How to make a good decision in a small business

A good decision has the characteristic that you consider and evaluate several options with regard to several goals and criteria. Often the goals are contradictory, but have different weights. At the outset, we have to make clear that the actual choice is just one of the steps within the problem solving and decision process. Without implementation, the choice is of no value. Prior to the choice the analysis phase, try to uncover problem causes and will generate alternative solutions. At the very first step, before analysis, you should decide how a problem as the one in question should be solved. This is a so called meta decision.

Every good decision process lets you choose among several alternatives. A classic mistake is to think that "this problem only has one solution." Even in negotiations you should have a best alternative to negotiated solution at hand. Several creativity techniques can help generating options. Such techniques include brainstorming, idea meetings, and circle diagram (where you move between the general and the specific, and between theory and actual problem).

Often conflicting goals

Business problems come in many forms. Many involve negotiations. Then the challenge is to find solutions that satisfy all parties' interests. The goals may be in conflict.

Even single decision makers will have conflicting goals most of the time. There may be goals for revenue growth, cost, and profit. Then you want to chose the option that best fit all the goals.

Compare the options

To be able to compare the alternatives you have to decompose the goals into concrete and measurable criteria. Such criteria is well-known from product comparisons in magazines and on the web. For instance, PC's are compared on disk size, memory size, processor speed, etc. To get from goals to criteria, you can ask: What does this involve? And, to move from criteria up to goals, you ask: Why is this important?

Finally, you can make a choice when you have decided how important each criteria is for you. Some criteria is a must, and alternatives that do not meet the requirement, are left out. For other criteria you have to judge how each alternative scores. A simple multiplication of the weight and score is normally satisfactory. Other more complex value functions include the Prospect theory by Daniel Kahneman where loss is more critical than gain.

After the choice is made the decision criteria will become the criteria used to evaluate success. You have to measure these to be able to monitor the steps towards your goals.

Multi Criteria Decision Making

Even for a simple decision it will be overwhelming to juggle all this facts and comparisons in your head. You will need to use a spreadsheet or a decision support system, such as calc3.com, for this. The method outlined above is called Multi Criteria Decision Making. However the basic process is age old. Read more about this underneath.

Old wisdom

Dale Carnegie wrote about decisions in his old and well-known book How to Stop Worrying and Start Living (1): "Leon Shimkin eliminated 75% if all time he spent in meetings trying to solve business problems by a structured method. For fifteen years, he said, I spent almost every business day holding conferences, discussing problems. Should we do this or that - or nothing at all? We would get tense; twist in our chairs; walk the floor, argue and go around in circles. When night came, I would be utterly exhausted. I fully expected to go on doing this sort of thing for the rest of my life. I had been doing it for fifteen years, and it never occured to me that there was a better way of doing it. If anyone had told me that I could eliminate three fourths of my nervous strain - I would have thought he was a wild-eyed, slap-happy, armchair optimist. Yet I devised a plan that did just that."

First Leon Shimkin made a rule that everyone who wished to present a problem to him had to first prepare and submit a memorandum answering these four questions:
Question 1: What is the problem?
Question 2: What is the source of the problem?
Question 3: What are all the possible solutions of the problem?
Question 4: What solution do you suggest?

Leon Shimkin then added: "My associates rarely come to me now with their problems. Why? Because they have discovered that in order to answer those four questions they have to get all the facts and think their problems through. And after they have done that they find, in three fourths of the cases, they don't have to consult me at all, because the proper solution has popped out like a piece of bread popping out from an electric toaster. Even in those cases where consultation is necessary, the discussion takes about one third the time formerly required, bacause it proceeds along an orderly, logical path to a reasoned conclusion."

Study the facts
I keep six honest serving-men
(They taught me all I knew):
Their names are What and Why and When
And How and Where and Who
- RUDYARD KIPLING (1)

Dale Carnegie wrote:
1. Get the facts.
2. Analyze the facts.
3. Arrive at a decision - and then act on that decision.

It seems so easy, yet it is so difficult. Most of us want to jump on a conclusion as Daniel Kahneman wrote in his best-selling book Thinking, fast and slow.

A small business is charactized on this page as a firm where one person or a small group makes the decisions. Larger firms have additional challenges. We would like to add that a framework for structuring the decision tasks does not substitute for sound judgement and even intuition for what is right. However, it gives clarity, illuminates the intuition, and enables learning. Read more about how calc3.com can be used as a decision support system.

(1) Carnegie, D. (1984). How to eliminate fifty percent of your business worries. In: How to Stop Worrying and Start Living (p. 231). London: Cancellor Press.
(2) Wikipedia contributors. (2019, September 15). Leon Shimkin. In Wikipedia, The Free Encyclopedia. Retrieved 13:37, October 12, 2019, from https://en.wikipedia.org/w/index.php?title=Leon_Shimkin&oldid=915802741
(3) Carnegie, D. (1984). Live in Day-tight Compartments'. In: How to Stop Worrying and Start Living (p. 203). London: Cancellor Press.

 

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