Managers and leaders make countless decisions each day, decisions that influence individuals, teams, and the organization as a whole. Nearly every aspect of business from finance and human resources to operations and project management relies on their judgments and choices. In fact, most managers spend the majority of their working days involved in this important process, making effective decision-making an essential management skill.

Given the complexity and frequency of these decisions—and their impact on organizational performance—it’s vital to understand the barriers to thoughtful decision-making, and to adopt the best practices and tools that can strengthen this skill.

What Is Decision-Making in Management?

At a high level, management decision-making means determining and choosing the option that will achieve the desired outcomes. Approaches may vary, but the process typically involves defining the issue, evaluating options, and choosing the best path based on factors important to the business.

It sounds simple enough, but it’s rarely that straightforward. Depending upon the situation, a good decision-maker may need to weigh pros and cons, run scenarios to envision different outcomes, gather input from stakeholders and experts, and identify the solution that best balances costs, benefits, and risks.

Key Takeaways

  • Leaders and managers face numerous decisions—big and small—every day.
  • Many struggle with the process and feel overwhelmed by the data, not to mention the various internal and external factors involved.
  • Common hurdles to effective decision-making include biases, incomplete data, disorganization, and unclear objectives.
  • Understanding different decision-making styles and adopting best practices are essential for making better choices.
  • Enterprise software with data analytics capabilities can help leaders make faster, better informed decisions.

Why Is Effective Decision-Making Important?

In many ways, management is all about decision-making: hiring, firing, evaluating ideas, planning implementations, selecting products, devising strategies. Hesitation or lack of clarity can lead to missed business opportunities or diminished confidence on the part of employees and investors. Rushed decisions, on the other hand, can expose the company to unnecessary risks or financial losses. While top-down decision-making may be swift, it can feel authoritarian or overlook diverse perspectives. By contrast, collaborative decision-making may yield better outcomes but can slow the process down.

Finding the right approach for a particular company and situation is paramount—not just for effectively dealing with challenges, solving problems, and seizing opportunities, but for achieving broader benefits as well. Good decision-making:

  • Aligns work with an organization’s goals: Thoughtful, methodical decisions further a company’s objectives at the organizational, team, or individual levels. These choices influence reputation, market position, and long-term success, and, when done well, can strengthen a company’s standing in the marketplace.
  • Improves issue response time: Strong decision-makers with the skills and tools to act decisively can swiftly address issues, navigate disruptions, or capitalize on opportunities that less-experienced managers may not be able to accomplish.
  • Maximizes resource allocation: By considering all aspects of a situation, capable decision-makers are more likely to make the best use of resources, be they budgetary, workforce-related, or time. This reduces waste, controls costs, improves productivity, and increases profitability.
  • Boosts business performance: Informed, timely decisions drive innovation, responsiveness, resilience, competitiveness, and better customer experiences. Managerial decisions directly impact organizational outcomes and effectiveness.
  • Increases team trust and morale: Collaborating with team members to determine the best course of action enhances employee engagement, satisfaction, morale, and trust. This can also lead to greater retention of personnel.
  • Ensures legal and regulatory adherence: Considering the legal and regulatory implications of decisions ensures that the organization will maintain compliance with all relevant rules and laws, mitigating compliance risks.

Decision-Making Styles

Individuals approach decision-making differently, ranging from logical, “just the facts” methods to those based on emotion or gut instinct. No style is inherently better or worse, but self-awareness about one’s approach can help managers identify and address potential blind spots that could detract from their decision-making effectiveness.

1. Normative

Normative decision-making relies on historical experience, patterns, and conditions to guide choices. Normative decision-makers tend to be more risk-averse, favoring proven processes and practices—what’s worked well in the past—to determine future decisions. Sometimes referred to as “directive” decision-making, this style emphasizes fast, straightforward choices. It can work well for everyday decisions with predictable outcomes in stable environments, but it’s less suited to complex, high-stakes situations or those that demand innovative departures from company norms.

2. Collaborative

Collaborative decision-makers invite input from others to make well-rounded choices. This approach encourages transparency, improves communication, and builds trust among stakeholders. By gathering insights from those with varied perspectives and experiences, collaborative decision-makers form a more inclusive understanding of an issue while driving broader ownership of decisions and their implementation. However, this method can be time-consuming, particularly for complex issues that involve large groups.

