneur. While venture capital might bring substantial funding, it also involves relinquishing control and adhering to aggressive growth targets. Bootstrapping, on the other hand, offers autonomy but requires a higher risk tolerance due to limited resources.
  • Timeframe for Results: Consider the timeframe within which you expect to see results. Venture capital may provide rapid injections of capital for quick scaling, while crowdfunding campaigns might take time to build momentum. Bootstrapping offers a gradual approach but may result in slower growth.

How To Choose The Right Funding Option For Your Startup

Thoroughly research each funding model, understanding its advantages, challenges, and success stories within your industry. Networking becomes incredibly important, so take time to consult with industry experts, mentors or advisors who have experience in your field. Their insights can provide valuable perspectives on the most suitable funding model for your startup.

Also consider a diversified approach by combining multiple funding sources. For instance, a mix of angel investment, crowdfunding and bootstrapping might provide a well-rounded and resilient financial foundation.

Choosing the right funding model for your startup is a pivotal decision that requires careful consideration of various factors. Whichever method you opt for, aligning the funding model with your startup’s stage, industry financial needs is essential.

About The Author

Kimberly Zhang

Kimberly Zhang

Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

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An integrated picture fuzzy operational competitiveness ratings group decision approach for evaluating the enterprise digital transformation capability

  • ORIGINAL PAPER
  • Published: 28 February 2024
  • Volume 9 , article number  32 , ( 2024 )

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  • Tingting Liu 1 ,
  • Kai Gao 2 &
  • Yuan Rong 3  

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Digital transformation is a high-level transformation business model that enterprises innovate on the basis of digital transformation and upgrading. A comprehensive evaluation of a company’s digital transformation capability cannot only provide reasonable strategic guidelines for accelerating the digital transformation process, but also provide guidance for improving digital transformation and enhancing core competitiveness. The assessment of digital transformation capability for enterprises can be regarded as a multiple criteria decision-making (MCDM) analysis process because the assessment involves multiple options and criteria with an uncertain environment. In this regard, this study develops a synthetic decision-making methodology under picture fuzzy (PF) setting. First, some novel PF operational laws based on trigonometric t-norm and t-conorm are presented. Then, several new PF aggregation operators are propounded to fuse the individual information in group decision. Besides, an integration weight determination model is developed by incorporating the relative closeness coefficient (RCC) model and logarithmic percentage change-driven objective weighting (LOPCOW) approach to compute the weight of assessment criteria under PF circumstance. Further, an extended operational competitiveness ratings assessment (OCRA) model is propounded to sort the alternatives with PF information. Lastly, a case study of assessing the digital transformation capability of enterprises is implemented to highlight the applicability and effectiveness of the presented methodology. Sensitivity analysis and comparison study are also conducted to probe the stability and superiority of the developed methodology, respectively.

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Liu, T., Gao, K. & Rong, Y. An integrated picture fuzzy operational competitiveness ratings group decision approach for evaluating the enterprise digital transformation capability. Granul. Comput. 9 , 32 (2024). https://doi.org/10.1007/s41066-024-00451-z

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