How to Make Effective Decisions

Often overlooked is the importance of effective decision making. Each day every organization collectively makes dozens, even hundreds of decisions. Each of these individual decisions can either push the organization further along the focused path of strategy or put the “Whac-A-Mole Management” game into play. How can organizations improve the consistency and alignment in decision making? By establishing decision criteria.

For an organization to move as quickly as today’s market demands, and to have all the moving parts work in an orchestrated fashion, decision making needs to be dispersed throughout the brain trust. For leaders in different departments or divisions to make decisions independently—yet consistently with the direction of the company—common decision criteria need to be established.

Decision criteria are a breakdown of the variables that contribute favorably to the organization’s strategic direction. Decision criteria fall into four distinct categories:

1. Strategic fit: How well does this decision support our strategy? Will this decision make a significant impact on how fast or how well we achieve our strategy?
2. Customer acceptance: Will this decision help us to better serve our target customer? Will they embrace it? How quickly? How many of them?
3. Resources impact: Do we have the resources to do it well? If not, can we find the resources by trading this for something else we planned to do? Do we have the money, time, experience, knowledge, skill, etc., to do this well?
4. Financial implications: What is the revenue potential and net present value? Profit potential? Impact on cash flow? Will this enable the profit driver (the way we make money)?

Additional criteria can be added under each category to reflect more nuances of the strategy. Each organization lists the criterion that fits their growth plan, tailoring the four criteria to an organization’s strategy and unique considerations.

Once the criteria are set, it can be made into a checklist for decision making. Each initiative under consideration can be evaluated using the common set of criteria. The organization can decide to assign points or use other methods to score each proposal using the criteria and determining whether it is a go, a no-go, or go later/need more information. Subsequently, the criteria need to be communicated throughout the company. It will provide clarity regarding how decisions get made, increase consistency in decisions among all departments and levels, as well as establish greater consistency over time.

The transparency of decision criteria will be useful to those shouldering the responsibilities to develop recommendations for consideration. For those who are recommending new products, programs, or service features, knowing how the decision will be made not only prepares them to present the recommendation but allows them to edit out ideas that will never fly, decreasing distractions. Decision making should not be emotionally based or a black hole. Specific criteria help prevent that from happening.

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