3. Cognitive

A cognitive approach is marked by a logical, methodical assessment of opportunities, risks, and constraints. Also referred to as “analytical” decision-making, it prioritizes gathering and analyzing data to minimize personal bias, emotional attachments, and individual intuition. Although this just-the-facts approach reduces subjectivity, it may overlook cultural and people-related factors that influence the ultimate success or failure of a given choice. Additionally, the thorough review of extensive data can make this approach time-consuming, so it’s generally most appropriate for complex scenarios that demand intense analysis.

4. Psychological

In contrast to cognitive decision-making, the psychological approach focuses on feelings, experiences, and instincts. Psychological decision-makers consider the larger context of a situation and rely on personal judgment and assessment to finalize choices. This style can lead to more creative and flexible solutions, but it risks resulting in less-researched decisions that fail to consider essential data and facts.

5. Conceptual

The conceptual approach takes a big-picture view, emphasizing creativity or innovative solutions. Conceptual decision-makers intentionally pursue new ideas and possibilities that may significantly depart from past decisions. While this style can yield groundbreaking solutions, implementing out-of-the-box ideas may meet with resistance.

Conditions That Influence Decision-Making

Managerial decision-making doesn’t happen in a vacuum. Various factors may shape or dictate the choices considered or the way a decision is made. These conditions run the gamut from internal situations, such as organizational structure or corporate culture, to external circumstances, such as regulatory requirements and political climates.

Internal Conditions

Internal conditions are the dynamics, processes, and characteristics within a company that influence how decisions are approached and made. They include:

  • Corporate culture: A business’s values, mission, and norms shape how decisions are made. Whether a culture is democratic, hierarchical, collaborative, or competitive, these intangible factors influence who makes decisions, how they are made, how quickly, and the level of innovation or consistency.
  • Corporate structure: The tangible design of an organization—its hierarchy, roles, and communication channels—defines how decisions are made. Centralized structures provide consistency but can slow decision-making, while decentralized ones can enable faster, more distributed choices. Hierarchical structures may require layers of approval, while flatter organizations encourage quicker, more direct decisions.
  • Group dynamics: When multiple parties collaborate, group dynamics can influence the decision-making process and results. Diverse perspectives often lead to more creative, more inclusive decisions, with broader involvement that fosters ownership and stronger commitment to implementation. However, challenges, such as groupthink, where the desire for agreement stifles critical thinking, can take hold. Conversely, polarized groups may develop more extreme solutions, and dominant voices may drown out diverse input, which is touted as one of the primary benefits of group decision-making.
  • Organizational resources: The choices available to any organization are defined by the resources available, whether they are financial, human, technological, or temporal. These resources can expand or limit options. Managers must assess and allocate resources strategically to make decisions that align with company goals—a foundational step in making feasible choices that are likely to succeed.
  • Leadership styles: Decision-making processes are influenced by the leader’s approach. For instance, autocratic leaders may make quick, independent decisions that can be effective in crises but may also lack creativity or lead to rash decisions. Democratic leaders are likely to involve others, which can increase the diversity of ideas and boost team engagement. But it can also take more time to elicit involvement, and so may not work as well when time is of the essence.
  • Risk tolerance: Some companies are willing to tolerate significant risk (financial or otherwise) in the pursuit of similarly significant potential rewards. They tend to be comfortable with experimentation and failure, and may be willing to explore unproven or creative solutions. Others are more risk-averse, staffed by conservative decision-makers who tend to opt for the safest bets.
  • Information flow: Accurate, timely, and relevant information is required for efficient, well-informed decision-making. Smooth information flow ensures that all involved parties have access to the same data and can act quickly. Challenges, such as information overload, outdated information, or poor access, can hamper decision-making and lead to suboptimal outcomes.

