Business leaders make hundreds of decisions every day, many of which influence the success of the business as a whole. No pressure, right? That’s why one of the top skills sought after for managers is the ability to make efficient, informed, and effective business decisions.
The typical decision-making process involves defining the problem, gathering information, identifying alternatives, choosing among the alternatives, and reviewing/monitoring the results. There are many different decision-making techniques that are used by managers to help them choose among the alternatives and make a decision. In some instances, it may be a combination of a couple of different decision-making strategies that help them achieve the best results. What works for some organizations may not work for others, and what works for making one decision may not work for the next. We’ve compiled this list to help narrow things down and give you an idea of what some of the more popular tools and strategies for decision-making are.
Top Decision-Making Techniques & Tools
Marginal Analysis
Marginal analysis weighs the benefits of input or activity against the costs. This type of analysis helps business leaders determine whether an activity or input is providing the maximum return on investment (ROI). Marginal analysis is an effective tool for decision-making because it takes preferences, resources, and informational constraints into account, so managers can make more optimal decisions based on this information.
To conduct a marginal analysis, you need to change a variable, such as the quantity of input you use, or the volume of output you produce. Once you’ve identified that variable, determine what the increase in total benefits would be if one more unit of the control variable were added. This is considered the marginal benefit of the added unit. Likewise, the marginal cost of the added good should also be calculated. The marginal cost is – you guessed it – the increase in total cost if one more unit of the control variable were added. If the marginal benefit outweighs the marginal cost, then there is a “net benefit” and the marginal unit of the variable should be added.
SWOT Diagram
When you are planning to make a significant change in your business, SWOT diagrams can help you break down the situation into four distinct quadrants:
- Strengths: What does your company do better than its competitors? Think of both internal and external strengths that you possess.
- Weaknesses: Where can your company improve? Try to take a neutral approach and consider what factors may be hurting your business.
- Opportunities: Look at your strengths and think of how you can leverage them to create new openings for your business. Also, consider how eliminating a specific weakness could open you up to a new opportunity.
- Threats: Determine what challenges stand in the way of achieving your goals. Identify the primary threats to your organization.
A SWOT Analysis can help you identify the forces that influence a strategy, action, or initiative. This information can then be used to guide you in the right direction and support your business decisions. To get the full picture, it’s essential to take multiple viewpoints into account. When you enlist the help of other team members and stakeholders, it is easier to spot trends, patterns, and connections between the quadrants. Taking a collaborative approach can also offer deeper insight into potential opportunities and threats you may not have been able to identify alone.
Decision Matrix
When you are dealing with multiple choices and variables, a decision matrix can bring clarity to the disarray. A decision matrix is similar to a pros/cons list, but it allows you to place a level of importance on each factor. That way, you can more accurately weigh the different options against each other.
How to Create a Decision Matrix:
- List your decision alternatives as rows
- List relevant factors as columns
- Establish a consistent scale to assess the value of each combination of alternatives and factors
- Determine how important each factor is towards making your final decision and assign weights accordingly
- Multiply your original ratings by the weighted rankings
- Add up the factors under each decision alternative
- The option that scores the highest wins
Decision Matrix Example:
In this example, a company is trying to make a decision about which vendor they should work with for an upcoming project. The factors they are using to evaluate each option are: capabilities, reputation, reliability, and price. They care more about the capabilities and price than the reputation and reliability of the vendor, so they weighted the importance of those factors accordingly. Based on the results from their decision matrix, they should be able to confidently decide on Vendor 2.
Pareto Analysis
The Pareto Principle helps in identifying changes that will be the most effective for your business. The principle is named after economist Vilfredo Pareto, who found that an 80/20 distribution occurs regularly in the world. In other words, 20% of factors frequently contribute to 80% of the organization’s growth.
An example of this principle applying to business management would be 80% of sales coming from 20% of your customers. A business can leverage the Pareto Principle by identifying the characteristics of the top 20% of their customers and finding more customers like them. When you can identify what small changes will make the largest impact, you are able to prioritize the decisions that have the highest level of influence. This allows managers to dedicate their energy and resources to what will actually move the needle for their business.
The Next Step: Reviewing Your Decision & Making Adjustments
Once you’ve determined which decision-making strategies work best for you, you can’t stop there. Being able to consistently make the right decisions is too important. In fact, decision effectiveness is 95% correlated with financial performance, so it is critical for managers to keep track of the decisions they make and how they turn out. Decision-making is an ongoing process, and the best way to keep up is to use data dashboards.
Enterprise Reporting software allows managers and executives to get information from multiple data sources in one system, so they can see how the business is performing against their goals. Plus, company data can be accessed in real-time, so managers can make quick decisions and adjustments based on what is working and what is not. Interested in seeing how a dashboard can help you make more informed, objective decisions?
Click here to download our Ultimate Guide to Dashboard Best Practices.
The decision making tools help you to map out all the possible alternatives to your decision, it’s cost, as well as chances of success or failure. These applications provide a useful way to make the right choice by simplifying the decision making process and by drawing a diagram.
Following is a handpicked list of Top Decision Tools, with their popular features and website links. The list contains both open source(free) and commercial(paid) software.
Decision Making Techniques and Tools
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT Diagram is an important management application that helps any organization to assess its current situation. It works as a basic guide for strategic planning.
Tool to create SWOT Diagram: Creately
Creately is an easy way to create SWOT diagrams online. It is one of the best tools in decision making that contains 100s of readymade SWOT analysis templates. It has a user-friendly interface that enables you to customize your diagrams. You can use this tool to collaborate around your organization strategies in real-time.
