Decision-making in Management
10 November 2017
The decision-making process is still one of the biggest challenges for managers. Large amounts of data, digitization efforts and the latent uncertainty of the global economy do not make the allocation of limited resources any easier. Modern potential-value-analysis methods to support qualitative decision making provide a help.
Every year in late autumn, budgeting for the next business year is on the agenda. Although this situation does not surprise the management, it causes problems repeatedly. Particularly in the context of digitization and an increasingly fast moving global economy, the challenges for managers are growing from year to year. Increasingly large amounts of data have to be evaluated in order to extract the necessary information, categorize it and ultimately use it for decision making. However, this is only half the battle, as decisions of one's own have to be justified before the controlling and the board of directors, which rarely succeeds at first go. But what is the way out of this muddled situation?
- Uncertainty 80% 80%
- Subjectivity 30% 30%
- Opportunism 20% 20%
- Time Pressure 65% 65%
- Risk 40% 40%
Project and budget decisions
Project and budget decisions do not only exist since classical business administration has defined them as such, but have always existed. Management decisions have also always been made under the premises of risk or uncertain circumstances. In this regard, there has been no change in the basis of the decision-making processes for allocating limited resources within the framework of budgeting for the next financial year. But what has changed is the complexity of the decision-making processes. This is due to the availability of the resource information, which must be extracted from exponentially growing volumes of data. Paradoxically, despite immense amounts of data, this raw material is becoming increasingly limited, hindering decision-making processes and ultimately leading to suboptimal budget planning that fails to keep pace with market developments.
Data availability and complexity
The availability of quantitative data does not automatically lead to better management decisions, as increasingly complex business models and shorter innovation and product life cycles overload the cognitive performance of the human brain. Researchers even talk about the fact that the improved data situation does not lead to better decisions, but simply results in overwhelming challenges. As a result, the multitude of decision options hinders the ability to make optimal project and budgeting decisions. This effect is impressively demonstrated by a study conducted by the Federal Institute for Occupational Safety and Health (Bundesanstalt für Arbeitsschutz und Arbeitsmedizin). According to this study, 21 percent of managers are already complaining about quantitative overload, while only 5 percent claim to feel that they are overtaxed in terms of quality. In addition, Hays concludes that the increasing complexity of decision-making processes is already the biggest challenge for management. Particularly against the background of scarce resources, this often leads to a misallocation of the budget with regard to personnel planning in specific departments or to the launch of unprofitable projects.
Control deficits and faulty project management
But even successful budgeting rounds have to struggle with the consequences of the basis for decision-making. This is also due to the mass of data on the one hand, and to the market dynamics of the global digital economy on the other. And so there are often weaknesses in the monitoring of active projects. In the meantime, it has become the rule rather than the exception that decision-making bases can change dramatically during the financial year. Those who ignore the monitoring of goal achievement at this point can neither measure the degree of goal achievement nor take corrective action to avoid a negative outcome. This is made difficult by the need to re-evaluate the data already used in the initial decision making process.
More structure, less instinct
In order to survive in the face of increasing global competition, companies are still dependent on decisions that can be used to prioritize limited resources within the framework of budgeting. Since budgeting decisions are linked to great responsibility, intuition should not be the dominant decision-making component, especially in view of the ever more complex decision-making environment. Much more important is the structured preparation of information using specialized analysis tools based on proven evaluation approaches.
In this way, automated potential value analysis methods make a valuable contribution to eliminating the data jungle. Thus, decision-makers are released from cognitively overtaxing, quantitative decision tasks, so that they can focus on qualitative decision tasks again. By combining the individual strengths of man and machine, the bottom line is to improve the quality of decision-making in companies and thus also the sustainable success of the company.
We are pleased to help you. Talk to us about it.