External Conditions

These are the forces and circumstances outside the organization that influence how decisions are approached and made. External conditions include:

  • Regulatory influence: Decision-makers must understand all local, national, and international rules. These apply not only when making choices related to compliance matters themselves, but also for general business operations, strategy, and risk management.
  • Market position: Market leaders are often in a position to make confident, calculated choices to maintain advantage, but they must also avoid risks that could threaten their dominance. Companies with weaker market positions might be willing to take bolder, higher-stakes risks to improve their positions and compete more aggressively.
  • Political climate: Governmental policies, regulations, geopolitical stability, and other political conditions may prompt companies to be more measured in their operational and investment decision-making, especially when it comes to international trade or market expansion.
  • Market trends: Shifts in customer desires and preferences, competition, and industry norms should always be considered when making decisions concerning sales, marketing, pricing, product development, and overall business strategy.
  • Economic conditions: The economic climate—including growth or contraction, inflation or deflation, unemployment rates, and more—must be considered when making managerial decisions. This is especially true when it comes to decisions pertaining to investments and budgets.
  • Technological advancements: Rapidly advancing technology presents both threats and opportunities. Managers should keep these advancements front and center when making decisions regarding automation, digital transformation, innovation, and business process changes, even as they consider their decisions’ future impact on the organization.
  • Social and cultural shifts: Evolving social values and the cultural zeitgeist influence decisions in marketing, strategy, and human resources. For example, the rise of remote work prompted many leaders to adopt more flexible working arrangements. Similarly, shifting demographics may require adjustments in marketing strategies or product development.
  • Resource availability: Access to external resources—labor, raw materials, technology, parts, components—directly affects decisions on products, projects, pricing, expansion, and risk mitigation. Assessing external resource availability is a key component of effective decision-making; for example, variability in raw materials might make plans for a new product unviable.

Obstacles to Effective Decision-Making in Management

Making tough calls can be challenging in any context, but managerial decisions can come with unique complexities and far-reaching implications. A manager’s choices can shape team dynamics, financial outcomes, organizational goals, even the experiences of hundreds—if not thousands—of customers. Complicating matters, there’s no shortage of issues that can thwart good decision-making. Recognizing and understanding these common obstacles is the first step toward overcoming them. They include:

  • Lack of clear objectives: Without clear and specific goals, it’s far more difficult to determine the best course of action—particularly in unfamiliar situations.
  • Shifting corporate priorities: Constantly changing business priorities can leave managers uncertain about which choices align with organizational goals, leading to confusion or misaligned decisions.
  • Decision avoidance and paralysis: Too many options can overwhelm managers, resulting in indecision or “analysis paralysis,” where fear of going down the wrong path prevents any progress.
  • Emotional bias: Feelings, moods, or personal preferences can cloud judgment, culminating in decisions driven by emotion rather than what may logically be best for the situation. Signs of emotional bias include overreliance on information that confirms personal feelings, ignoring conflicting information, misjudging benefits or risks, or making rash decisions without fully evaluating alternatives.
  • Poor communication and internal silos: Silos and poor communication limit access to relevant information, hinder cross-functional collaboration, and prevent managers from making decisions that align with broader company objectives. In crises, these barriers can delay problem-solving and lead to suboptimal outcomes.
  • Incomplete, inaccurate, or outdated data: Poor-quality information makes it difficult for managers to understand their full range of options or their potential impacts. Making a call based on incomplete, inaccurate, or outdated data—or a gut hunch—can end in disappointing outcomes.
  • Inexperienced managers: Lack of experience limits managers’ understanding of difficult or complex situations and their ability to navigate them. New managers may make decisions based on limited perspectives, struggle to define problems, overlook options or information, or have trouble evaluating risks and long-term consequences. They may also lack confidence in their decision-making, leading to indecision.
  • Too much groupthink: In an effort to come to consensus, the group may not fully vet or evaluate their options, resulting in underdeveloped decisions and suboptimal outcomes.
  • External pressures and uncertainties: Economic shifts, regulatory challenges, political issues, and market changes can create uncertainty. In response, leaders may hesitate, make reactive choices, or delay actions that they might otherwise have pursued.
  • Disorganized decision-making processes: Without a clear framework, managers may fall into traps that impair good choices, such as emotional bias or decision paralysis. This can leave little energy for focusing on analysis, consultation, and good decision-making. Disorganization can also generate inconsistency and confusion.

