What Is a Business Decision? (Plus Tips for Making One)

By Indeed Editorial Team

Published November 12, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Making decisions plays a key role in the success of any organization. The right choices can help companies achieve various goals, from improving their products and services to increasing their profits and market share. Learning more about decisions that influence the performance of a business may be helpful if you're part of a company's leadership team. In this article, we define what a business decision is, discuss types of decisions and the importance of following a decision-making process, and provide tips for making business-related decisions.

What is a business decision?

A business decision refers to a course of action that affects a company's operations. Employees in managerial or executive roles generally make these decisions, which influence the direction and future of the organization. These decisions are highly important and require the consideration of various advantages and disadvantages of different options. Considering the best interests of stakeholders, such as shareholders and customers, is essential throughout this process as well.

Business-related decisions can have far-reaching implications for the organization. They may result from the input of multiple departments, which may include human resources, marketing, finance, and legal. They may also involve the input of outside stakeholders, such as the board of directors and shareholders and the company's leadership team. These decisions can be formal or informal, and the organization may record and disseminate them as an e-mail, a memo, or as part of another internal document, such as a strategic plan or a departmental budget.

Related: Understanding the Process of Decision-Making in Management

Types of decisions organizations make

There are distinct types of decisions that an organization may make, and the nature of the decision and its application can determine its category. Here are the three main classifications of business-related decisions:

Strategic decisions

Strategic decisions involve making choices that affect the direction of the organization. They're often long term, and their purpose is to help the company achieve its most significant goals. Making a strategic decision is often the responsibility of the company's leadership team, which may include the president, vice president, chief executive officer, and other senior executives.

A strategic decision may be tangible or intangible. Tangible decisions affect the company's physical assets, such as buying or selling a facility, while intangible decisions affect the company's operations. These may include instituting a new policy or investing in new technology.

Related: Key Stakeholders and Strategic Decision-Making (With FAQ)

Operational decisions

Operational decisions affect the day-to-day operations of an organization. These may involve decisions that a company's executive and management teams make, including hiring employees and adjusting the workload of current team members. Other examples include deciding how to market a product or improve a process.

The decision-making process for operational decisions is often more transparent than that for strategic ones. While a strategic decision may involve many stakeholders, an operational decision often involves only a few people. These may include the department head, employees with a direct impact on the department's performance, and the people the decision may affect.

Tactical decisions

These types of decisions are the most immediate and are often short term in nature. They're also the most context-specific, so the decision-making process depends highly on the particular situation where they're necessary. They involve making choices in the moment, such as hiring a temporary replacement for an unavailable employee or proceeding to the next step of a process. Managers often make tactical decisions to address a situation that requires a quick response.

Related: What Is the Rational Model of Decision-Making? (With Steps)

Importance of following a decision-making process

Making decisions is one of the most challenging tasks for an organization's leadership. If you're an executive or part of a company's management team, it's important to follow a set of guidelines for decision-making to ensure that your decisions are sound and that you're aware of the implications of your choices. Here are other reasons having a decision-making process in place is crucial for leaders and organizations:

  • Saves time and effort. A decision-making process allows you to define a decision and its intended outcome in a prescribed manner. This specified structure helps you lessen the time and effort you spend making the decision, enabling you to focus on the most critical aspects of the decision rather than on making it.

  • Helps in managing resources. Following a process allows you to identify the resources necessary to make and implement a decision, which helps in managing these resources effectively and in choosing a solution that uses them efficiently. This is especially important for organizations with limited resources.

  • Results in better decision-making. A process for making decisions allows you to identify the facts, options, and other information that may apply to a decision. This can help you identify the most effective course of action and determine the factors that are likely to influence the outcome of a decision.

  • Minimizes risk. A well-thought-out decision-making process ensures you identify and address the potential risks of a decision before you implement it. This is important because it allows you to minimize or avoid potentially damaging outcomes and ensures that you're aware of the impact of a decision on the organization.

Related: 4 Main Decision-Making Styles Explained (With Examples)

How to make business-related decisions

It's often necessary to consider a variety of factors when making business decisions, including the decision's potential impact on the company and the opinions of stakeholders. These are steps you can follow to make an effective decision:

1. Collect relevant data

Collecting necessary and accurate data is important in decision-making. Companies can gather the required information through department assessments to determine the current state of the business. They can also collect information through market research and consultant evaluations. When making a decision, it's crucial that you consider only the data that's relevant to the issue or situation you want to address to maintain your focus.

Related: What Is Data-Driven Decision-Making? (With Benefits)

2. Identify the problem and the goals for decision-making

When making decisions, it's crucial that you identify the challenges or concerns that you want to address. This may help you determine and focus on the decision's objectives, which can make the process more efficient. It's also important that you identify the issues that you may face when making the decision. This can help you anticipate potential challenges and determine how you can deal with them effectively.

3. Consider more than one potential decision

It's important to examine various potential decisions before you make your choice. This can help you identify the most appropriate decision for a given situation, which may lead to better results. While it may be tempting to consider only the most obvious solution, it may be best to examine all of your options to determine which one is likely to provide the best outcome. This may require you to gather additional data that can help you define your decision's objectives and determine the best solution.

4. Analyze the possible outcomes of a potential decision

While deliberating on the decisions to make for a business, it may be helpful to consider their potential outcomes. This can help you determine the most effective decision and predict the most likely outcome of a particular choice. This also allows you to identify any potential issues or risks associated with a decision and determine how you can minimize them.

5. Seek advice from colleagues or experts

One benefit of working with others is the availability of different points of view and experiences. When you aren't certain about a decision, you can consider seeking the advice or opinion of other members of the organization or experts in the field. Gathering additional perspectives on a situation can help you determine the best course of action and identify any potential issues or risks that a particular decision may pose.

6. Establish a plan of action

A plan of action consists of the steps you can follow to implement your decision. A plan is important because, without proper follow-through, a decision may not yield the results you desire. By establishing a plan of action, you can ensure that you and the team follow a systematic approach to implementing decisions that affect a business. This can help you identify any potential issues or challenges and determine how you can adjust and refine your decision to minimize or address them properly.

Related: What Are Decision-Making Skills and How to Improve Them

7. Review the decision and monitor its outcome

Before implementing a decision, it may be a good idea to review it to ensure that it aligns with your goals and objectives and with the organization's strategy. It's also important to observe the decision's impact on the company after implementation. This can help you determine whether the decision is working as you expected or if it's necessary to make changes to the decision or the implementation process.

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