Decision Making in a Business

Posted 23/08/2019

Running a business and being involved in the day-to-day management brings its own set of responsibilities, including decision-making. It will be directors, owners and managers who help to make the more long-term decisions for the business’ growth and such decisions should not be made lightly. The decision-making process needs to have planning and control in consideration to help satisfy the objectives.

The objectives, or goals, should be beneficial to the company and the decision-makers must be aware of what their decision should achieve when it’s implemented. Economically the objective can be to maximize the business profits, especially as this goal drives the business’ growth, but it is possible for other objectives to be in place, such as social goals to improve the work area for employees. The decision-makers may have more information on what needs to be done and what form the decision outcome needs to take, such as a decision on an advertising campaign, which can be beneficial in narrowing down what needs to be done but the objective should remain clear throughout the process. Once the goal is identified, the various courses of action can be collected. When the decision-makers are looking into an action they should take opportunities and threats from the business environment into consideration. As these events will happen in the future once the decision has been made it can be difficult to properly record this information. Outside factors that will affect the overall outcome can include the strength of the competition, inflation, recession, customer demand for a product; the list is not exhaustive and different factors affect different types of businesses. Gathering information such as these can influence projected cash flows produced to find the more favourable end result out of the different options and to support any final decisions made.

The chosen activity should best satisfy the objectives set out in step one. Projected cash flows drawn up while information was gathered should be used to aid financial decisions, and these same estimates can be used against actual figures for the comparisons when the decision is made. The budget allocated for the decision should appear on the cash flow as it is the financial plan for implementing decisions to ensure that there is cash to provide the decision. When the action has been put in place the actual outcomes can be compared to the projections to reflect the progress of the action. This feedback is usually presented as performance reviews and can be prepared by the company accountant. The feedback will indicate if a decision has been beneficial for the company, although companies should be wary of repeating a decision in the same way. The everchanging market environment means that when the decision-making process is repeated there will be new factors or changes to existing factors that the decision-makers would need to consider. Any strange differences can be identified by the cash flow between the estimate and actual figures and investigated into to find the factors that have had an impact on the actuality of the option.

Tags: business set up, managing a business, sole trade, limited company, expenses