Making decisions can be challenging, but with practice, it becomes easier. As a leader, it’s important to help your teams improve their decision-making skills. Decisions vary in importance, impact, and potential consequences, both positive and negative. Depending on the situation, leaders need to set parameters and determine which decisions involve higher or lower levels of risk.
The key is to make a decision, stick to it, and if it turns out to be wrong, understand why, communicate with stakeholders, and pivot as needed.
Executive decision-making may differ for each individual, but most rely on data-driven approaches or business cases backed by clear facts and evidence to support recommendations and final decisions. Drawing from business education, I apply knowledge to make more informed decisions based on data.
The decision-making process includes several crucial elements:
The Business Case:
- An executive summary with background information about the issue at hand.
- Objectives the decision aims to achieve for the business.
- Challenges faced with the current situation (X).
- Benefits of switching to the proposed solution (Y).
- Financial implications.
- Risk acceptance/avoidance.
- Alternative solutions.
- Recommendation and Implementation
In the decision-making process, financial data plays a vital role:
NPV (Net Present Value):
- Helps determine the profitability of an investment or project over time.
- Calculated by summing all future cash flows (e.g., 5-7 years), including the cost of capital, and adding back the initial investment for year 0.
Cost of Capital:
- The minimum rate of return that’s required before generating any value.
- Assists in justifying investments and understanding upfront costs.
TCO Savings (Total Cost of Ownership):
- Compares the NPV of options X and Y to identify potential savings.
ROI (Return on Investment):
- Compares the NPV of options X and Y to calculate the return on investment.
These financial aspects and the business case rely on data collected from various sources, including partners and vendors. However, decision-making also requires reviewing and analyzing the data, combining it with experience and intuition to make a committed choice. With the rapid advances in technology, decision-making becomes more complex, especially when historical data and experience are limited.
Financial data plays a significant role in decision-making, with metrics like NPV, Cost of Capital, TCO Savings, and ROI helping executives assess the profitability and feasibility of options. However, making decisions also requires intuition and experience, especially as technology advances and provides new challenges with limited historical data.
In the end, successful decision-making requires a blend of data-driven insights, professional judgment, and adaptability to navigate the complexities of today’s rapidly changing business landscape.
Tech Leader Notes 