Decision makingWhat is management decision making?

Published April 20, 2023

Making an important decision in management when having many alternatives - photo illustration.

Management decision making is an essential business process in any organization. It is a critical factor to the success of all business activities and the achievement of business-relevant key performance indicators. All decision makers must have the ability to make systematic and smart decisions that advance the business purpose. Good decisions achieve goals faster, more cost-effectively and are in line with the company's own growth strategy. This minimizes risk and ensures an organization's long-term, sustainable business success.

What is management decision making?

Business goals can usually be achieved through a variety of possible actions and projects. However, projects tie up time and resources and, will most likely set the framework for further project. Therefore, management must choose wisely and with foresight from all possible alternative courses of action. The overall goal of decision making in management is to choose the alternative that promises the greatest success. The term or "scale" that is used to determine “success” must be defined in each case considering the appropriate corporate context and must be in accordance with the current organizations objectives. Decision making therefore involves, in particular: identifying the condition that is to be changed inside the organization (difference between as-is and target situation), defining the goal, researching the alternative courses of action and selecting the alternatives.

What organizational aspects play a role in management decision making?

Decision-making is not a process that can be carried out purely by following a guideline of steps. Various factors influence how successfully decisions can be adopted and implemented in the company. All of these must be considered.

Information availability:

Is there data that can be used to better weigh alternative courses of action? For example, have there been similar projects in the past that can be used to predict the impact of new projects? Can a new project be transferred to several sales markets in the future and thus have a higher overall potential than other projects? What are the costs associated with a project, both direct and indirect? For example, are there existing sales channels for a project or do they have to be created first? Not only costs play a role, but also associated time in which resources are blocked and the delay for a market entry. A project that enables a quick market entry is usually more valuable than a project with a later market entry, since market shares and potential customers are otherwise left behind. There are many other factors that can be used to make a decision if they are available. Not all information is always available, in which case the decision must be made as sensibly and plausibly as possible in its absence. This influences the approach for the actual decision-making, as assumptions and actual information have to be carefully weighed in the process.

Organizational culture:

Are decisions made together by multiple parties? How are decisions communicated so that they are accepted by everyone involved? Organizationwide or teamwide Support of a decision can be a critical factor for success. Is there a great willingness to take risks in departments that allows for radical and bold decisions, or should decisions only consist of small incremental changes so that they are accepted? The motivation to implement decisions can be dramatically different depending on the state of the culture. Management decision making must consider this because it can make originally good decisions less effective.

Time constraints:

How quickly does a decision need to be made? Depending on the time horizon, the process needs to be designed differently, e.g., approached with less or more information (as there is less time of gathering information), or take place with fewer participants, as the complexity of decision making increases due to higher organizational effort with more participants.

Politics and hierarchy:

In the organizational context, decisions are rarely made on purely objective data alone, because different actors pursue different interests and will optimize the alternative courses of action according to their own interests. Generally, it is important that decision-makers, department heads and managers place a strong focus on the goals of their own departments; this is, after all, why these people are deployed in their respective roles. However, this can lead to initiatives that would be best for the organization as a whole being pushed into the background. To ensure that this does not have a harmful effect on the success of the company, all stakeholder must commit themselves to maintain a balance between their own goals and those of the organization. This in turn also promotes an organizational culture in which decisions enjoy a high level of acceptance.

What characterizes effective management decision making ?

Effective decision-making is based on a high degree of objectivity and sound judgment. To ensure objectivity and make evaluation of different potential actions objectively comprehensible to others, a systematic, transparent approach is required. Stakeholders must be able to research (or obtain) information, analyze it, weigh alternative courses of action against each other, recognize conflicting goals or favorable potentials, and consider all information fairly. If data about a potential project cannot be confirmed with 100% certainty and can only be estimated, this information must also be marked accordingly, so that everyone involved can take this into account. Because actual secured evidence, in contrast to uncertain predictions, must have a higher weighting and more influence on the choice of action. The use of good judgment plays a crucial role for effects that are merely forecasted. Diverging opinions should be discussed openly in order to make the optimal decision and take the best possible direction for one's own organization.

Decision makers, who consider themselves prepared to make a management decision, should be able to positively answer these criteria:

  • Good understanding of the ways in which specific courses of action help to achieve goals.

  • Overview of the risks associated with possible courses of action.

  • Are the benefits reasonably balanced with the costs?

  • Are long-term consequences taken into account, such as cost-of-ownership?

Are there tools for making effective decisions?

In management, there are several methods for comparing possible courses of action and determining the optimal ones. Common methods are for example the Eisenhower matrix or the pairwise comparison method. To perform these methods, you can resort to pen and paper, use a spreadsheet, or use an online tool. In another blog post, we have published spreadsheet templates for you to use for prioritizing.

The downside of spreadsheets and paper solutions is that they can be laborious to systematically capture objective criteria and incorporate them into the decision. You need to create all your criteria (”cost”, “impact”, “risk”, “confidence”, “market barriers”, …), capture your evaluation for each criteria (”high”, “medium”, …) for each project and fiddle around with a formula to calculate the best possible decision. Capturing all criteria evaluation takes a significant amount of time, creates large, unmanageable spreadsheet and gives you no clue about the reasons that lead to a change of an evaluation.

Our online prioritization tool Prioneer provides a secure, cost-effective solution to simplify the decision-making process. With Prioneer, you can prioritize projects according to your own criteria and thus make the best decisions for your specific business goals. Prioneer allows you to evaluate projects yourself according to criteria and then invite other stakeholders to evaluate independently and provide their own priorities to you, so that you can consider other viewpoints accordingly. For example, you can invite external consultants to evaluate the risk of projects via a link without the consultant having insight into all your criteria. You yourself, however, have an overview of all criteria at all times. You can give team members the opportunity to vote for priorities and then have insight into the overall priorities that our system automatically calculates for your whole team. You can let people submit their priorities through a pairwise comparison or through a decision matrix.

Thereby, you can make decisions that consider different viewpoints in a smart way and align all stakeholders around one ordered list of priorities. Ultimately you will be able to identify what the best course of action is while having all data and everyone’s support for the decisions you take.

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