How to Improve Decision-Making: Tips and Techniques for Managers

Effective decision-making can have an outsized impact on business performance, yet many managers struggle with this core responsibility. The vast majority (85%) of business leaders say they suffered from “decision distress” (regretting, feeling guilty about, or questioning a decision they made in the previous year), according to a 2023 survey conducted by Oracle and data scientist Seth Stephens-Davidowitz. Adding to the challenge, nearly three-quarters (74%)say the number of decisions they make each day grew tenfold over the previous three years.

Part of the problem is that many leaders and managers treat decisions as one-off events, rather than seeing decision-making as an ongoing process. While influenced by various internal and external factors, decision-making can be improved through universal steps that work for any organization or in any situation.

Following are 11 tips and techniques for managers who want to improve their decision-making prowess.

1. Clearly Define Objectives and Success Metrics

Understanding the issue at hand is the primary step in effective decision-making. Taking the time to define the problem and objectives ensures that everyone involved is aiming toward the same target. Skipping this step risks making decisions that fail to meet the goals or are unfeasible. With these aims in mind, decision-makers can prioritize critical factors, including risks, costs, strategic alignment, and feasibility, to strengthen their choices.

Equally important is clarifying what success looks like. Managers should establish measurable success metrics to assess whether objectives are being achieved. For instance, a pricing manager lowering the cost of a service to attract new customers must monitor customer growth to determine if the strategy is working. Managers can facilitate this process by engaging stakeholders early to secure agreement on objectives, identifying success metrics tied to the desired outcomes, and scheduling regular progress reviews.

2. Attack Solutions From Multiple Angles

The next step is to explore all possible options before making a decision. For straightforward decisions with only a few feasible paths, this may be simple. For more complex situations, managers should seek input from various corners of the organization to make sure all options are evaluated. Encouraging brainstorming to challenge conventional approaches is never a bad idea at this stage, as it can uncover solutions that might otherwise be overlooked.

Managers should also evaluate decisions through the lens of different decision-making styles: A data-driven leader might benefit from incorporating emotional or instinctive perspectives, while a more intuitive manager could explore data- and evidence-based approaches. Attacking solutions from multiple angles can highlight blind spots, expand understanding, and even yield solutions that otherwise would not have surfaced.

3. Use a Decision-Making Framework

Multiple established decision-making frameworks can be valuable when systematically developing and analyzing options. Adopting these techniques and their related tools can streamline the managerial decision-making process while ensuring that all the aspects are fully considered.

  • SWOT analysis: SWOT (strengths, weaknesses, opportunities, threats) analysis is a way to assess internal strengths and weaknesses as well as external opportunities and threats. It helps leaders visualize the current state of affairs and future possibilities so they can make decisions that play to the organization’s strengths, mitigate weaknesses, open up new opportunities, address risks, or some combination thereof.
  • Decision matrix: A decision matrix is a table or chart based on predefined criteria that is used to compare choices. By weighting each factor and scoring each option, managers can objectively assess and select the one that best matches their goals. A decision matrix helps guard against reliance on gut instinct and provides a clear rationale for decisions, but it can be time-intensive and requires accurate, well-defined criteria.
  • Decision tree diagram: These diagrams visually map choices and their cascading impacts, often including the probability of success for each outcome. Like a flowchart, a decision tree’s branches illustrate the consequences of different choices and the paths they might create. This can help managers walk through complex scenarios to make informed choices.
  • 80/20 rule: The 80/20 rule (aka the Pareto principle) suggests that 80% of outcomes stem from 20% of causes. Managers can identify the most influential factors by ranking them by frequency or effect, focusing their decisions on the 20% with the most impact. Though versatile and relatively easy to implement, this method can be challenging if the identifying and ranking of factors are inaccurate.

4. Ground Your Decisions With Evidence

While off-the-cuff decisions may work on occasion, most business decisions should be ruled by data and information. Gathering and verifying both external research and internal insights create fertile ground for sound, evidence-based decision-making. Managers should invest time in learning about the issue under consideration, analyzing relevant data, consulting stakeholders, and seeking guidance from outside experts. This approach not only increases the likelihood of making better choices, but it also strengthens the rationale behind decisions, making it easier to gain buy-in from anyone not directly involved.

