Understanding the Decision Model in Business

Every day, multiple times a day, we make decisions. Most of the time, the process is so hard-wired into our subconscious that we hardly realize we’re doing it. Those decisions don’t take a large amount of our brain’s computing power. What we’re going to wear is informed by the season, the weather, and our tasks for that day. What we eat for breakfast probably doesn’t change much over the course of a week. There are some decisions, though, that are worth a little extra time and energy to assess and execute correctly. Whether to buy or rent a home or apartment, for example. Or where we attend college. Whether we decide to marry and raise a family.

In the business world, these decisions could relate to your customer base, your bottom line, and other resources. How does a business grow revenue? What is its target market? How should it approach that market? These are problems we come up against as entrepreneurs that it behooves us to solve correctly, and that a little structure could help with. This is where the five-step decision model can be put to excellent use.

As its name implies, there are five simple steps to this model that, if followed, could help better inform the way you tackle the big questions facing your business. In this article, we’ll go over each step, as well as how you can use decision models in business.

The Decision Model: The Five Steps

In an article on decision-making, Corporate Wellness Magazine outlined the five-step decision model in detail. We’ll share some of their insights below, along with others, on just what each step in the process should look like.

Step 1: Identify the goal or problem.

Probably the most obvious of the five steps, but also the most important, is identifying the goal or problem you’re working toward. This can be more difficult than it would seem at first. A common mistake people make in this phase of the decision-making process is zeroing in on a symptom of the problem rather than the problem itself. Take the time during this step to really figure out what to focus on so that all your efforts afterward don’t go astray. You can outline the problem in writing or brainstorm it with someone else until you get to the bottom of it.

For a business, the goal could be to raise revenue, or perhaps the owner is struggling with a way to reach new customers. In the first instance, knowing how much money it takes to run the business and how much profit is currently being put back into it can help determine how much more money they need to raise to increase their revenue. When the problem has been more clearly defined, and the next steps become easier.

Step 2: Gather information and weigh your options.

Now that the problem or goal has been identified, you can inform yourself of your options and decide how best to proceed. This is the step where nothing is too foolish to be left out. List every possible option, even if it seems implausible or unlikely, and weight each one according to how it could best benefit you.

In their short tutorial video on the rational decision model, Alanis Business Academy outlined some ways to evaluate the different scenarios you come up with during this phase. They use the example of a family increasing in size and possessions to the point where it becomes too crowded in their current home. Some options they review are putting some things in storage and buying a bigger house. They weigh each option on the criteria of time, cost, and how likely it is to solve their problem (lack of space). In your planning phase, you can do the same by gathering relevant information from friends, colleagues, and online research to formulate which options you may want to take to approach the goal or problem in front of you.

During this phase, be sure to gather enough information to make a well-informed decision on your options, but not so much that you feel paralyzed by indecision. Getting opinions from or studying the research of experts is recommended.

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Step 3: Consider the consequences.

This is the time for your ‘pros’ and ‘cons’ list. You can literally write this out on a piece of paper or make a spreadsheet; whatever helps you visualize each option best. Make a list of what could go wrong and how you stand to benefit from each option on the list you made during step two, then weigh all your options side by side. There are two methods of ranking information that could be helpful here for ordering your options:

  • absolute comparison: ranking options on a numeric scale, such as 1-10 or 1-5, similar to a ratings system for restaurants or online services.
  • relative comparison: comparing options against one another to see how well they solve the problem or help you achieve your goal relative to the others and choosing the best option.

Say you own a restaurant and are trying to decide on the best supplier for disposable items like trays, cups, and silverware. Cost and waste generated are two important factors in that decision, so you may compile a list of suppliers and compare which ones fit within your budget and provide recyclable or biodegradable materials. The one who provides the best supplies at the best price point is the one you’d choose.

This is also where you’ll work through every option and try to predict the outcome, both for yourself and for any others that it may end up affecting. Take into account not only the immediate ramifications of each decision, but the long-term effects as well. How likely is each option to solve the problem, or to advance you toward your goal? Will it hold up over time? If you own a business, consider how your decision will impact your employees.

Step 4: Choose the best option and make your decision.

Now that the best possible options have been explored, weighed, and evaluated, it’s time to make your decision. There can be a temptation during the information gathering phase to keep on gathering data, a feeling that more is never enough, but at a certain point, a decision must be made.

Even now, be prepared to go back to the beginning of this process if the decision you make does not work out as planned. Adaptability is key, even at this late phase. In addition to the hard facts you’ve gathered, consider how you feel about the decision. What does your gut tell you? If you feel troubled, it may be worth some additional evaluation. If not, you’re ready to follow through.

Step 5: Assess your decision.

Knowing what works and what doesn’t can establish a helpful pattern for decisions going forward. Take the time to go over the results of what you decided and see if it met your expectations. Did it advance you toward your goal or solve your problem the way you thought it would? Were there any areas where your plan fell short? If so, make a note of them for next time. Why did that social media marketing campaign work so well or why didn’t it? If your decision didn’t work out after all, go back to step one and work through another option until you get it right. Evaluating your choice from every angle will help avoid the same mistake twice.

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