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Decision making diagrams are graphs that enable you to map out the decision you have taken. It is one of the best decision making methods that helps you to estimate eventual actions based on the outcomes and risks. You can use this diagram for planning team strategy.
Tool to create Decision Making Diagram: Lucidchart
Lucidchart is a tool that helps you to build decision tree diagrams. This software can be used to collaborate with your teammates in realtime. It enables you to visualize potential paths and examine outcomes. Lucidchart can simplify decision making process using technical diagrams.
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Strategy map is a diagram that can be used to document strategic business goals. This map is created during the planning process of business. It is used as a primary material to check-in and review meetings.
Tool to create Strategy: Cascade Strategy
Cascade Strategy is a decision making tool that provides a drag and drop interface to build strategy Map. This tool supports a wide range of frameworks. It is one of the best tools for business decision making which allows you to export map to the PDF file format.
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4) Decision Matrix
A decision matrix is a technique that contains values that helps you to identify and analyze the performance of the system. The elements of a decision matrix show results depend on specific criteria.
Tool to create Decision Matrix: Mindtools
Mindtools convert your data into row and column. It represents table row as your decision and factor as a column. It is one of the best decision analysis tools which enables you to score each option from 0 (indicate poor) to 5 (indicate very good).
Link:
https://www.mindtools.com/pages/article/newTED_03.htm
5) Pareto Analysis
Pareto Analysis is a method for decision-making. It is also known as 80/20 rule meaning, 20% of your activities will account for 80% of your results. It is used for prioritizing possible changes by identifying the problems and resolve them.
Tool to create Pareto Analysis: Visual Paradigm
Visual Paradigm helps you to add or input data to your pareto chart easily. It is one of the best tools of decision making that enables you to change chart’s fonts and colors without any hassle. This tool automatically generates a chart based on the data available in the Google Sheet. Visual Paradigm allows you to resize the chart to any dimension.
Link: https://online.visual-paradigm.com/diagrams/features/chart-maker/pareto-chart-maker/
6) Cause and Effect or Ishikawa Diagram
Cause and Effect or Ishikawa Diagram shows the causes of a particular event. It can be used for product design and to check its quality to identify possible factors causing an overall effect. You can group causes into categories to find sources of variation.
Tool to create Cause and Effect or Ishikawa Diagram: SmartDraw
SmartDraw is a simple tool that enables you to draw Ishikawa diagrams online or on your desktop PC. It provides support for Mac and Windows operating systems. Causes and effect diagrams are integrated automatically, and you can move or delete them quickly. SmartDraw offers numerous templates to draw Ishikawa diagrams.
Link: https://www.smartdraw.com/cause-and-effect/fishbone-diagram-maker.htm
7) Force Field Analysis
Force Field Analysis enables you to examine your project. It provides a framework for looking at the factors that influence a particular situation. This analysis helps you to understand the process of any organization in a better way.
Tool to create Force Field Analysis: SmartDraw
SmartDraw is a decision making tool that provides templates to perform force field analysis. You can use this graphical tool for making decision. This drawing tool automatically adjusts items on the drawing area. It is one of the best analytical tools for decision making which helps you to import or export a force field analysis diagram from Visio.
Link: https://www.smartdraw.com/force-field-analysis/examples/model-1-force-field-analysis/
8) Break-even analysis
A break-even analysis helps you to determine at what stage a new business product will be profitable. It’s an economic calculation used to determine the number of products or services you need to sell to cover your costs.
Tool to create break-even analysis: Good Calculators
Good Calculators provides a calculator that enables you to make better business decisions and calculate the break-even point. You can utilize this tool by just entering fixed and variable costs, selling price per unit, etc. It enables you to calculate it with just a single mouse click.
Link: https://goodcalculators.com/break-even-calculator/
9) Pugh Matrix
Pugh Matrix is a diagram that is used to evaluate alternative solutions for business. It helps you to determine which solutions are more valuable than the others. This method does not require a massive amount of quantitative data.
Tool to create Pugh Matrix: Psychologia
Psychologia is a tool that provides a score for every option you have entered. This app enables you to find the highest score. It helps individuals to find the importance of specific criteria over others.
Link: https://psychologia.co/pugh-matrix/
10) Ratio Analysis
Ratio analysis is a term used for comparison of items available in the financial statements of a business. It used to evaluate a number of problems with an entity, like its liquidity, efficiency of operation, and more.
Tool to create Ratio Analysis: Finstanon
Finstanon is a solution for financial analysis. It helps you to interpret profit ratio, liquid ratio, debt ratio, and more. This tool enables you to analyze more than 15 different types of metrices. Finstanon generates data in tables and diagrams.
Link: https://www.finstanon.com
FAQs:
💻 What are Decision Making Tools?
Decision Making tools are software applications that help you to map out all the possible alternatives to your decision, its cost, as well as chances of success or failure. These applications provide a useful way to make the right choice by simplifying the decision-making process and by drawing a diagram that helps you to make a better decision.
🚀 Which are the Best Decision Making Tools?
Here are some of the best decision making tools and techniques:
- SWOT Diagram – Creately
- Decision Making Diagram – Lucidchart
- Strategy Map – Cascade Strategy
- Decision Matrix – Mindtools
- Pareto Analysis – Visual Paradigm
- Force Field Analysis – SmartDraw
- Break-even analysis – Good Calculators
✅ What are the 7 steps of Decision Making?
Here are the 7 steps of the decision-making process:
- Step 1) Identify the decision
- Step 2) Gather the necessary and relevant information
- Step 3) Identify the alternatives
- Step 4) Weigh the evidence
- Step 5) Choose among the alternatives
- Step 6) Take action
- Step 7) Review your decision & its consequences