5. Create an Open and Collaborative Environment

Teamwork makes the decision-making dream work.Aim to include a variety of perspectives, experiences, and solutions that a single decision-maker might overlook. To foster collaboration and openness, managers should create a sense of psychological safety where team members feel comfortable sharing ideas and dissenting opinions. Actively listening to input, encouraging all viewpoints, and rewarding constructive contributions can help shift away from a competitive culture toward a more open one. The end result can lead to more viable solutions, while boosting team morale and motivation.

6. Challenge Bias and Center Impartiality

Emotional bias is one of many obstacles that can thwart objective decision-making. Others include confirmation bias (focusing only on information that aligns with preexisting beliefs), overconfidence bias (overestimating one’s abilities), authority bias (deferral to those in charge), anchoring bias (overreliance on initial information), and availability bias (favoring readily recalled information). These biases can cloud judgment, skew evaluations, and stymie impartiality.

To counter biases, managers should consider diverse perspectives, implement data-driven decision-making tools and frameworks, and simply be aware of their own cognitive tendencies. Taking the time to pause and challenge assumptions—especially when the pressure is on—can significantly improve decision-making outcomes.

7. Seek Outside Perspectives and Expert Input

No manager can be expected to have experience in every area where decisions need to be made, which can range from dealing with an employee performance issue to evaluating new technology. Seeking input from those who do have expertise in those areas—perhaps knowledgeable staff from human resources (HR), IT, or external consultants—can reinforce choices and pinpoint blind spots. Consulting with peers, mentors, bosses, direct reports, and subject-matter experts isn’t a sign of weakness; it provides the valuable insights and constructive criticism that lead to more effective, well-founded choices.

8. Consider All Potential Risks and Long-Term Consequences

It’s human nature to focus on the problem at hand, but it’s important not to miss the forest for the trees—unless, of course, they’re decision trees. Integrating risk assessments and long-term impact evaluations into the decision-making process helps make sure results align with broader business operations and strategies.

Scenario planning, risk management tools and techniques, and stress testing can help leaders analyze best-case, worst-case, and most-likely outcomes. Thinking through these potentialities can inform decisions and minimize negative impacts. Developing contingency plans can further support risk mitigation by helping managers respond to and resolve challenges in a timely way.

9. Enable Continuous Learning

No one makes stellar decisions all the time. In fact, good managers frequently deal with setbacks and failures. The key is to treat these disappointments as opportunities for learning and improvement. Embracing a continuous learning approach to decision-making helps managers refine their skills over time. To encourage ongoing development and growth, seek out feedback, embrace constructive criticism, and stay up to date on all emerging best practices and tools. Analyzing past decisions to identify what could have been done differently can also offer valuable insight for future choices.

This mindset also applies to appraising the decisions themselves. Once a choice is made, it’s essential to follow up and assess whether it achieved the desired results. If not, this is an opportunity to refine the strategy that led to the decision in order to improve results over time.

10. Align Proposed Resolutions With Company Goals

Not every decision will apply to the entire enterprise. Nevertheless, all potential solutions should align with the company’s larger goals, objectives, missions, and values. This process begins with a clear understanding of these guiding principles and pursuing choices that support them, rather than conflict with them.

Managers can achieve this by regularly referencing company goals when evaluating options. Strategic objectives can be a filter for decision-making, for example, and leadership or key stakeholders should be consulted when alignment is unclear. For example, if a company prioritizes sustainability, a manager tasked with selecting a new supplier should consider environmental impact as well as cost and efficiency. If one supplier were to offer lower costs but lack transparency into their stated sustainability practices, leadership can help determine the appropriate course of action.

11. Leverage Technology

Without the right tools to deal with the vast amount of data organizations now must cope with, managers can become overwhelmed or inadvertently rely on old or irrelevant information. Either situation can lead to suboptimal choices.

