How To Make Effective Decisions for Your Small Business
In a recent survey of 1,200 global business managers, 54 percent reported spending more than 30 percent of their time on decision-making. In the C-suite, 14 percent of executives said they dedicate more than 70 percent of their time to making decisions.
Yet, for all that time set aside, 61 percent of managers admitted that the time they spent making business decisions was used ineffectively.
When the decision-making process lags, productivity loss isn’t the only issue. The subsequent opportunity loss is also staggering. Considering these numbers, the researchers estimated that the decision-making process could cost a typical Fortune 500 company a collective 530,000 days of managers’ time every year. In annual wages, that equals around $250 million.
The Importance of Strategic Business Decisions
Building a strong brand is a combination of a lot of great strategic decisions. Delegating the right decision to the right team and making those decisions at the right time is crucial.
For example, deciding on the domain name of the company. It’s a small decision but management often delegates it to the IT department. The conception of your brand happens with its name. For something that is at the core of your brand’s identity, often entrepreneurs underestimate the importance of a good name.
Often when the first-choice domain name isn’t available, people tend to add a hyphen or change the spelling or add a number to find a name that’s available. They completely ignore new domain extensions such as .TECH, .SITE, .SPACE, .STORE, .ONLINE, etc. that give you the opportunity to get a great name that’s meaningful and contextual.
Choosing the right domain name is a crucial decision. New domain extensions allow you to get domain names that are more relevant to your business and your industry. They help you get a meaningful online identity and offer a great deal of support in your marketing and branding efforts.
4 Keys Ways to Make Better Decisions for Your Small Business
You want to drive your company forward, but your time is valuable. That’s why it’s important to deploy smart strategies that can help you reach the right decision sooner.
Read on to learn about four key ways you can optimize and improve your decision-making process, starting today.
1. Perform a Marginal Analysis
A marginal analysis measures the cost of activity against incremental changes in volume, determining how the overall change in costs will affect your bottom line. To perform this analysis, you’ll weigh your marginal benefits against marginal costs.
To find your marginal benefit:
- Determine a variable to change (for example, the volume of output produced.)
- Determine your increase in total benefits if you add one more of that unit (marginal unit.)
To find your marginal cost:
- Determine your current costs associated with that variable.
- Determine how that cost would increase if you added the marginal unit.
Does the marginal benefit outweigh the marginal cost? If so, you’ve reaped a net benefit, and it’s wise to add the marginal unit of that variable. Conversely, the opposite also holds true.
For example, assume you manufacture a product that sells for $100 and costs $75 to produce every 50 units. You’re wondering if you should increase production to 51 units. If you do so, the anticipated revenue will remain $100, and your potential profit is still $25.
However, when you do the math you realize that there will be an uptick in overhead and labor costs. This will increase your production cost to $105 per unit, and you’ll lose $5 on every extra item you manufacture.
In this scenario, your extra costs now outweigh your potential sales revenues/profits. That makes it easier to see that increasing your manufacturing output is an unwise move.
2. Create a Decision Matrix
Listing the pros and cons of a potential decision can be helpful. Yet, the procedure becomes complicated when you have myriad variables and choices to select from. This is where a decision matrix comes into play.
In short, this is a pros/cons list that allows you to rank each factor by its level of importance. This way, you can understand which option is the clear winner.
You can create your matrix manually or in an online spreadsheet. Let us consider a situation where you have to select an IT vendor based on certain parameters. Have a look at the table below.
Here are some steps that you can follow:
- List your decision options as columns.
- (Vendor A, Vendor B, and Vendor C)
- List all your relevant factors as rows.
- (Capabilities, Reputation, Technology, and others)
- Create a scale to assess the value of each option/factor combination.
- (2 for the Price and 1 for the rest)
- Assign weights to each factor depending on their level of importance.
- (Any value between 1 and 10. For the Price factor, double the weightage value)
- Add up the factors under each option.
- (36 for Vendor A, 37 for Vendor B, and 45 for Vendor C)
- Now calculate the score for each vendor by using the formula:
- (Score obtained/Total score) ✕ 100
- In the above example, that would be – Vendor A: (36/70) ✕ 100 = 51 percent
- The option with the highest score wins (Vendor C).
You can apply this matrix to a variety of scenarios, including:
● When you can only implement one solution or problem-solving approach.
● When you can only select one new vendor.
● When you can only develop one new product.
Have a look at some examples for a better understanding.
3. Make a SWOT Diagram
Are you planning to make a substantial change to the infrastructure of your business? If so, a SWOT diagram can help you break the situation into four actionable pieces, helping you analyze:
● Company strengths (internal).
● Company weaknesses (internal).
● Company opportunities (external).
● Company threats (external).
To create the diagram, draw a grid with four quadrants. Assign one quadrant to each of the above sections. Bring in team members, partners, and other key stakeholders to help you determine the data that fits into each one. Together, you can analyze the finished diagram to draw comparisons and better understand the long-term impact that your decision will have.
4. Perform a Pareto Analysis
This analysis is often referred to as the Pareto Principle or the 80/20 rule. It states that 80 percent of a project’s benefits are derived from 20 percent of its work. At the same time, 80 percent of a problem traces back to 20 percent of its causes.
You can use a Pareto Analysis to identify the problem area or task that will have the greatest impact on your business. Benefits of performing this exercise include:
● More efficiently optimized workloads.
● Improved productivity.
● Improved profitability.
Wondering why your sales are lagging and trying to decide what to do about it? This analysis can help. To create one, follow these steps:
- Identify and list your root problem.
- Identify the root cause behind each problem.
- Score each problem by the importance.
- Group like problems together.
- Calculate your scores for each group.
Have a look at an example for a better understanding of the concept.
With these numbers in mind, you can prioritize your efforts and take action. You’ll begin by tackling the most important causes, dealing with the top-priority problem first.
Make smarter, data-driven business decisions
Better business decisions start with better data. When you allow emotional or impulsive thinking to dictate your next move, it can exacerbate confusion and muddle outcomes. These four steps allow the information to take center stage, revealing the key insights you need to make a well-informed next step.
Alisha is a Senior Content Marketing & Communication Specialist at Radix, the registry behind some of the most successful new domain extensions, including .STORE and .TECH. You can connect with her on LinkedIn and Twitter.