The previously mentioned 2023 survey by Oracle and Stephens-Davidowitz highlights this challenge: Although97% of respondents use data for decision-making, 72% say data volume and distrust in its accuracy have stopped them from making decisions. What’s more, 70% report wishing a robot could make their decisions for them. While fully automated decision-making may not be the ultimate goal, technology can vastly improve the quality and speed of many types of managerial decisions. Examples include:

  • Data analytics: Advanced analytics tools transform overwhelming data into accessible, applicable insights that support informed decisions. With 86% of business leaders in the same Oracle survey expressing a feeling of being bombarded by more data from more sources than ever before, leveraging these tools can simplify complex information and promote clarity.
  • Predictive analytics: Powered by artificial intelligence (AI) and/or machine learning (ML) algorithms, this technological aid can parse very large datasets to determine what is likely to happen in the future, enabling business leaders to make more confident decisions.
  • Collaboration tools: These platforms centralize data, discussions, and workflows, making it easier for managers to gather input and streamline decision-making. Features such as shared workspaces, instant messaging, and chat rooms enhance transparency and facilitate diversity in perspectives, while shared records of data, discussions, and actions provide easy access to the information needed to make sound decisions.
  • Project management tools: Project management tools reinforce decision-making by providing insights into performance, resource allocation, and progress toward goals. Tools with built-in analytics and reporting simplify decisions related to project development, risk management, resource allocation, and ongoing performance tracking.
  • AI and ML: AI and ML technologies can automate some of the more tedious or complex tasks (e.g., data collection, analysis, and reporting) associated with decision-making, freeing managers and business leaders to focus on the decisions at hand. These technologies analyze vast amounts of data, identify patterns, reduce cognitive biases, and enhance decision speed. AI-driven systems can also present options, recommend actions, and assess risks.
  • ERP systems: Enterprise resource planning (ERP) software centralizes data from all corners of an organization, eliminating most manual data collection and ensuring that all decision-makers have access to a single source of truth. With built-in analytics, reporting, and predictive capabilities, ERP systems facilitate the real-time knowledge sharing required for effective group (and individual) decision-making. ERP systems can also help managers track performance metrics so they can adjust strategies as needed.

NetSuite ERP Empowers Decision-Makers

NetSuite ERP is a suite of integrated applications—HR, supply chain, operations, inventory, customer relationship management, accounting, financial management, etc.—that companies can use to collect, store, manage, and analyze data from across the enterprise. With its ability to provide a holistic view of what’s going on in the business at any given moment, the system is a foundational tool for managerial decision-making.

By automating manual processes, decision-makers have more time to consider immediate concerns, next steps, and new opportunities. Managers and leaders can also utilize ERP’s dashboards, reports, and visual analytics for overviews or deep dives into data, further informing the decision-making process.

Making decisions is a fact of life for managers and business leaders, but effective decision-making is not an innate skill. Rather, it’s an ability that must be intentionally developed in order to make the best choices for an individual, team, function, or the organization as a whole. Understanding both the hurdles and the best practices that pertain to the decision-making process can enable managers to make more effective, objective, and beneficial choices for the future.

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Decision-Making in Management FAQs

What are the 5 keys of decision-making?

While approaches vary, there are five key elements of effective decision-making that generally apply across the board:

  1. Identify and clearly define the problem, issue, or opportunity.
  2. Gather relevant data, insights, and perspectives to inform possible options.
  3. Lay out the available choices or courses of action.
  4. Analyze and evaluate each of those choices, considering not only evidence and perspectives gathered but also organizational priorities.
  5. Implement the decision and monitor the results, making adjustments as necessary to achieve the desired aims.

Why are ethics important in decision-making?

Ethical decision-making verifies that choices align with an organization’s values as well as the potential impact on customers, employees, partners, the environment, and society as a whole. When managers and leaders make ethical choices, their decisions help to reduce risks, boost the business’s reputation, satisfy partner obligations, and foster a culture of integrity.

What is a decision-making model?

A decision-making model serves as a structured framework to guide choices, especially in complex situations. Rather than approaching each decision as a one-off, models offer a consistent way to approach evaluating options before making informed, strategic decisions.

What is limited decision-making?

In business and management, limited decision-making occurs when leaders make moderately important choices that require some evaluation but do not demand extensive research or deep analysis. It’s also a concept in consumer behavior, in which a person makes a purchasing decision that requires some thought and research (such as choosing a new brand of shampoo) but isn’t as complex or time-consuming as extensive decision-making (which involves high-stakes purchases like a car or house).